The disruption of the media agencies is approaching. The big question is where they will pivot, writes Yannis Zachos, head of strategy at Havas Media International.
We like to talk a lot about disruption in our industry. But we rarely talk about the disruption of our business and more specifically the disruption of the agency model.
Media agencies, the initial disruptors of the advertising world, have to this day managed to maintain their agility. The enthusiastic transition to digital as well as the eagerness to work with data has raised their profile and earned them a seat at the top table.
However, as the media agency enters its fifth decade, one could argue that the future is not looking as bright. Whilst not facing an Uber-type of challenge, today’s agencies are still struggling to diversify revenue streams and open up new markets. The bulk of their revenue still revolves around the media buy.
To keep up with the ongoing change of the media landscape, agencies have tried to take inspiration from the start-up world; be it co-working spaces, funky meeting rooms or hot-desking. However, start-up mentality has not really gone beyond lifestyle to affect the business model and it is obvious why.
Actual start-ups have little to lose and everything to win. They have investors who are not risk-shy and CEOs that are encouraged to burn money instead of worrying about sales or P&L. On the other hand, media agencies operate within corporate structures that are accountable to shareholders and do not hesitate to impose a travel freeze in order to hit targets at the end of the year.
Where does this leave us now? In the next two-to-three years, agencies will have to decide their place in the world. The future will be fragmented and this realisation will inevitably lead to choices. Agencies will stop trying to do everything and will focus on what they believe to be their strength. I anticipate three main directions: Content, Technology, and Experience Design.
Content: Go Big or Go Home
With the creative agency increasingly focusing at producing powerful emotional ads, the media agency has made significant inroads to fill in the content vacuum. However, the scale and success of the output is questionable, especially when you compare it to the billions of dollars currently invested in content by Netflix, Amazon and the likes.
This is where opportunity, as well as risk, lies.
“At the moment very few media and communications groups seem to have the entertainment business as part of their strategy”
The content wars are fuelled by subscriptions, which takes advertising out of the equation. If we are heading to a post-advertising world, brands would need to find alternative ways of achieving exposure. They could pay to be integrated or they could invest in their own content portfolios. Whether they would entrust agencies to manage those portfolios is the big question.
Agencies would have to prove that they can handle more than just snackable content from vloggers; they would have to move away from the reliance in publishers to create content through media partnerships. One way could be by buying expertise. But acquisitions are expensive and require group holding approvals. At the moment very few media and communications groups seem to have the entertainment business as part of their strategy.
Likelihood: Very few agencies will make it here, but those who do will become major players in the category.
Buying Automation: Victim of its own success
The automation of buying is probably the most innovative and dynamic aspect of the media agency. Through consistent investment and the emergence of a growing technology ecosystem, there have been major developments in targeting solutions.
But in a hypothetical scenario this can also be the Achilles’ heel of the big media shops. If speculation is right, by 2020 all digital media will be bought programmatically. Assuming this extends, as is expected, to other channels then the benefits of competitive pricing via bulk buys will deteriorate.
Supply and demand will determine cost in a similar way as it happens with paid search. Inevitably, new offerings will emerge even from outsiders with a bigger focus on software than advertising. Cognitive technologies will revolutionise targeting and even automate messaging.
There is already talk about the death of insight and the dominance of the algorithm especially in a world where consumers delegate their buying decisions to their AI assistants. Imagine a world where clients pay an access fee for platforms, the account director is a support manager and the rest of his team are software engineers.
Likelihood: This will probably be the safe retreat for most agencies but it will also mutate them into very different organisations.
The Game Changer: New Realities
A big part of our lives is spent looking at screens, interchanging devices or doing ‘media stacking’. Yet there is enough evidence to suggest that screens might become a thing of the past as VR/AR start to take off. The Microsoft Hololens will be hitting the market in 2017 and in 2018 Magic Leap is expected to release its first product.
I’ve picked these two examples because they can give us a glimpse into a future that we can grasp. Magic Leap has been described as the next big inflection point in technology after the PC, web and smartphone. In a nutshell, imagine a tiny device that sits on your glasses and projects layers of information straight into your retina. The technology is called ‘merged reality’ and is expected to disrupt every business that operates through a screen.
“If a lot of the above sounds like a sci-fi scenario, it might be useful to think of 2016 as the year where reality caught up with fiction”
This change presents the biggest opportunity for the media agency. The combination of data management and synergetic media planning will position them in the front line to help brands make sense of the new world. Experience design crossed with impactful creative messaging will be the ultimate offering. Imagine a merging of the planning department with the creative floor of ad agencies.
Likelihood: Agencies that built their credentials in planning and sophisticated thinking will naturally aim to pivot here. But this transition will require leaving the buying function behind and focusing in planning.
If a lot of the above sounds like a sci-fi scenario, it might be useful to think of 2016 as the year where reality caught up with fiction. Britain voted for Brexit, Trump got elected, but also we were told that by 2023 we will be heading to Mars, whilst on planet earth people will be driven around by driverless cars.
So buckle up, it’s about to get bumpy.