Media agencies must change or die

Path 51's Simon Larcey delves into the financial industry's past to discover what its failures can tell us about the future of automation in adland. What he discovers is crystal clear: adapt or die.

While they say those who forget history are doomed to repeat it, the proliferation of automation in agency land seems like uncharted territory. Surely we can’t look to the past for an indication of what to expect from robots taking our jobs?

Perhaps this is a new development in the media industry, but automation is old hat in the financial sector.

With professional services firms investing in advertising and media companies, and predictions of media being traded like the financial markets, I decided to talk to an old mate when I was recently in London about the impact technology and automated trading had on the financial markets.

Lawrence Staden founded and lead GLC, a billion-dollar hedge fund. As he developed his business, he saw the introduction of automation and the effect it had on his industry.  

“The immediate effect of automation of trading was to cut costs: once brokers could not charge for their oligopoly, the price came down swiftly,” Lawrence said.

“Investment banks tried to offer premium services like their in-house suite of algorithmic trading tools at a higher price than basic, direct-deal entry, where you tend to connect your own machine directly with theirs.

“Generally, the cost of dealing came relentlessly lower. This allowed trading strategies to get faster.”

By removing unnecessary departments and brokers, costs were reduced and deals were done faster. In the media world, this would be like News or Fairfax selling campaigns and then using their own trading system to process the deals, eliminating IO’s and bypassing the agencies.

This would mean more media dollars for the publishers and greater results for the advertisers – a win-win situation.

“Most ignored it and slowly died”

But where does that leave agencies? Well, probably in the same place as the brokers that failed to adapt.

“Most ignored it and slowly died. Because brokerages tend to be a group of brokers with personal relationships with their clients, they have no interest in trying to persuade them to try swapping their current expensive telephone service for a vastly cheaper web-based service,” Lawrence said.

“Anyone can trade for £10 these days just by opening an account with IG – these guys are selling services that range from £50 to £150.”

In the media industry, we’ve seen a similar reluctance for change.

Up until recently it was more lucrative for traditional publishers to sell offline media than digital, so they pushed it for as long as they could. They now find themselves investing millions of dollars developing and acquiring digital platforms to compete with new, up-and-coming channels that have embraced the digital age.

Fairfax recently refreshed its digital offerings

Agencies are predominately still driven by human capital, processing deals and using systems that have been around for decades. This justifies their existing fees and keeps a number of people employed.

However, with the effectiveness and speed of automation, the level of human capital will be hard to sustain. Computers make better and faster statistical decisions than humans, which means we are set to see a lot of redundancies in the media industry – and soon.

The intelligence that drives effective advertising campaigns, the data once only accessible by the agencies, is now readily available online. With brands being able to use their own data and third party data for targeting, surely it is only a matter of time before they all invest in their own trading platforms? In fact, it is already happening.

How do you stay relevant?

Of course, financial institutions haven’t gone the way of door-to-door book salesmen. So, with financial analysis readily available online and retail trading platforms becoming the norm, how do institutions add value in today’s market?

“Most financial institutions have never added value, they just charged rent. These days it’s just about price and coverage – the front end of the system makes some difference because some of the online systems are truly dreadful,” Lawrence said.

However, Lawrence also pointed out that machines can’t do it all:

“Machine learning is great at some things in finance – credit scoring, for example, but although financial trading is touted as one of machine learning’s conquests, the reality is more nuanced.

“The success of genuine machine-learning is limited: the markets change as new participants join. This means that all trading based on historical data is increasingly suspect if the pace of change increases.

“The exception is at very short timescales, where you have a wealth of statistical data, but little time to do the research.”

Perhaps unfortunately for some agencies, machine learning actually sounds like it suits media trading better than financial trading.

Anyone can buy a stock with the hope of a financial gain – meaning multiple participants are involved. The more popular the stock, the more participants. Media inventory is different.

For example, an auto advertiser would generally not want to buy the same inventory as a consumer goods advertiser – so in media, you will end up having a lot of the same buyers seeking the same inventory.

With speed to market and price being critical, using machine learning, based on predefined rules will provide advantages to those that embrace it.

Pain is coming: embrace it!

Of course, the media industry is built on relationships. I myself spend a lot of my time doing the rounds, selling my kit, hoping to get deals. This is fun and I have built many good friendships. No machine will ever replace that.

However, for all the back-end staff who process deals and don’t hold valuable relationships? The future is not so bright.

It might be nice to ignore all these advancements or think you can add value without them, but history – even that of another industry – shows this is not possible.

It might be nice to hold off making any rash decisions and keep a few people happy, but making the hard calls now and embracing automation will future-proof your business and give you a fighting chance for success.

Simon Larcey is MD of Path 51


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