Read this article series on the history of advertising agencies from Marsha Appel, SVP Research Services, [email protected]. Don’t miss other Defining Moments in Agency History. Let us know what you think!
The current media services universe is largely controlled by media agency subsidiaries of the major agency holding companies, along with a few powerful independent media agencies, such as Horizon Media. But it wasn’t always that way. Until 1990, the norm was full service agencies that handled both creative and media functions for their clients. Independent media buying services had existed in the U.S. since 1968, when U.S. Media International opened its doors, but they didn’t really pose a serious threat to agencies until the late 1980s. While independent media buyers accounted for nearly 75% of media buying in Europe, they handled only 15% of U.S. media spending in 1990.
So What Happened?
Several interrelated factors came into play in the 1980s that set the industry on an irreversible path to media unbundling and the rise of media agencies. Difficult economic conditions, the increasing complexity of media negotiations plus the growth in media options available, the role of media at large agencies, and fallout from some spectacular agency mergers all contributed to this.
Under the traditional 15% commission system of agency compensation, which was gradually being replaced by fee arrangements, agency revenue came from media placement. The more spent on media, the higher the agency’s revenue, and media cost inflation in the early 1980s resulted in very high agency profits. The commission system gave agencies little incentive to control media costs or buy efficiently.
During the large agency acquisitions of the 1980s, clients got a view of the impressive windfalls garnered by ad executives selling their businesses. (Perhaps most notorious was Bob Jacoby, who walked away with $111 million after selling Ted Bates to Saatchi & Saatchi in 1986.) When economic conditions worsened later in the decade, clients started to question agency compensation and media pricing.
Economic pressures required marketers to cut costs and look closely at where their money was going. Independent buying services started to appear very attractive, as they were investing in skilled media personnel and often offered better negotiating prowess and buying clout than agencies.
Another result of those agency mega-mergers was the establishment of creative boutiques. Many of these boutiques decided not to develop media buying capabilities, choosing instead to outsource the function. This benefited the independent media buying services and contributed to their growth and increasing importance.
At the same time, some marketers were adding internal media people to do planning; they then sidestepped agencies and went with the cheapest buying options.
Finally, more media choices were available, and negotiations became more complex and important as a result. Clients were concerned that agencies lacked the requisite negotiating skills and buying clout to obtain big discounts for them. (Note: This predates interactive by several years—the “new” media were cable, syndication, and in-store media.)
Even as the media function gained in importance, skilled media professionals felt like stepchildren at the large agencies where creative was paramount. Media was an add-on that wasn’t often involved in new business efforts, but yet brought in a disproportionate percentage of the revenue (which then went to support creative and account services, instead of being reinvested in media tools and capabilities). Media people did not have the luxury of planning based on media neutrality, and were often compelled to implement “TV first” recommendations sold to clients by creatives; media neutrality required independence. Finally, they were often forbidden from pursuing or accepting media-only accounts that conflicted with creative clients, some of which were not even using their media capabilities.
The Stage Was Set
By the end of 1990, some very prominent advertisers had decoupled their media and creative accounts. Among them were Procter & Gamble, which consolidated all its print buying at Saatchi & Saatchi; Kraft General Foods; and Reebok, which moved media from its creative agency, Hill, Holliday, Connors, Cosmopulos, to DeWitt Media. In addition to the perceived economic benefits, clients favored media unbundling because this gave them more flexibility in managing their creative accounts, since a creative agency move no longer involved disentangling the complex financials of a large scale media buying relationship. CMOs wanted a media neutral approach to planning, and procurement wanted cost efficiency.
Leslie Winthrop, president of matchmaking service Advertising Agency Register, announced that she was creating a similar service just for media, saying “In the 1990s, media will become as competitive as creative.” (Ironically, this unbundling trend flew in the face of another early 1990s trend, integrated marketing, which supported the use of a single agency to handle all aspects of communications to ensure consistent messaging.)
Traditional agencies weren’t standing still. In some cases, they were able to compete with media buying services and attract media-only accounts, but they also embraced a host of other solutions. Holding companies acquiring independent buying services was an obvious move. Some agencies established dedicated media units to accommodate important clients. They started with the media buying function; planning followed.
Agency spin-offs was another approach. As media became one of the hottest areas in advertising, creating free-standing media subsidiaries was a good way to keep the emerging media stars that were in great demand and felt neglected within the traditional agency structure. This also helped the bottom line, because these new units had better margins than their parent agencies.
1992 was the year of the spinoff. Early in the year, in a bold move, Mike Drexler talked Bozell into spinning off its media department into a separate entity called BJK&E Media, with him at the head. In November, Grey established Media Connections, a stand-alone subsidiary with its own P&L, intended primarily to attract new media-only clients. DDB Needham consolidated all its national broadcast buying into a wholly owned new unit.
In 1993, D’Arcy Masius Benton & Bowles created TeleVest to handle its large CPG clients, including P&G, Kraft General Foods, and Mars. Pentacom was a dedicated media unit formed to handle Chrysler, staffed by people from Chrysler agencies BBDO and Bozell. GM MediaWorks followed in 1994 with personnel from McCann-Erickson and Campbell-Ewald.
Then, under the headline, “If you can’t beat ‘em, buy ‘em,” Advertising Age announced Interpublic’s acquisition of Western International Media for $50 million in November 1994. The original intention was to keep it separate from the media departments of IPG’s agencies. Two months later, Saatchi & Saatchi set up a U.S. unit of Zenith (started in Europe in 1988); it opened with $2 billion in billings from Bates, Campbell Mithun Esty, and Saatchi & Saatchi.
By 1996, all the major holding companies had significant free-standing media agency subsidiaries, and the buzz turned to how they would handle the new opportunities presented by emerging interactive media. But that’s another story.
Please see below for timelines into the history of media department unbundling and rise of the media agency.
Download 4A's | Unbundled Agency Media Departments Chronology
Download 4A's | Origins of Free-standing Media Subsidiaries