Survival in a world full of challenges
Is digital or cutbacks in ad spending the main threat?
A HOT debate in the advertising world is whether digital challenges pose a threat to ad agencies’ revenue or is it as a result of cutbacks in ad spending.
In a recent Bloomberg report, top executives from the big four ad companies – WPP Plc, Publicis Groupe SA, Omnicom Group Inc and IPG – had hit back against concern their industry was in structural decline, blaming most of their recent woes on temporary cutbacks in marketing spending.
Each group cited pressure from activist investors and management consultants leading to packaged-goods companies reducing marketing budgets. But they expect the trend to reverse.
WPP, the world’s largest ad agency, said there were signs of spending returning, quoting its chief financial officer Paul Richardson as stating that advertising investment would increase as companies seek to build their brands and grow revenue.
On the local advertising scene, there are mixed signals although some ad agencies admit to digital challenges as a form of threat to ad revenue. Publicis One and Leo Burnett Malaysia chief executive officer Tan Kien Eng tells StarBizWeek that the threat is real and not overplayed. “Industry 4.0 is rapidly and drastically changing all industries including the ad industry. Like any other business today, agencies that has yet to evolve and stay relevant to the change that is happening around the world will struggle to prosper.
“Technology has drastically altered people and their behaviour. The creative industry had stagnated for so many decades and now needs to keep up with the change.
“Today, the industry is much more exciting and dynamic where art is beginning to meet science. I believe marketing budgets will continue to grow. The difference is the budget split has shifted from traditional measurable channels to yet to be monitored and quantified new channels.”
Industry 4.0 is a name for the current trend of automation and data exchange in manufacturing technologies. It includes cyber-physical systems, the Internet of Things, Cloud computing and cognitive computing.
Havas Media Group Malaysia CEO Andreas Vogiatzakis agrees there is a need to embrace technology to stay ahead and be relevant.
The current situation should not be seen as a fight of digital versus traditional media but rather the need to embrace and manage technology, he says.
“Darwin’s theory is apt. It is not the most intelligent that survives, but the ones who are most adaptable to change. We see this shift everywhere. And while there are tons of conferences and discussions about the future, or death, of traditional media vis-à-vis digital, I believe it is about time we understand that what we need to follow is the consumer journey. We need to engage on platforms that are most relevant and will enable us to connect with consumers and offer them relevant and meaningful content.”
IPG Mediabrands Malaysia CEO Bala Pomaleh, however, feels the reduced revenue of ad agencies is definitely due to decreasing advertising and marketing spend.
He says clients are under tremendous pressure to protect their bottom line, noting that in many cases, advertising budgets have shrunk significantly.
“The climate also presents increasing competitive pressures resulting in agencies being forced to drop their fees. This applies across all media and services, and coupled with increasing staff cost, severely impacts the overall revenue.
“Further to this, there have been increasing concerns around viewability, ad fraud and brand safety. While some advertisers may still be forgiving at this point, these uncertainties will stunt growth of digital spends if left unchecked. This is a major area of concern for us as an agency, and we are work- ing closely with our partners to ensure we make responsible investments,’’ Bala emphasises.
Disruptions in ad space
Bala says consultancies and major vendors can be viewed as both competitors and partners, and it is up to agencies to define this relationship.
“We view them as partners, and if they become competitors, we have to blame ourselves for not having a point of difference.
“A huge differentiating factor here may be creativity, and the ability to leverage on this across agency-wide data, analytics and insights. So ultimately agencies will need to keep investing in people and tools to ensure they stay ahead of the curve,’’ he says.
Consultancies like Deloitte, Mckinsey, Accenture, KPMG and PricewaterhouseCoopers according to media analysts are on the lookout to acquire agencies to expand their revenue streams and customer base in the region.
“It is not a bad thing as the acquisitions will pave the way for greater client touch points and the talents acquired will help spearhead clients’ brands on regional and global platforms. It’s like a win-win situation although there may be initial hiccups,” one media analyst put its.
Of the total ad digital revenue in Asia Pacific, at least 90% goes to tech giants like Google and Facebook and the balance of the pie to publishers, etc.
Vogiatzakis says more now than ever, in a more complex and fragmented ecosystem, brands need strategic consultancy and deeper understanding of people behaviour, consumer’s psyche, and much more.
Thus, he notes consultancies have gained ground and he believe that no one will “replace” the other, but rather work hand-inhand. “You might see acquisitions happening, which is a pure financial game, and yet the final outcome will never change.
“Our job is to establish meaningful connections between consumers and brands and create content that add value, is meaningful, and elevates the brand to benefit the consumers on a functional, personal and collective level.
“At Havas, for example, we use this as our mantra, our mission, our everyday way of working, to enable ourselves to be these consultants and strategists that enable brands to create these meaningful connections with their consumers,’’ Vogiatzakis explains.
Tan opines the talk around media owners, channel platforms and consultants eating into the ad/ creative industry is not new. As far back as a couple of decades ago, he says TV channels offered bundled services to advertisers bypassing ad and media agencies. An example of service bundled then includes creative, content, media plans, activation, celebrity endorsement and others, he says.
Sounds like doom to creative agencies but look at what happened to the channels? Tan ask. Today, he says consulting companies will remain more expensive compared to creative agencies, while social media platforms will remain niche and bias to their own platforms to safeguard their growth and revenue agenda.
“What creative agencies need to do is to stay focus and remember that their core business is in creativity and growing brands through stories, coupled with data tech. Agencies must remain media neutral and unbiased to the choice of channels when solving client’s business problems. There is a need to ensure consistency and longevity when nurturing purpose driven brands,” he adds.