The Rundown: Creative agencies face a perfect storm

By 2019-08-08News

The Rundown: Creative agencies face a perfect storm originally published on Digiday

The shutdown of Barton F. Graf is yet another sign of the times for creative agencies. The shop, which was founded just under a decade ago, has been one of the darlings of the creative agency world. It will close its doors later this year. Founder Gerry Graf, speaking to Ad Age, said the closure was due to “a perfect storm.”

But that storm shouldn’t come as a surprise; it’s been brewing for a while. Barton F. Graf, like other agencies, was hit hard by the ongoing movement from clients towards more project-based work. That’s a tough pivot for agencies like this one, which was built on models that prized agency of record work. 

And agency models, despite lots of loud and public calls for “innovation,” haven’t really evolved much at all. Agencies are typically based on an FTE model, where they’re paid according to the level and number of employees needed to service a client’s business, with (hopefully) a margin added on top.

A labor-based model doesn’t really work in a market like this one. Clients want to pay less money overall, marketing is still considered a cost-center, and they’re likelier to only want to pay for things they can’t do themselves. That means, in many cases, the money agencies are charging won’t cover their costs, let alone garner a profit.

How much of this is the agencies’ own fault? Some say it’s a mindset that they’d always get paid for the services that are coming back to bite them. At least a few agency CEOs and former execs have said to me that agencies for too long charged clients too much for work they could have done with less. That meant clients, sick and tired of that kind of financial arrangement (and under pressure from their bosses) are understandably looking to save money.

Some agencies have attempted to evolve. Some of them tried to make products themselves, leading to an explosion in “agency IP” projects a few years ago, with little in the way of tangible results. Some are offering to co-create and co-invest, thus having more of a hand in making and growing the client’s products and businesses. Many will survive, especially newer ones accustomed to working in this new way. But for pure creative agencies who are unwilling or unable to make significant and drastic shifts in their models, it seems like the end is nigh. 

David Droga, who sold his agency to Accenture Interactive just a few months ago, says agencies should ensure they’re selling more than just a “big idea”. “It’s one thing for us to want great and grand ambitious creative thinking that positions a brand. But our fees are one chunk of that. It’s not all. There are things that a consumer experiences about the brand that don’t touch a creative agency,” he told Digiday previously. “Blue-chip brands give AORs fees of $10 million or $15 million. But the people who are controlling the customer experience, they’re getting paid an ongoing fee of $100 million a year. I don’t need that number, but what I want is to be that important and that influential. I want CMOs to love us and CEOs to love us as well.” — Shareen Pathak

The subscriber is always right? 
There’s no shortage of data encouraging news publishers to lean into consumer revenue. But there’s also ample proof that relying on readers for direct revenue means managing a completely different kind of relationship than many publishers are used to.

This week has already offered examples of both. 

On Wednesday, The Guardian announced it had broken even for the first time in years, thanks largely to growth in its membership ranks and donations. The British news publisher said it now has over 655,000 paying supporters across print and digital around the world, who get perks such as free access to Guardian events, depending on the tier of membership. An additional 300,000 people gave to The Guardian via one-off donations.

But it wasn’t all good news for reader revenue this week. On Monday, the #CancelNYT began trending on Twitter after a handful of Twitter users took issue with the way the newspaper framed a speech on gun violence given by President Donald Trump. Within hours, a mixture of Times subscribers and gleeful conservatives were tweeting that they were tired of the publisher’s handling of the president’s racist rhetoric and provocations. Some framed the headline as the straw that broke the camel’s back, placed atop everything from the paper’s employment of conservative columnist Bret Stephens to a decision to accept advertising that attacked Congresswoman Rashida Tlaib

Grandstanding on Twitter is easy, and canceling a newspaper subscription can be notoriously hard, but it appears that some people did follow through. The paper admitted to the Columbia Journalism Review that it had experienced a “higher number of cancellations than is typical” following the incident.  

The Times is held to an unusually high standard because it is regarded by many as a standard-bearer for American journalism. But the dust-up confirms that news publishers, particularly those focused on growing subscriptions, have to think intently about the expectations of their subscribers, and how that relationship can be managed. 

Newspapers have decided to embrace the idea that they are bulwarks of democracy and community vitality. That’s an admirable responsibility, but people expect different things from their idols.  — Max Willens

The post The Rundown: Creative agencies face a perfect storm appeared first on Digiday.