In what could be a a sign of things to come at Ikon, current Mindshare chief and incoming Ikon boss James Greet has argued agencies whose fortunes remain tethered to commission structures and media spend are set to suffer this year.
Meanwhile, UM chief Mat Baxter has echoed Greet's arguments is a not-so-subtle stab at the Nielsen billings figures, lambasting the report as “prehistoric” and suggesting “progressive” agencies have decoupled their success from the ad spend of their clients.
These types of arguments have been heard before. For years the media agency market has been talking about the diversification of its offer beyond old school media buying, and for some time agency bosses have been discussing the demerger of agency fortunes from media spend. But there has always been a lingering feeling that agencies are nonetheless intrinsically tied to the spend of their clients, hence the intense interest in the likes of SMI figures and Nielsen billings reports.
However, Greet has argued that in 2013, more than any other year, “agencies that fail to embrace change, and whose success or failure is tied to the ongoing uncertainty of ad spend, are going to experience a world of pain”.
Greet, who recently revealed plans to take on the chief executive role at Ikon Communications after STW-owned firm parted company with senior staff including CEO Dan Johns, has spoken against media agencies which still use the commission model.
“You'll find people from agencies talking about growth or declines in ad spend, but the point is that uncertainty in ad spend is the new normal,” Greet said. “A good business model cannot rely on the certainty or uncertainty of ad spend. If you are rigidly tied to commission, you'll find it very hard to plan your business.
“But lots of agencies are still tied to this model and have failed to evolve their businesses to move beyond the uncertainties of ad spend into something more deeply connected with their clients' business plans. The question is: how well are agencies equipped to take the lead in an uncertain environment."
He said there has "absolutely been a decoupling of agencies fortunes from media spend". Billings were now just one story, he said. "Look at Mindshare. Even though we added $100 million in billings, our billings growth is nowhere near as strong as our overall growth, which has come from revenue streams that have expanded well beyond the planning of an ad budget.”
UM chief Mat Baxter made a similar argument, suggesting agencies which focus narrowly on billings or which still use a commission structure are set for hard times. He was particularly critical of the Nielsen billings report.
“Billings are an irrelevant measure,” Baxter said. “They have been for years. I disregard the Nielsen billings report altogether. It is a prehistoric report. It should be banished from the face of the planet.”
Baxter argued that agency billings can distort the full picture of an agency's success.
“Agencies with moderate billings are often the ones who are performing the best, they are often the agencies which are well run and diversified, but none of that is captured in the billings report. Inevitably the more progressive and diversified agency will be lower in the rankings because they have moved their focus away from relying on the media spend of their clients.
“The success of an agency has certainly decoupled from media spend, and it will continue to do so. The market is talking about increased commoditisation of what we do, but I disagree. I think the reverse is happening as the market becomes more complex.”
Like Greet, Baxter also criticised the commission payment model and suggested retainers or pay for performance schemes are superior.
“Arguably this decoupling started when agencies began moving off commission into the retained model. So it's not new, but now it is more important than ever. The problem is, lots of agencies still use the commission model. Instead, we can be looking to retainer models or pay for performance.”
Meanwhile, PHD chief executive Mark Coad has suggested that, despite declines in ad spend in recent years, strong agencies are not “scrambling”.
“We're not at Defcon Four,” Coad said. “Yes, the market is tough and it doesn't look like it's getting any easier, but there has been a definite decoupling in terms of what our clients are spending on media and the fortunes of our agency.”
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