Structure of the Advertising Industry
Broadly speaking, since the 1980s, most advertising agencies have tended to move towards a common structure. In the past, each individual agency offered a variety of different marketing services under a single roof. However, there has been a dramatic change in the landscape over the past 40 years.
A key factor has been the rapid expansion and fragmentation of the media industry since the mid-1980s, in particular the proliferation of cable and digital channels. At the same time, the complexity of the changing landscape, combined with economic pressures, persuaded clients to move away from the traditional method of remunerating their agencies via payment of a flat 15% agency commission towards negotiated fees. The refusal by clients to pay for inhouse services they didn't use encouraged most large agencies to spin out their more specialised inhouse departments as separate agencies in their own right, with their own fee structures. (See below). Media planning and buying departments were the first to become standalone units in the mid-1980s.
While the number of individual agencies offering different services increased as a result of that post-80s "unbundling", ownership of those same agencies concentrated dramatically. Massive consolidation within the industry led to a huge number of mergers and acquisitions, and the creation at the top end of the market of a small group of major international holding companies, each of whom controls a large number of separate agencies. There are still independent owner-operated agencies out there, but in ever fewer numbers than ever before, and most are small by comparison with the group-owned brands.
Sitting at the very top of the industry pyramid are a small number of holding companies. There are now five major established international groups - WPP, Omnicom, Publicis Groupe, Interpublic and Dentsu - each of whom controls a huge number of different agency brands spread all over the globe. Generally, the holding company doesn't involve itself too much in day-to-day marketing, but works with its subsidiary businesses to encourage intra-group synergy and to develop strategy.
One key development in recent years has been the creation of dedicated "vertical" agencies within the holding companies, set up specifically to manage the marketing requirements of individual multi-national clients, and drawing staff and resources from the group's other multi-client agencies. WPP is generally regarded as the pioneer in this field with the creation of separate networks dedicated to just Ford or Colgate-Palmolive, but all the big groups now offer a similar service. WPP itself now has more than 50 such units. Ironically, this has in effect reversed the post-80s unbundling process, with the re-creation of old-style full-service agencies offering every marketing discipline under one roof, but now just for one client rather than several. Publicis Groupe has since 2018 taken this dedicated agency model one step further with the creation of what is, nominally at least, a single giant agency that can call upon skill sets from across its entire global estate to serve individual clients.
Until recently, there were then at the next level, a small number of mid-size holding company groups, such as Western Europe's Havas and Aegis and Japan's Dentsu and Hakuhodo DY. Although each of these controlled several brands, their range was more traditionally limited, either in terms of geographic reach (in the case of the Japanese companies, who tended to operate mainly in Asia) or the range of services they offer (Aegis for example was a specialist in media, and offered no traditional advertising services).
However this middle tier also began to consolidate after 2000. Dentsu's acquisition of Aegis, as well as of several Western advertising agencies, gave it a very strong global presence and pushed it up into the top rank alongside US-based Omnicom and Interpublic, WPP of the UK and France's Publicis. Havas was the last of the fully international mid-size marketing services groups, though recently it too has sought strength by becoming part of a different sort of holding company, in this case communications and media giant Vivendi.
A few smaller holding companies still remain, most notably MDC Partners, which resembles its larger rivals in terms of the number of different brands it controls, but on a very much smaller, sometimes more specialised scale. (See here for major holding companies and independent marketing groups).
The newest threat to the old order comes from management consultancies, who are carving out a large share of marketing budgets, especially in digital. Accenture, PwC, Deloitte and others are all now major players in the modern marketing environment, advising clients on the processes necessary for adapting to a digital-led world and then executing them. Most of these consultancies don't usually initiate creative concepts, but they have a major presence in the construction of relationship management and back office systems. However, Accenture, in particular, has moved aggressively into the domain of traditional groups by acquiring a string of creative advertising agencies to offer a fully integrated service.
What is an Advertising Agency?
The term advertising agency (or sometimes creative agency) is generally applied to a company whose main role is to conceive and implement large-scale marketing concepts for its clients. Traditionally, advertising agencies come up with the core idea for a marketing campaign and then create a series of advertisements which address that idea across different media. They tend to specialise in what is called above-the-line marketing: ads which address a mass market through the four major traditional media of television, print, radio and outdoor posters. The tool most commonly associated with the traditional advertising agency is the 30-second television commercial. However, the explosion of digital marketing, formerly considered one of the below-the-line disciplines, has changed the nature of the traditional advertising agency. These companies are now expected by their clients to provide excellence in digital marketing as well as the more established mass market media.
There are three sorts of traditional advertising agency. The most important are the 14 or so worldwide networks, such as BBDO, Ogilvy & Mather, McCann Erickson or Saatchi & Saatchi. Each of these operates a global network, comprising local branded offices in 100 or more different countries. The networks grew up primarily to serve multinational client companies such as Ford or Procter & Gamble, who wished to provide a consistent marketing message in all the countries in which they operate. All but one of the global networks are now owned by the "big five" holding companies. (The sole international exception is Havas). As a result, they are able to offer clients the widest possible range of marketing services by calling upon the assistance and cooperation of sister companies under the same overall umbrella.
At the next level are "micro-networks", sometimes known as multi-hub creative networks. These are a comparatively recent invention, similar in most ways to the major networks, but operating a far smaller network, with perhaps only four or five (sometimes more) worldwide offices, usually in key regional centres. Often they offer a tailored service for more demanding multinational clients, usually with the hallmark of noteworthy creative work. Examples include Bartle Bogle Hegarty and Wieden & Kennedy. Sometimes they will be employed by a client to come up with the core idea for a global marketing campaign, which will then be executed or adapted for local markets by a more widely distributed worldwide network.
A third type of agency still exists also: the standalone agency, sometimes independent, sometimes owned by one of the major groups. They tend to operate only in their own country, although they may have links to agencies in other markets. The bigger of these standalone agencies are often able to offer a wide range of other marketing skills beyond creative advertising (including those described below). In that case, they sometimes refer to themselves as full-service agencies. Others, usually smaller more entrepreneurial agencies, specialise in out-of-the-ordinary creative concepts, mainly for digital channels or TV, and are sometimes referred to as creative boutiques.
In most cases, if they're successful, privately owned independent creative agencies are snapped up by the larger holding companies within three to five years, and are either merged into an existing advertising network such as DDB, McCann etc to bolster its creative firepower; or left to operate as a standalone brand, but with the financial security provided by a larger and wealthier owner. Just as often however, senior executives break away from the major agencies to set up their own independent agencies, which either prosper and get swallowed up again in their turn by one of the majors, or fade away (See here for major advertising agencies).
What is a Media Agency?
Media services (or media investment services as WPP likes to call it) is the term generally used to describe the process of delivering the message created by an advertising agency via the media. There are, broadly speaking, two aspects to this. Media planning involves deciding where (on which TV or digital channels, in which newspapers etc) the advertisement should be placed in order to achieve the best impact on its intended audience. Media buying is the process of negotiating with individual media owners (such as broadcasters or publishers) over availability and price.
Although some advertising agencies (usually standalone full-service ones) still offer media services inhouse, most spun out their media departments during the 1990s or 2000s as an entirely separate business with its own global network operating alongside the main creative agency. In simple terms, this means that clients pay separately for the creation of advertising and for the booking of media space. On the planning side this encourages "media neutrality", so that advertising is placed in the medium best suited to the client's particular marketing message, not just the one that earns most money for the agency (which is television). On the buying side it allows for economy of scale, with the media agency able to negotiate the best possible rates because it is buying ad space in bulk for many clients at the same time, rather than on an individual basis.
As a result of the consolidation process, this part of the market is now dominated by global networks, such as Mindshare, Carat or Starcom. Like the advertising agency networks, these are all owned by the major or mid-size holding companies, and each operates through 100 or more local offices around the world. Unlike the advertising agency sector, there is no real media equivalent to the multi-hub network. (Smaller media agency brands, such as Vizeum or PHD, are there primarily to resolve client conflicts rather than to provide a different kind of service). A very small number of standalone media agencies remain, mainly independently owned, but they now represent an increasingly tiny part of the overall market. (See here for major media agencies).
Despite their size and scale, the major media networks are under increasing pressure from their clients on one side and the media outlets in which they buy space on the other. This has led to an implacable squeeze on margins. Theoretically media networks are still paid in commission on the advertising space they purchase. According to tradition, agencies took a cut of 15% of the media space they purchase as their fee. However competition and negotiation have greatly reduced this percentage, particularly in the case of large clients. In many cases, media agencies might agree to take a cut of as little as 1% of billings from an especially large or prestigious client, although they don't allow this to be publicly known.
As a result, all of the major international groups have a centralised "negotiation" arm (for example, WPP's GroupM or Interpublic's Mediabrands) whose job is, where necessary, to bulk-buy the media space required by their individual media agency networks, cutting rates to their lowest possible level. In many cases, "chinese walls" are imposed within the negotiating company to avoid conflicts between competing clients.
To boost their income, the larger media agencies have also broadened their range of services, adding fee-based disciplines such as sponsorship, product placement, search and social media. One key area of growth has been "branded entertainment", or brand-funded entertainment content. This form of marketing represents a move back towards the old style of advertising prevalent between the 1930s and 1950s in which a sponsor paid for all the cost of a particular radio show or TV broadcast (such as The Maxwell House Show Boat or The Palmolive Hour).
Last full revision 2nd November 2019
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