The switch from the traditional print to internet has resulted in a drastic change for the advertisement industry.
New technology available allows businesses and clients to accurately and efficiently convey the ads to customers.
The question is, is this the end of the advertisement industry?
The threat to ad agencies
While the role of an ad agency seems to be immutable, it is constantly in flux with the agencies struggling to make sense and adapt to the new changes.
Of course, advertising agencies have been the focal point or the primary element for advertising campaigns. However, the emergence and the popularity of advertisement technology called AdTech has threatened their role.
The economic slowdown happening globally since 2007 and 2008 has played a big role in the financial pressures on various advertisers to cut down costs because of which the revenue of ad agencies has been reduced significantly.
Procter & Gamble, known as the one of the world’s largest advertisers announced that it has plans of cutting off half a billion dollars in fees that it paid to agencies. Numerous other big names such as Coca Cola, Visa, and Unilever are doing the same and are looking to put under evaluation roughly $20 billion worth of ad revenue.
Cost saving is only one part of the whole story. The advertising industry is now changing at a more fundamental level that is seeing the boundaries between studio and agency, production and creativity, break down.
Agencies can still tap into the potential AdTech has and a large amount of data to hold their grounds so that they can stay indispensable for brands.
Yet, the problem remains; video production companies have started to undermine ad agencies and how ad agencies have started to fight back.
Why are clients bypassing ad agencies?
Back in 2012, Qualcomm, a US multinational company approached 1st AveMachine, a renowned production company to commission an animated brand film from the concept right to the execution. However, the initial reaction of the creative director was to try and connect them with an ad agency. This was no mistake though; the US multinational company had bypassed the ad agency and tapped into the creative talent that the production company possessed.
The head of Qualcomm’s brand strategy explained that this way, they had the time use their own creativity and direct the work themselves. In addition, doing so brought expertise to the table that traditional agencies generally lacked.
This clearly shows that the definition and the features that constitute a film production company and advertising agency have become quite blurred. This change is primarily because of the rise in digital media. Particularly, the growth of online video, as well as the rise of the value-added content that has been exemplified by YouTube’s Help Hub Hero approach, has given rise to video marketing. As a result, there is a need for real-time, reactive content instead of the top down trend-setting approach that traditional advertising agencies have.
With the advent of the internet, there's been a drastic change in the nature of the relationship between the brands and customers such that it is blowing the monopoly that ad agencies used to enjoy on creative strategy. As a result, video production companies are now in such a unique position that they can offer joined marketing solutions with creative, strategy, production, and market activation performed in-house without outsourcing any project. In other words, it is right to say that video production companies have started to act as their own mini-agencies.
The fact of the matter is, Qualcomm isn’t alone. A report by Society of Digital Agencies which is a network for marketing professionals found that the brands that don’t want to work with agencies have doubled since the last year and has increased to a staggering 27%. Similarly, research conducted by eConsultancy showed that more and more brands have started to bring creative as well as digital efforts in-house. Thus, they bypass the agencies and work directly with production companies.
However, does this approach of going direct mean that video production companies want to go head to head with advertisement agencies? The truth is, not all of them want to.
Let’s not forget the digital factor
The CEO of Victors & Spoils, another ad agency, John Winsor shared his assessment of why various clients have started to cut out ad agencies. Among the several reasons, one that stands out is the democratization of the marketing process that the internet has brought about with things such as market research, crowdsourcing, and delivery platforms.
Previously, agencies were known to be the experts of changing the culture. However, now, wherever you look, some of the best, highly creative, and the most interesting ideas come from individuals using the same tools that agencies make use of. In fact, in some cases, the ideas also come from partners outside of the agency world.
There's no question that the rise in the digital world, particularly of online video, has paved the way for video production companies.
As a result, these production companies have been able to carve out a huge market advantage over the traditional ad agencies. In addition, the rise of social media platforms such as Facebook and YouTube means that brands now have more and more channels where they post their fresh content.
Can agencies counter back?
The need for an increasing amount of content along with the current trend of corporate cost-cutting has led to the market searching for cheaper as well as more affordable video content. In addition, clients can direct what is particularly appropriate. Plus, not only are the projects completed in a shorter timeframe, they are cheaper too.
The trend of bypassing agencies is in particular effective for companies that have in-house creative teams. For instance, when Nike released the new SB Free show, it called Brand New School, a production company, and asked them to make an ad for the shoes, thus cutting out the agency that otherwise would have acted as the middle man.
Many experts have pointed out that all the changes don’t mean that brand agencies are dying; they’re only shifting. There’s a shift in how both brands, as well as agencies, can co-exist in the space of content production.
It is now quite clear that the traditionally perceived ad agency paradigm that has been exemplified by Mad Men, the famous US series, in which the relationship between clients and agencies would last for decades and decades, has now really been shattered.
Previously, if brands or clients took part in in-house production, they were seen as inferior brands and thought of as a brand with no creative potential. However, it now seems that advertising agencies have started to recognize the existential threats it has to face.
They can still fight back by building up internal production units which previously have been just playing second fiddle to fully independent production houses. This trend of video production in-house is now quite clear across the industry as full-service agencies have started to act as one-stop shops for those clients that are looking for different kinds of content ranging from YouTube product demos to big-budget TV advertisements and other hub content.
So, while traditional advertisement agencies are not completely out of the picture, it is true that clients have started bypassing them.
There is now a rising trend to move all the marketing function in-house which has been largely driven by the introduction of the new disciplines that have resulted from the rise of digital media.
In addition, the demand for engaging video content on a regular basis has also resulted in clients preferring in-house production instead of turning to ad agencies just to speed up the process. Moreover, this trend of moving the services in-house has also resulted in big names like Red Bull, Coca Cola, and Nike to take ownership of their creative strategies.
Thus, they’ve effectively cut out all the agencies that traditionally used to act like the middlemen, outsourcing the production of ads to various production studios and companies. Of course, it’s not the end for the ad agencies in this new world; they can still fight back and put up healthy competition by integrating AdTech in their strategy.