DECOUPLING: Is this the end of the big Ad Agency networks?

By - CTL
February 27, 2017
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By Dorothy Thompson.

It’s kind of ironic that when I went searching for the dictionary definition of the term that is being used in advertising circles at this moment I found the following:

Decouple:

Verb:

Gerund or present participle: decoupling

  1. 1. 
Separate, disengage, or dissociate (something) from something else. “The mountings effectively decouple movements of the engine from those of the wheels”
  1. 2. 
Muffle the sound or shock of (a nuclear explosion) by causing it to take place in an underground cavity.

Both seem somewhat accurate ways to describe the advertising industry as it stands today. In fact, are we actually witnessing the demise of the large agency networks as we currently know them?

Decoupling will see a client have their agency write a creative concept and then get an independent expert, totally unrelated to the agency, to brief production companies to obtain one, two, or three competitive quotes. Here’s the kicker, the independent expert chooses the production companies. The client decides on which quote to accept. The independent expert will then proceed with supervising the preproduction and the shoot. The agency may or may not be invited to participate in the production.

Why this has come about is not unreasonable question to ask?

I suppose it’s almost like the “perfect storm” where unrelated elements come together to form a monumental event.

Earlier this year “The Wall Street Journal” revealed the US Department of Justice (DoJ) had opened investigations into whether advertising agencies are intentionally rigging the bidding process for TV and video commercial production contracts to favor their own in-house companies, rather than independents.

It sounds complicated. And it is. But the investigation will have huge repercussions for the entire advertising industry reaching way beyond the estimated $5 billion production sector.

We all know how the production processes should occur. The client briefs the agency of its brands television production needs. The agency writes the script, the client approves the script and the budgets. The agency briefs three independent companies. Treatments and bids received, the agency makes its recommendations, and the client considers and approves the production and then they’re off to the races.

Well that’s how it should happen. But here’s where the problems commence.

Many of the agencies’ holding companies have purchased or built production and post-production facilities, named them ambiguously to disguise their real parentage and then directed their agencies to give them the lion’s share of the work rather than seeing it lost to the independent production company sector. But now the DoJ is looking at whether some ad agencies are using dubious illegal methods to make sure they win the bidding process.

Price-fixing and bid-rigging are prohibited under federal antitrust law.

But it’s not entirely the agency’s fault. International procurement departments have forced down agency margins and what they can charge for planning, account handling, and creative services that they have been forced to look elsewhere for revenue streams to keep them afloat. It’s just the way that they have gone about it that has caused all the problems.

Given it is common knowledge that some major agencies make as much as 46% of their revenue from internal production, it would surely be the final nail in the coffin of the traditional advertising agency if this money was to suddenly not be there.

 

 

 

 

 

 

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