{audio:0:01:33} What is the point of a media agency holding company? Why are these businesses built the way they are?

{audio:0:01:54} Historically, the holding companies started with creative and it was a full service creative and media. I’m going back to the 80s. It was a creative business and media (buying) was a side part to activate a wonderful 30-second or 45-second commercial produced by the creative people. The notion of media agency was a French invention by a French company that now belongs to the Japanese. They proposed to clients that media was a very specialized business based on data and scale and that it was good to separate creative from media. They created a trend and we saw or break between creative and media from the 90s to 2010 and media became very sophisticated. Working with huge amounts of data.

We spend millions of dollars or pounds, whatever the currency, every year on data sources. Working on how to optimize prices for our clients. Digitalization changed a little bit of things. Now, it’s fashion also in this industry. Now, we are in the model which is more integration. Trying to connect creative with media. The truth today is, media and creative are pretty much separated. We have contracts for media and creative with the same clients, different contracts. Of course, we are connected with our creative friends and brothers and sisters, but it’s still separated. The reason of having these media agencies was to optimize strategy and pricing for our clients based on benchmark, data, and scale.

{audio:0:04:00} For a top 1000 global brand, how have the services they need from media agency holding companies changed?

{audio:0:04:28} We need to differentiate here between global brands or international brands, or multimarket brands and local brands. When you have a multinational brand, the need for an agency and a holding company is more important because they try to have consistency across markets. To have a similar product or delivery across markets. We’re talking with global brands, the notion of agency and holding companies are very important. When we go to local, it’s also important because our business is very sophisticated. Today, it's not easy to buy media, even if there is a big concentration. We’ll talk about this later. It’s complex because the difference between planning well and planning badly and buying well and buying badly is millions of pounds for the big clients. How we optimize the right target audience? How we introduce first party data in the question to optimize return? How we avoid bad duplication? How we optimize reach and frequency?

{audio:0:05:39} How we can make the different touchpoints live together? There are so many complicated questions that today it is very difficult for clients to work without an agency. There are some clients thinking or contemplating on even in-housing things, but at the end of the day, it’s super complicated. It’s sophisticated. We need experts touching different sectors and categories because they are better off with the client. We need to invest a huge amount of money, millions on data. We need to invest a huge amount of money on technology. It’s complex. Not too many clients manage to have integrated agency or in-housing things. When clients are in-housing social, less though, programmatic, less though because they understand that results are worse and it’s more expensive to do it inhouse than do it outside with an agency. The only thing clients are very keen to inhouse and protect this first party data, because data is a super important asset for a client.

What activities are most likely to successfully be brought in-house in the longer term?

In-housing is a trend, a constant cycle. Sometimes it’s a big fashion to inhouse, and sometimes it’s complicated. Historically some clients (brands) have had integrated agencies. I’m talking about late 90s, early 2000s. They sold them because the problem of in-housing a full agency is that you need [staff] turnover. You need to have people with different experience, different backgrounds. When you are a client, it’s super complicated to have that [kind of turnover]. In an agency, you have 20% turnover.

What is that topic that clients are in-housing more? I can go chronologically. They started by in-housing paid search because paid search is touching the brand. It’s helping to drive traffic to the website and sell more. There was something happening 15 years ago. Today, most of the clients are not in-housing paid search. It’s a commodity. It’s tough. It’s expensive to inhouse. It's more cost efficient for clients to go to an agency, don’t pay them too much, as is the case today, and ask them for a lot. Then they moved to social. Because social is you are manipulating the reputation of the company. Again, it was complicated. It’s tough. It’s very technical. You need technology and data and it’s moving back to the agency.

The one thing that clients are in-housing today is community management. It’s answered on behalf of the client. Then we move to programmatic where some clients or plenty of clients are thinking to try to inhouse. Why? I think the industry didn’t behave well. Some people tried to make too much money with programmatic. Now, the market is compliant. It’s normalized. The supply chain is better now, even if it’s still not perfect. More and more clients are thinking not to inhouse programmatic because it’s complicated. Then lately clients are in-housing DMP. DMP is how to manipulate their data, their first-party data. This is the real trend and clients want to protect their data. Data is very important. Data is one of the assets of the company. You can monetize that data.  It’s getting in-housed and what will become in-housed is the data. The DMPs, the manipulation of first-party data because it’s very important for the clients. The rest, I believe that an inhouse model is not the right one. I am working in an agency so perhaps I’m biased. I really believe that it’s better to have a good contract with your agency to put the right pressure to pay based on FTEs and success fees and remove the model of commission-based, basically a percentage on billings. You have the right contract with the right working process and working ethics. I think the best thing to do is to work with an agency because it’s more cost-efficient. It’s cheaper. It’s more flexible for the client. I think it's better for results.

Let’s get into a bit more detail on that then and talk about the transformations that agencies have undergone.

It’s important to understand how a holding company is built. A holding company is built based on the previous model. The previous model is what? It’s a model at the beginning, full offline with decent or very good margins. It was a notion of agency commission, which is 15%. Media used to have 15% remuneration. I’m talking about 20 years ago. Offline, 15%. It was a very healthy business. The agencies pile on plenty of people. Plenty of talent. Plenty of manpower. The problem is that first procurement arrived at the question, client procurements. The 15% becomes 2/3/4/5% max.

And digitalization arrives. Digitalization means what? It’s fragmentation. It’s more activities. Before, when you buy TV, you buy a couple of channels, 30-second format. Easy. When you go to paid search, programmatic, social, digital. You are doing millions of buys. Sometimes automated, some not. It means that it’s more complicated. You need more people. More invoicing people. More complexity. More tools. Basically, today we are in a model where we have too many people. Too many people of mid-management.

{audio:0:13:01} This is making things very complicated. When you go to the consulting company or the law firm, it’s a very pyramidal. You have three or four partners or whatever. You have a huge amount of junior people. They are invoicing time. Our model is very few on the top, plenty on the middle. Plenty down. Plenty junior. Plenty mid and not too many up. Still, the current model today is commission-based. This is a killer. This is a real problem. Today, one of the problems we have today in our industry is that we have too many people. Our industry is not automated enough. It’s quite interesting because we manipulate a lot of technology. We build technology, but our own business is not automated enough. Every market has a different planning system or media because the invoicing system is not connected with the planning system because the different media are not connected. Today, we cannot connect television with digital because within digital, you have the GAF [Google, Amazon, Facebook] which they don’t want to agree to terms. Google have the Google way. Facebook has the Facebook way. Amazon has the Amazon way. For all of these reasons, it’s very complicated. Today, we are in a business which is not automated enough. We have too many people. Too many mid management people, which is quite expensive. Today, this model is dying.

It’s tough. It’s very tough for us to survive because we have this endemic issue and we have plenty of risk outside. The risks outside are, it’s the GAF [Google, Amazon, Facebook]. Today, Google, Facebook, Amazon, they don’t want to work with middle people, with agencies. You have consulting companies. There are at the center of this world, they are entering the digital and they have a very good contacts at the top C-level, the top management level. They have a model with no legacy. We have also the pure players, the specialized agency who are very good at one specific thing. You have the clients themselves, which are pitching all of the time, which is driven by procurement. To give you an idea, there is between 30 and 40 percent of the total business at least in the mature markets on review every year. That means every time we go in a review, we lose. Even if you win and you retain the business, you lose because in order to retain the business, you need to lower your remuneration, lower your prices and promise more value. It’s a lose/lose situation. Today, we are in a very tough situation as an industry. The media agencies, the holding companies. I would say the broad media agencies. This Covid situation is just an acceleration to this problem.

{audio:0:16:30} Today, adding to all of these problems I just mentioned, you have a new challenge on top, which is lack of billings. Basically, our business is sustained by billings, by scale. [Our industry] can afford to have thousands of people because we have billions of billings. When the billings are down 10/15%, which is going to be the case this year [...] and it’s going to be tough for Q3. The whole situation changed because to give you an idea, a healthy holding company, they have a compensation rate between gross income and compensation of around 45%, between 40% and 45%. Meaning that 45% of the revenue we obtain from clients is dedicated to people. If the business goes down, revenue goes down and this 45 becomes 50+. At 50+, we cannot survive. Today, we are in trouble. Our industry is in trouble. You read the press outside and every single holding company is restructuring, they’re cutting things. They’re closing agencies. They are reducing the office space. We are facing a very complicated situation because of the Covid and mainly because we were already in a tricky situation.

{audio:0:18:05} Jorge, really, to look at this question of where the model needs to get to and what sort of transformations need to happen in that model, what is most crucial to understand there?

This is a list of things we need to do to not only survive, but to continue growing. First thing is, we need to reduce compensation.  We need to have less [headcount], better talent. We need to upgrade our talent and we need to be able to deal with less. In order to deal with less, we need automation. We need to invest heavily in automation.

We also need to be much higher in the chain of value. Today, we are perceived by our clients as people implementing, executing and we need to be perceived as people helping to solve problems. Helping to sell more. Helping to optimize things. We need to scale the ladder of value. We are very low down. We need to be able to optimize the equation of content data and activation. This is for me the most important challenge we have, which are not easy. Also, the last one is we need to change the way we sign our contract with our clients. We need to change our model. We need to be a model based on success, based on revenue serving, based on business results and based on media execution on percentage of billings. We have plenty of challenges to manipulate.

When you talk about investing heavily in automation, could we explore that a bit further?

[For example] say we have a hundred million [in client] billings. We have I will say around 25 [million] which are automated. Automated in the buying. Working on social and paid search or on programmatic. The rest is still sending emails. Almost. The first thing. Second thing, the different touch points are not connected. Meaning that when you buy TV and you are digital; you’re using different systems. It’s complicated. Three is reporting. Reporting is we still spend and have hundreds of people working on reporting. We need to improve how we can API the different sources of data to have automated reporting. We can concentrate talent on the insights and not doing reporting. The fourth is back office. Today, we invoice, we pay millions of invoices. Millions of purchase orders. It’s complicated. We need to find a way to also better connect planning and back office and automate back office. We have to automate everything. Basically, planning, trading, invoicing, reporting. We have pieces of this. When you work in a multinational company, it’s even more complicated because the planning process, the trading process, the invoicing process are different country-by-country. Their reference is different. The legislation is different. The use and rules of the industry are different. It’s complicated. This is one of the challenges we have.

What is your advantage versus consultants like Accenture? How is what you offer a better solution for your clients?

We have a big advantage versus these people, Accentures of this world. The first thing is, we can deliver a full service. We know how to do a strategy. We are the best place to manipulate technology and data. We can connect with the creative side, with the copy. We can execute. We can execute both online and offline together. We mix the panel world and ID world. Accenture, they are very good. They are good at thinking. They have a very good process, thinking process. They cannot execute. They cannot execute. What are the advantages of the Accentures of this world? They have no legacy. They don’t have 20,000 people doing offline media, as we have. They have access to the C-suite. They have access to the top management, [and] unfortunately, we are not seen today like the partners able to deliver value or deliver more value. Today, we talk to the media director, to the ecommerce director, eventually the CMO. Accenture is talking to the CEOs. [They are] talking to the CEOs about transformation, about digital transformation, about business transformation. We often need to answer questions about media optimization. That’s a big difference. We need to move from touchpoints media to business. To business questions. We need to focus on business results. How am I going to increase your sales? How am I going to increase your brand equity? How am I going to produce incremental sales? These kinds of questions we need to be able to answer. We are the best placed to do it. We are not perceived by our clients as the key partner to answer these questions. It’s a matter of perception. It’s a matter that we also need to increase talent. We need to try to conquer the consulting space. Today we are not there. We are not perceived like consultants, like people adding value. People solving business issues. We need to move from execution to execution plus. Plus, also consulting, I will say, and fixing business problems.

{audio:0:25:30} On the level of creative and creative strategy as it relates to digital. We have these faster, better, cheaper creative operators. Brainworks, You and Mr. Jones. Let’s talk about issues for traditional holding companies as it relates to the customer value proposition in creative.

The creative side, they have similar issues with media because the creative side was better on television. The model of the holding company agency, of course, evolved. It’s still built on let’s do great creative. Business model is great creative, great pieces of TV or audio/visual content, very expensive on production. All this is changing. We’re changing because of the way consumers are using or consuming content is different. Today, we are working on quick content, on social media, on digital. We need to renovate content all the time. Today, the modern agencies or the next generation of agencies are content producers, low production costs, plenty of new content every day. It’s complicated because our model of agency is not this one. The mad men you watch on TV is not that. Nowadays, the modern agencies are based on data and analytics, understanding the consumer, and producing continuous fast content to deliver the needs consumers have in terms of content.

There is something in the middle, of course, I’ve given you the two extremes. I know that holding companies are evolving toward this, but it’s complicated because still, you have plenty of agency, too much compensation, processes need to be changed. The new agencies, they have no legacy. If I need to build a new agency, I will do an agency based on social data and activation. I will find 30 kids very creative, provide them with very sophisticated phones, go to the streets, find me content. This is the model. This is the model of social media. This is something which is working well. Now, when you have this content, how you can activate and how you optimize this content through organic and paid? How through analytics and data [do you] optimize results and insights and start again? This is complicated for both media and traditional media and creative to do it, because of legacy, because of process, because of people, because also perception. It’s tough. We need to evolve. We need to change. I insist, I believe Covid is going to help us to change this and to restructure and to get fitter for the new times.

{audio:0:29:03} What about new competitors in media planning and buying? Jellyfish, Brainworks, how do you look at competition from those players?

{audio:0:29:30} Clients are looking for more consulting. Clients are looking for lower prices. Clients are looking to rationalize the agency portfolio. You see the Unilever of this world; they are drastically reducing the number of agencies. These new agencies, what they are doing is, they’re creating project teams, hybrid teams with content data and activation capabilities and they are merging all of these things together. We have more issues to do that as holding companies because it’s less agile. We are less agile than other companies. Do you see?

You see agencies like Publicis, WPP, they have so many different legal entities, so many different P&Ls. We all try and create “the power of one”, “the village”, but it’s complicated because there are too many egos. It’s too much legacy.

The new generation of agencies, they don’t have that. They are more agile, they are smaller. They are fitter. They focus on what the clients are expecting. I think this is an advantage. This is an advantage of being new. Let’s face it, we have plenty of assets they don’t have. We are able to manage the clients multinationally, which is very complicated. When you have a client who wants to have an advertising or media in 50+ countries, it’s complicated. We’re having this every day. The same process. The same reporting. Same training for the teams. Same way of working. When the clients are asking for payments of 200 days, which, believe me, is unfortunately happening. You need to have the financial muscle behind you to make it happen. We have plenty of assets. We are reliable, we’re a strong holding company. We know how to do things. We deliver on commitments. We are compliant. We have plenty of assets, but we are missing this agility or this flexibility to sometimes go higher in the funnel with the clients.

{audio:0:32:07} What about the risk of disintermediation by Facebook, Google, Amazon and the ease with with brands can work directly with these businesses. What are the limits there and how do you think about that?

{audio:0:32:31} When you see how Google or Amazon behaving, less Facebook but also to some degree, they don’t need us. They believe they don’t need us. Which is interesting, people like Google, they have thousands of people just talking to clients. They can because they’re rich. They have so much cash, so much money that they can afford that. By the way, these companies are not very efficient, Google, Facebook, Amazon, they are not efficient. They are very siloed. They have too many people. They are very vertical. They just own the category or different categories. They are rich, and they can afford not to be efficient. To be honest, they’re not the most efficient companies because they are creating a very complicated process and very vertical and very centralized. This willingness to not work with us is changing. Clients understand the value of the middle of the agency. Let’s be clear. What’s the objective for Google? The objective for Google is not to optimize client results. The objective of Google is to place as much inventory as possible to the clients. They want to sell as much to you, as much paid search, as much technology as possible. Regardless of the results. Our job, we don’t care, we are media agnostic. We are channel agnostic. If we are paid properly based on FDs, people involved in the business and success fees.

We just want one objective, which is optimize client results because we can obtain more revenue and clients are happier and stay with us. Now, we have different ambitions and different goals regarding the GAF [Google, Amazon, Facebook]. The GAF, they want to place the inventory. Let’s be clear. Facebook, they want to sell Facebook and Instagram. It’s their job. Having said that, they have a great product, both Google and Facebook, they are performing well because they are very good. Google have very good inventory, it’s compliant, very heavy ability. Paid search and the monopoly situation and they have a great technology because they are investing every month a lot of money, millions of dollars on technology. They can afford to have a great product. They are great partners. It goes to some inventory. Our job is and should be to optimize client results, which is a very different objective.

I have hope because I believe we have this agnosticism that allows us to support our clients. I believe that GAF, they don’t have that. Not because they are doing something wrong, but because their goal is to sell advertising, as the model. I think we have a chance. I think we are learning to work better with them, even if it’s a very weird situation because normally, we are clients of Google, but we sometimes forget about that because they are so big and so powerful. It’s the way it is. I think we work well. We collaborate well. We try to do the best for our clients.

WPP is one of Google’s biggest clients.

Absolutely. It’s true. The relationship is not always clear. Of course, we are clients of Google, but Google is 20/30/50/60 times bigger than us. They have almost more people engaging with our clients than ourselves because they can. They can afford it.

In the time we have left, what has surprised you in the way that advertising by channel has evolved? In the last few years, I’m looking around why TV has held up so strongly.

I have two insights which are quite interesting. The first thing is TV is alive. TV is pretty much alive, and this is very important. Remember with digital arriving, they said it’s the end of linear television, TV is dead. TV is not dead. TV growing year on year. A lot of it is inflation but growing. Viewing is growing. You see with this confinement and Covid and lockdown. TV consumption went up despite of the Netflix and Disney of this world. Linear TV went up also. News, because so many good things, because of sport. TV is up.

Linear television is not going to die. Not yet. The GAF [Google, Amazon, Facebook] knows there is still money from TV. It’s the next battle. The big battle. I believe that TV is still strong for at least four or five years. For me, the real switch from television is when the millennials will be the head of households because it’s going to change everything. Where the CMOs client side and the consumer are people completely digital native. Think in digital all the time. Linear television will be in trouble. By the time, it’s going to evolve with programmatic television and other ways of engaging with consumers. That’s the first insight, which is very important. TV is alive. TV is kicking. TV is most cost efficient versus digital when you want to reach a universal growth target audience. You want to reach kids in the U.S., nationwide. TV is much more efficient than any online video because the inventory is very broad, because the CPM is lower, because viewability is very good, and it’s not fraud because you are buying programs. For plenty of good reasons.

Second insight, digital was the fragmentation. Digital was the hope of everyone can make it and everyone can challenge, and everyone can do things. It’s true because when you buy programmatically, someone in a garage can buy as well as we can, a holding a company with thousands of people.

But digital didn’t bring fragmentation. Today it’s quite interesting because you can almost invest 100 million in the U.S. with 4/5 partners. Two networks. Google, Facebook, and Amazon, you’re going to spend 100 million dollars. Today, we are in a huge concentration. It’s the opposite of fragmentation. Facebook and Google, they have 70% of digital spend. When you add to this the two or three networks, TV networks in each country. In UK, you have ITV, Channel 4, Sky, Google and Facebook, you have 80%+ of the investment on media. This is worrying and Covid is accelerating this trend. What happens in Covid? Covid means what? It means that it’s more players are struggling. They’re going to try to sell their assets to big ones. People like Google and Facebook or Amazon, in Covid, the reduction of billings was low, 10/15% max in Q2, now are growing up again.

When you are a client and you have less budget and uncertainty, what do you do? You are going to invest in the vendors you think are not going to default, they’re going based on Google and Facebook and Amazon for retail or for paid search. It’s the way it is. That means that the post-Covid situation is going to amplify this concentration because more players are going to die, are going to be sold, are going to struggle. In terms of technology, Google is trusted in the market more and more in terms of serving, in terms of DSP, in terms of SSP. In terms of cloud, it’s Amazon and Google. We are facing an amplified concentration, which I believe is never good for business. Concentration is less creativity, it’s less differentiation, it’s less out of the box thinking. It’s never perfect, it’s never great. Today, we are moving towards this amplified concentration.

What do you think Google and Facebook can do in the brand advertising space longer term?

I think both Google and Facebook are moving from brand into performance and retail because the growth of the business is performance. Today, more than 50% of that advertising that’s spent is on performance, performance related. Covid crisis is going strengthen this because people are looking for short-term sells. Today, Google is a lot of things. Google is YouTube. YouTube is branding its video as TV. YouTube is TV. YouTube is positioned as a TV competitor. Paid search is both. It’s obviously performance and it’s obviously branding to protect the brand. Google and Facebook are very scared of Amazon. Amazon has one thing which is very important. Amazon understand the purchase model, funnel, and consumers and users go to Amazon to buy and to do a transaction. The problem with Google and Facebook is you don’t do transactions on Google and Facebook. Both Google and Facebook are pushing a lot of these shopping capabilities every day on specialized sites. Facebook launching Facebook Pay.

Every day, you have news on a new feature to try to optimize sales within the Google and Facebook ecosystem because they are scared. Basically, when you do paid search, what are you doing? You click to go to the client’s website. When you go to Amazon, you stay on Amazon because you want to buy a product. Today, the model is evolving the Chinese model. I explain myself. Today, outside China, you have paid search, Google: video, YouTube. Facebook, social media. Ecommerce, Amazon. Amazon is more hybrid because they have Amazon Prime, there’s engagement there. When you go to China, all platforms are paid search, social media, ecommerce. They try to have a full ecosystem. Facebook and Google are working toward that because they’re very scared to leverage that against Amazon. This for me is the big challenge. The big challenge is not branding because branding dollars are going to be reduced. It’s going to performance. After, there’s a new concept called brand formats which is doing both together, which is always very weird. Branding KPIs and performance KPIs are controlling each other very often. Today, clients are more often asking for, I want to increase brand equity and sell more. It’s tough because it’s not the same touch points. Not the same strategies, not the same way of doing. The market is moving more toward return investment, performance, and sales.

Evolution of the Advertising Media Holding Company

The historical reasons media agency holding companies are structured the way they are

The competitive advantage media agency holding companies have in serving large multinational brands

Sources of fee pressure media agency holding companies are facing in an increasingly competitive market

Why the agency staffing model is under pressure

How the digital service propositions of consulting companies (e.g. Accenture) pose a competitive threat  to media agency holding companies

Challenges posed to media holding companies by smaller creative agencies who are more agile in producing content and formats for digital advertising channels

Evolution of the Advertising Media Holding Company

Global COO, Havas Media International

inpractise.com/articles/media-holdcos-evolution-strategy

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Jorge Irizar

Global COO, Havas Media International

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Evolution of the Advertising Media Holding Company(July 21, 2020)

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