How Media Agencies are Leading Industry Transformation

Based on 18 indepth conversations I recently videotaped with leaders of these agencies I believe 2016 may come to be viewed as the year when our industry began its most massive shift in business models since 1877 when a bookkeeper for a small ad agency named J Walter Thompson acquired the agency changed its name began packaging newspaper advertising along with creative services and negotiated a 15 quotagencyquot commission from the newspapers By 1889 80 percent of the advertising in the United States was placed through J Walter Thompson according to Wikipedia Still today even with the separation of creative and media the dramatic expansion and fragmentation of media options and the introduction of a wide array of clientagencymedia compensation models the 15 commission remains an embedded fixture in media transactions and the buyerseller business relationship between advertising agencies and media vendors is fundamentally no different than it was more than a century agoThe goal of most media advertising has always been simply to generate awareness and consideration of the advertised product or service known as the top of the purchase funnel Although many believe the responsibility of advertising and media is to drive sales the reality is that media is compensated to generate targeted audience impressions and media buyers are responsible for purchasing these impressions at the most cost efficient prices Marketers39 quotbelowthelinequot aka trade and shopper marketing amp8211 budgets which typically represent 60 to 90 of the average marketing communications budget have been responsible for driving purchase decisions These aboveandbelowtheline budgets are typically disconnected from each other with different management agencies and metricsIn the past few years data and analytics have become increasingly sophisticated in connecting advertising impressions to the actual purchase or at least to defined key performance indices KPIs other than impressions As media agency profitmargins have spiraled downward agency leaders have been required to identify new business models and they are on a path that is literally turning the industry amp8211 and the purchase funnel upside downOne of the biggest and most exciting surprises I39ve had in my more than 40 years working in studying and reporting on the media and advertising business is how prepared and responsive many media agency executives are for the looming transformation of media industry business models and how unprepared most media sellers are While media publishers and content producers are investing in a tech and datacentric future they also accept and continue to operate in a business based on delivery of impressions at cost efficient prices With few exceptions they are failing to comprehend develop test or implement innovative futurefacing business models that will enable them to optimize their longterm value and profitability as traditional models collapseYes the largest media conglomerates are repackaging their inventory identifying new value propositions investing in data sciences expanding their tech footprints and adding innovative new services that enhance their offerings Most of these are shortterm solutions that do not address the need to define develop and implement the new business models that media companies will need for longterm success Media companies continue to rely on traditional metrics and currencies and will continue to empower media agencies to control the buyerseller transaction on legacy terms and conditions While agencies invest in and implement new systems and structures to better serve the reversed purchasefunnel needs and interests of their clients most media companies will remain vendors rather than partners suppliers of costperthousand based impressions rather than strategic investors in profitable new business modelsOver the next few months as the video advertising industry heads toward the sameold same old Upfront and NewFront scenario I39ll be sharing my video interviews with 18 senior media agency executives in which they explain some of the ways in which they are transforming their business models Stay tuned you will be surprised by what you learn

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How Media Agencies are Leading Industry Transformation

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Jack Myers

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How Media Agencies are Leading Industry Transformation

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Jack Myers

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