There is no question that there is pressure on media agency fees. It seems every single person in the industry is bemoaning this fact. But let’s face it, we are certainly not alone. Ask any client and they will tell you their customers are also putting huge pressure on their fees. So, what do they do? They contain costs, they review their pricing models, they innovate and they diversify. Is this possible in the media agency world? Of course it is.
Actually creative agencies have been doing it for years. They are good at offering new services and monetising all aspects of their businesses by being specific about in- and out-of-scope services. By way of example, it’s not uncommon for creative agencies to charge for copying and delivering a tape or file of creative work for a client. As clients push the prices down, we will see media agencies being more specific about scope like our creative agency colleagues.
To compound this, there is clearly a trend towards shorter, more time specific contracts (typically three years). I can see the benefit of this from the client point of view, but it won’t take agencies long to realise that because they only have the business for a maximum of three years, they’ll need to stop throwing in free ‘relationship-building’ items and resources. Instead, they will start to charge for out-of-scope items on a case by case basis. My experience is that media agencies give away a great deal of value to clients in the interests of good relationships. This may stop, as we are seeing in many cases abroad. There are some benefits though. The client can focus the agency on what they really want by being specific, while the agencies no longer do work that is sometimes unappreciated.
Media agencies in South Africa will also look to what is happening in other markets, as we have done at MediaCom, and diversify their services. Media agencies have a unique position in the marketing mix and a unique set of skills. What agencies abroad are really good at is redefining who a potential client is and what a media agency does. Sounds obvious, but only a handful of local media agencies seem to be doing this.
By redefining what a media agency does, they have managed to diversify into higher margin and higher growth areas. Digital media is a fairly obvious example. Again, there are few media agencies here that offer the full range of search, social, performance media or content services in-house. Why not? This is a legitimate way to match brands to consumers and increasingly the preferred way in which consumers interact with brands.
But this is more than just jumping on the digital bandwagon. Marketing is increasingly data led and media agencies have access to vast amounts of data, people who understand it and people who can make it relevant to a business problem. Agencies abroad have grown their data offerings to a point where they are able to manage and package data for media owners, clients and creative agencies. Dashboarding has actually started to become a viable revenue source.
If a media agency is about matching consumers with brands, then content marketing in a natural diversification. Again, learning from abroad, it seems that media agencies are in fact better placed than many others in the marketing mix to provide this because much of the content produced is either from consumers or media owners, both the forte of media agencies.
Agencies abroad have realised this and many have significant content marketing offerings. This even extends to providing funding for programming and other content. Typically agencies are global in scale and so have access to programming and programme rights from other territories, which when amortised across regions can provide lower cost content to local broadcasters. Local broadcasters can even pay for the content in airtime rather than hard cash, which works for agencies as they are able to on-sell this, whereas traditional production companies typically cannot.
This symbiotic relationship with media owners provides many more opportunities to generate revenue for media agencies. The access that media owners provide to consumers is used to provide research and trend data that can be monetised for both the media agency and the media owner. Abroad, many media owners pay agencies for insights, consultancy and support in growing their business switching the supplier/buyer relationship.
These more innovative approaches to revenue generation allow agencies to charge clients less for commoditised services such as buying, while being able to invest in higher value diversified services. I don’t think we are seeing this yet in any meaningful way in SA, but the relentless march of the cost-cutters will force agencies to broaden their view, to diversify and to look for innovative revenue sources. Frankly, I think the industry will be better off for it.