Agencies are facing rough headwinds, thanks to squeezed margins and new competition. In the latest installment of our Confessions series, an executive inside a holding company-owned media agency says that trust is at an all-time low, and clients are still reeling from the transparency report from the ANA.
What’s the biggest tension between agencies and their clients today?
On media and probably one the creative side as well, trust between clients and agencies has never been lower. The ANA report from two-and-a-half years ago essentially made everyone say, “OK, we’re we’re coming clean, here’s our business model and specifics.” It wasn’t enough.
Because transparency is a pretty slippery thing. There are all these stages of transparency. For example, in one case, we looked at a contract and shared openly about what we’re charging and not charging. So, for example, we used to say we’re taking a 20 percent margin. Is that around the gross media account? Or is it around net media? There is a difference up in the air. We didn’t really go full open kimono. And with some clients, even if we did, it meant we adjusted the contract once.
How much more scrutiny do you get from clients now on contracts?
Basically, people are afraid of what they don’t know. And people are untrusting. “I’m not sure how this is going, so I must be getting screwed.” I think in digital media in particular with the report was all the complexity and new programmatic buying and there was all the DSP and SSP and PMP and everyone shook their head and pretended they were following along. But people who did know what was going on were taking advantage. There was absolute gouging that was happening. I don’t think big holding companies were gouging, but they were taking more than clients realized. There were vendors and sellers of inventory taking enormous margins.
Why do clients have a hard time?
Clients didn’t really understand how it worked. And they don’t know how to shepherd their dollars. Who is accountable? Basically, a lawyer has to sit with a programmatic trader and then turn that into legalese. Nobody did that. Even if you’re well-intentioned, you still find yourself entrapped. There’s a distribution of ownership and accountability that doesn’t happen.
But agencies are the ones who lost the trust.
The first fatal mistake was trust slipping through agency fingers. When the first round of transparency conversations were had, they should have figured it out. Agencies weren’t transparent enough, and that warranted additional points of humiliation, make goods, checks sent back. What happened was agencies gave back money and said, fine, we will charge you half next time. They agreed to terms that were unfavorable. For example, say it was found out they were charged 30 percent. Cost of business was 24 percent. So they went from that to 15 percent. So they overcompensated. And over-apologized. Then they started staffing inexperienced people. And they stopped doing high-performing work.
The consultants stood in good stead to take advantage of this.
I speculate companies like Accenture or BCG did. Let’s go back three years in time. Say a brand hires Accenture and says, “We don’t trust our agency, we’ll run an audit.” The auditor uncovers some ambiguity in contract. They run an audit. All the files are delivered. And they look at it and say, “Yep, you got taken advantage of. And the agency needs to pay you $1 million.” That happened a lot. Then consultancies said, “This is a lucrative business, why don’t we do agencies?”
So consultancies will win?
The issue is that from a creative side it feels like it’s an absolute disaster. Maybe their people have some experience in communication. Maybe they have a breadth of experience around problem-solving. But consultancies are 100 people out of 100 MBAs who are about operationalizing and extracting greater promise from that.
So what’s next?
It’s insecure times. Media is doing OK; we’re hitting goals. It just feels like they caught us cheating and then they took us back, and now everything we do, we can’t disappoint them again. There is a devaluation of the actual work that gets done. There is a complete lack of respect for the profession.