'An apocalyptical onslaught to their models and profit margins': Why media agencies are on their death bed

Marc Pritchard

The future of media agencies is as grim as ever, according to a new report by market research firm Forrester released this week.
Continuing transparency issues, clients taking media-buying in-house and programmatic advertising leading to the commoditization of services threaten the very raison d'être of media agencies.
Media agencies must evolve to become media consultancies to survive, bringing more value, accountability and overall marketing strategy to the table, says the report.

It's been two years since the Association of National Advertisers issued a bombshell report that painted the media buying world as being rife with opaque financial practices and widespread illegal rebates.

And while many media buying agencies at that time vowed to clean up their practices — their future is more grim than ever, according to a report released by the market research firm Forrester earlier this week.

Since the ANA report, brands have reevaluated billions of dollars of media spend, and only become increasingly more skeptical, says Forrester.

For instance, marketers have called into question agencies' ability to gauge whether ad spending actualy works, while focusing on what they see as wasteful media plans, irregular ad rates and unclear discounts.

In fact, as many 64% of marketers have said that they intend to review their media agencies.

"To marketers, it represents the need for checks and balances," wrote analyst Jay Pattisall. "To agencies, this represents an apocalyptical onslaught to their models and profit margins."

Here are the biggest factors threatening the existence of media agencies, according to Forrester:

An ongoing lack of transparency in ad buying

Transparency remains a thorny issue among brands and their media agencies, and Forrester puts the blame squarely on agencies. The researcher found that agencies are usually reluctant to accept client audits of past work and brand safety guidelines.

According to the authors of the report, half the media agencies contacted refused to formally participate in the research, limiting visibility into their operations.
A prominent example cited is the US Army declining to include its incumbent media agency in a review due to allegations surrounding rates and discounts.

"Given the cloud of suspicion hanging over the industry, agencies that behave in this manner appear to be non-transparent, despite offering clients full transparency," it says.

Brands bringing media functions in-house

Besides being frustrated with a lack of ad buying transparency, the need for for efficiency and a thirst for more control over consumer data have led to an increasing number of brands take media operations in-house and set up their own internal teams.

This, the report notes, is "an existential threat to media agencies, forcing them to justify their value."

64% of respondents of Forrester's 'In-House Agency Forum' survey, for example, said that they use in-house agencies in 2018, an increase of 52% from a decade ago. The survey includes the 70% of marketers who command strategy and campaign direction in-house for programmatic advertising.
Deutsche Telekom and JPMorgan Chase are examples of brands that have moved portions of their media business in-house.

Media offerings becoming increasingly commoditized

With programmatic advertising becoming widespread, anybody from agencies and marketers to programmatic consultancies can now automate the media-buying process. This threatens the very raison d'être of media agencies as access to digital media and planning capabilities is no longer limited to a few.

In a programmatic environment, media agencies no longer retain any buying power (clout and negotiating — staples of TV buying — don't really matter much), and the wide availability of demand-side platform technology commoditizes their offerings, forcing them to look for other areas to bring value.

Media agencies, therefore, must ramp up their offerings beyond buying power and traditional media planning and buying services. They must bring more value, accountability and overall marketing strategy to the table, adopting a more media consultancy-type role if they want to survive, says the report.

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