Media agency remuneration: It’s the smaller nimbler agencies which will thrive

As huge changes blow through the Australian media agency landscape Nikki Retallick argues the smaller more collaborative companies will be the ones to thrive.

It’s a great time to be in the Australian ad industry. The winds of change are blowing. With the recent launch of Department212 and the success of earlier start-ups such as Bohemia, there’s some real momentum towards the rise of the independent, performance-based media agency.

The big agencies are starting to follow suit, having seen the ‘race to the bottom on price’ hit their bottom line. It’s all about delivering measurable value now and being able to move the dial on the clients’ business.

Last year, IPG Mediabrands announced they’d be moving half their clients to some form of performance-based metric as part of their remuneration model, with global CEO Matt Seiler saying “it’s time for someone to take responsibility for clients’ total business outcomes.”

In light of this disruptive and evolving landscape, now is a good time to reflect upon what has changed in the media planning and buying world to enable this brave new breed of companies who are prepared to put skin in the game and who dare to ask to be rewarded for delivering good results.

It’s not so long back that media buying was all about scale. Agencies aggregated their clients’ dollars and used the resulting spending power to negotiate bulk discounts and preferential treatment from media sellers.

In those days, it made sense that agencies charged percentage fees and retainers.

But, the arrival of digital advertising some 15 years ago started to shake things up. Today, it’s the blistering pace in evolution of advertising technology that has really changed the dynamic.

Now, like never before, ad technology is allowing media companies and their partners to become more automated in their processes, more integrated in their systems and, thus, better informed and more competitive in their buying decisions. With the advent of automation, potentially any buyer can access the same pools of inventory as the media-buying powerhouses.

Scale itself is no longer the differentiator – the playing field has been levelled. Arguably, it’s the smaller media buying operations that are reaping the most benefits – at least in the short-term.

Clients are increasingly demanding agencies be agile, data-driven and creative. In many respects, it’s the smaller, more nimble outfits that are better positioned to deal with this rapidly changing landscape as they don’t have clunky legacy systems and processes. Nor do they suffer from the strong resistance to change, which seems entrenched amongst the leadership teams of some of the larger agency networks. Hanging on to tried and tested models of the past is becoming detrimental to business, and agencies are starting to lose long-standing clients who’d been considered part of the furniture.

It’s a major transformation, one that is forcing agencies to retrain their ‘Mad Men’ to become ‘Maths Men’. Traditional planner buyers are being taught to become more data savvy and technically adept. It makes sense to accomplish this transformation at a group level, creating new business units with specialist skillsets across data architecture, ad tech and operations. The commercial model of these units varies enormously from group to group, with some offering clients more transparency than others.

The future isn’t just about automation, accountability and shared goals as measures of success. It’s about being able to do more with less. The integration of tools and technology to enable better workflows across is also critical.

So, too, is the concept of customisation. Success will rely on the adaptability of technology and platforms, allowing for the individual needs of clients to be met through openness and interoperability. This will, of course, spur on a brand new world of ‘frenemies’, or competing vendors that will have to learn to play nicely together. When it comes to long-term success for the industry, those companies with an agnostic approach will surely win out in the long term.

The next few years, I suspect, will see a major upheaval in how agencies operate.

IPG’s Magna Global, probably the most powerful media-trading unit in the US, is aiming for 50 percent automated buying by 2016. Here in Australia programmatic spend is estimated to total AU$5 billion between 2014 and 2017 and it will continue to grow as clients demand more bang for their buck. More efficient processes and richer data to support buying decisions will be par for the course, and using the right technology to facilitate this shift is crucial.

But, like anything, wanting to change is, for many, the important first step. Those that do will be paid well for their efforts.

Nikki Retallick is senior director of client strategy for Adap.tv


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