Noorings: The curse of the current business model on media agencies

Noorings: The curse of the current business model on media agencies

Author | Noor Fathima Warsia | Monday, May 31,2010 8:32 AM

Noorings: The curse of the current business model on media agencies

Media agencies are caught in a vicious cycle, which unfortunately is true of the business globally. While many agencies have moved to a fee-based structure for the businesses they service, many are still on the commission-based model. Many had expected the fee-based model to clean up problems such as under-cutting and dependence of clients’ media spends on revenues that the commission-based model has. However, it doesn’t appear that much has changed and media agencies are still fighting for a business model that would keep them healthy.

The Nokia pitch globally was in a sense a challenge for all media agencies. MediaCom at the time had stated that the pitch took place primarily because Nokia wanted to bring down the agency remuneration. Sources at the time had said that MediaCom even scored very high in the Nokia review and yet was unable to retain the business at the time. While the business moved to Aegis globally, in India, Maxus still continues to service Nokia. But the truth of the matter at the time was that agencies were not talking to each other, and instead were lining up for a business that looked big, but was not a sure-shot commercial winner too.

And the story has continued for many businesses after that, including Unilever.

Agencies have only one view of a business situation – they must retain the client, or win at any cost. And rate cutting has continued to be a painful truth for media agencies. The only reason I am not focussing on creative agencies here is that I am amongst those who solemnly believe that media agencies can lead the communication exercise most effectively due to the access to data that they have and the constant effort on their part to understand different mediums and ways of connecting with the consumer.

But won’t this must-win attitude hit agencies where it hurts the most – its survival? Can working on low commissions and fees help an agency in investing in talent, further investments in infrastructure, in research and data? The case can be different for the big media houses that have hundreds of clients to service; the economies of scale can play a role there, but can that then help in individual client attention? Probably not. And that is the excuse that the client picks at again for reviewing its media agency and once again inviting a pitch.

The number of high-end media pitches in India in 2010 alone has been high – Zee Entertainment Enterprises, Multi Screen Media, Hindustan Unilever, General Motors, Airtel, L’Oreal, Parle Products, and those of you who read exchange4media would know that the list is much longer. Is so much of business in the air a good thing for the industry? I suppose a saving grace comes from the fact that all the businesses that went up for a pitch were there with their agencies for almost five years and more... One would say that did mean it was time to review. But the hope should be that the businesses didn’t move at lower remuneration to the new agency, or even stayed with the existing one on a lower fee/commission. Because, unless media agencies don’t get paid the premium they deserve, the next decade won’t be about them.

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