W+K’s India closure: A crisis brewing in the global creative sector

The independent American advertising agency Wieden+Kennedy surprised the ad world on October 3 by announcing that it was winding up its operations in India. A century-old W+K had been in the country since 2007. 

W+K has worked with major clients like Make in India, Indigo, Hero MotoCorp, Jockey, and Casio, but ultimately struggled to survive due to its adherence to a traditional culture that it maintained longer than its peers.

However, small and independent creative agencies across India are feeling the pressure and have started trimming their workforce and implementing cost-cutting measures to remain viable, according to industry insiders. (With nearly 40 employees, W+K was a boutique operation compared to industry giants like Dentsu Creative, which employs around 750 staff members). 

The larger agencies within major networks are also feeling the heat, in many countries—if not in India. In January alone, major layoffs were reported at esteemed firms like Ogilvy (WPP), McCann, Havas, R/GA, Huge, Grey, Anomaly, and Mother. 

WPP headcount has dropped by more than 3,000 to about 111,000 at the end of H1 2024 from 114,173 at the end of December, following a series of internal restructures including the VML and Burson mergers. 

Employees who have so far survived the layoffs are once again holding their breath as cutbacks resume. 

“It’s scary when you see someone like W+K wrap their work in a growing market like India. It's proof of the difficult times the industry is going through. The effects of recession have been showing in the form of reduction of campaigns across clients and budgets have been slashed but this is the first of its kind,” quips Aalap Desai, Co-Founder and Chief Creative Officer, Tgthr. 

Agencies in India are silently pruning their teams - 10 per cent annually on average - to cut costs and improve profitability, industry executives say. The entry of Gen AI has only abetted the situation, e4m has been consistently reporting on the issue. 

Professionals, especially those who have been part of the pitch team, traditional media buying and operations are the most affected ones. Fresh hiring is also being squeezed or revisited or completely frozen, executives say, requesting anonymity. 

Change in business model

The Cannes Lions State of Creativity report for 2024 suggests that 45 per cent of agency/client relationships are ‘strained.’ This indicates that almost half of the agency/client relationships could fall through at any moment. 

The client relationship is increasingly transitioning from a retained agency model to a project-based approach. “Agencies are not the brand custodians anymore. Even major brands rely on projects-based relationships with creative agencies,” noted one executive. 

Advertisers often prioritize cost-efficiency, sometimes at the expense of quality. They seek a 'sasta-sundar-tikau' agency, which explains why we see so few iconic campaigns, despite India being a hub for startups and one of the largest consumer markets, home to some of the world’s best creative talent.

The rise in project-based work has impacted profit margins, complicates forecasting and planning for long-term needs within a creative agency. 

Agency stability relies on having a handle on what revenue is coming through the door every month. Reason: the industry is labour-intensive, relying more on the workforce than on capital. The largest costs as a percentage of revenue are wages (30%). If one loses a few projects or a client, the economics go haywire. 

As the industry continues to move away from production - heavy models and embraces new technologies, more layoffs can be expected. 

Meanwhile, GenAI is being used extensively by brands in advertising in various ways, such as creating personalized ads, targeting ads more effectively and measuring the effectiveness of ad campaigns. As AI continues to develop, it will likely have an even more significant impact on the ad sector. 

Stagnant growth 

According to an IBISWorld report, the global advertising market has grown at a compound annual growth rate (CAGR) of just 0.1% over the past five years, reaching an estimated $378 billion in 2024. 

The report says there are 433,410 Global Advertising Agencies businesses. While no authentic India figures are available, Vaishakh Jhunjhunwala, a senior advertising professional claimed on LinkedIn early this year that there are 40,275 advertising agencies in India. According to him, only 10 per cent of them, about 400, are doing good business and have visibility. 

Do we have enough business in 2024 to sustain them all? Nobody knows. And let's not forget the rise of content creators, who have emerged as a new breed of competition for agencies. Meanwhile, several top advertisers like Godrej Consumers have even launched their in-house creative agencies. 

“The world’s richest person, Elon Musk, doesn’t believe in advertising. He seems to think that if a product is good enough, it’ll just sell itself—because who really needs ads, right? If that’s the case, surviving in this industry is clearly not sustainable in such a competitive landscape,” quips a senior executive. 

A creative leader shared his emotions, “I’ve made enough ad films, but in today’s world, I don’t think the end user really cares about them anymore. Maybe the team working on them enjoys it, but the real question is: does the end user even pay attention?”

Perhaps traditional advertising is not the solution the industry is looking for at this point, says a top executive. The ad formats need to evolve, especially since the new-age audience doesn't really believe in branding. 

Besides, agencies can no longer rely on a consistent slate of work, instead, they must pitch creative ideas and strategies. This shift means a reduced need for production staff as brands have moved some functions in-house.