Not so long ago they were still considered an exotic rarity, but now media agencies have blossomed into a genre that has both depth and diversity:
- At the top end of the scale, there is a group of large media planning and buying agencies responsible for massive billing;
- In the middle are a group of agencies basing their businesses on the provision of added value, including a high level of planning skill. But those who have not demonstrated the ability to add value look vulnerable to mergers or takeovers; and
- At the bottom there has been the emergence of small media planning specialists, comparable in scale and impact to the creative hot-shop. These are the media hot-shops.
Ana Oxlee Moore
Harry Herber
Nota Bene, which was SA's first specialist in media strategy (but does not do buying), has gained universal acceptance for its business model and has grown to a significant size. It does the planning for media billings of about R650m. MindShare MD Mike Nussey says they will develop further. OMD boss Josh Dovey and Media Shop CEO Harry Herber doubt whether they will find a permanent role. "I don't think these one-man planners are going to have any impact on the business at all," says Dovey.
Nussey says there will be "far more consolidation at the top end, but the medium will be gobbled up. Eventually, through rising costs and pressure on margins, they will be forced to amalgamate, merge or form alliances."
(See also How they earn their money.)
Some obvious consolidation prospects prevail within the WPP Group (whose SA media agencies are MindShare, CIA Nota Bene and Media By Storm/The Media Edge), and within the Interpublic Group (which takes in Initiative Media, Universal McCann and the affiliated but not owned Media Shop). While the closing of these ranks looks ultimately inevitable, it's not likely to happen in the short term. The only one of the major global media networks that operates on behalf of all the creative agencies in its stable is OMD, which has done this effectively in SA. OMD does media buying for TBWA Hunt Lascaris, Berry Bush BBDO, Net#work BBDO and DDB SA.
Starcom MD Gordon Patterson sees the current situation as the third wave of media agency development. "The first batch of media independents provided very basic media skills, and the clients didn't require much more," he says. "In the second wave, large agencies started looking at the growth of media independents and saw the opportunity to leverage the media billing to produce bigger discounts. That era, too, has now come to an end, because you don't have to be big to get a good deal. There has never been a better time to buy cheap media. Rate cards mean very little.
"Clients are saying they are not interested in cheap media buying but in effective media that sells their products. Media companies that started in the first two waves have had great difficulty in re-engineering themselves from being schedule-driven to being strategically driven. That is why we are seeing the emergence of small media specialists.
"Another factor is that clients want more proactively from their agencies, but it is difficult for the employees of those big agencies to add value."
Herber asserts that the next step in the development of media agencies will be differentiation. "Much like ad agencies differentiated themselves, so too will media independents." The Media Shop's USP, says Herber, is "absolute financial transparency, and an over-investment in skills. On the first point, clients should be worried about exactly how media independents make their money. On the second, the agencies that succeed will have greater depth of better people."
Media agencies will also offer a broader media service, with such added value offerings as a dedicated sponsorship division, and other below-the-line specialisation, says Herber. "In the next two or three years there has got to be a further shakeout as well. The media specialists can't all be making money. The screws are getting a whole lot tighter. There was no growth last year and the industry will shrink further this year."
Herber is dismissive of the small agencies' claim to provide added value. "There is either a complete service, which deals with communications consultants and not with media plans, or there isn't. At big pitches the small agencies never get the business despite their added value service. It usually goes to the bigger agencies. Apart from Nota Bene, the planning specialists are servicing a basic bottom end of the market. I don't even want that business."
Nota Bene, which virtually invented the media planning agency, is further burnishing its pioneering image by a new positioning as an integrated "communication channel" agency. Its job is to make the decisions concerning which channels (or media) should be used for each brand's communication plan.
This is a new way of doing things, and literally only a handful of agencies worldwide, driven by client demands, can be described as channel agencies. The clients leading the new wave include Unilever (with its Communication Channel Process, or CPP), Diageo (with its Diageo Way of Brand Building, DWOBB), Guinness UDV and Nestlé.
"Unilever has an agency that writes channel strategies describing the brand route to market, whether it's advertising, sponsorship or customer relationship marketing," says MD Peter Vogel. "More than half our business is doing that, for Unilever and also now for Guinness UDV. We in SA are the lead agency in the ME/CIA group, at the cutting edge of a really new process. About six in the world are dabbling with it."
Last year Nota Bene became part of the British media agency group, CIA. It in turn was taken over by WPP, which merged it with The Media Edge, a media agency it acquired through Young & Rubicam. Media Edge: CIA, as it's now known, is the fourth-biggest media network in the world.
But the global model has not been replicated in SA, where The Media Edge (Media By Storm) and Nota Bene will work alongside each other as sister companies with distinctive and separately managed brands.
The original rationale for media agencies was the use of their enormous buying power to cut keen deals with media. Though that remains important, especially for the three mega-agencies (OMD, The Media Shop and MindShare), many agencies now justify their existence on the basis of providing added value, such as a higher level of strategic input.
"Size is important," says Herber. "The bigger you get, the more the economies of scale kick in. They give you stability, broaden your negotiating base. The media will be a little more flexible when I need a favour for a client spending R100m. Size gives you all those other benefits. You have the skills to offer other services. With our margins you have to have critical mass.
"It still remains a price-driven category but clients are starting to understand the importance of value. Instead of shaving 0,5% off their media costs, perhaps they should focus on getting 20% more value at a higher price." In fact, says Herber, the price-based strategy may be pursued more vigorously among the smaller players looking for business at any cost. "I know who is cheapest in town, and it's not one of the bigger agencies."
Dovey agrees. "You can't function on low volumes. You can't afford the people, equipment and research. There is always a drive for more size because it pays off in negotiation. So we have to keep on growing. If size weren't important, clients wouldn't buy into it, but big clients have all centralised into big shops."
Media research is an essential tool, and this doesn't come cheap, Dovey says. "AdEx costs about R10 000/month, Telmar a minimum of R40 000. That is why there have not been any breakaways from media independents. Any independents out there will get bought. We will never deny our buying roots. We are proud of that because we helped set the standards, but we now believe that we should get more involved in strategy."
Stories abound of agencies willing to work for zero commission, relying on cash flow management (earning interest on the client's money while it is in the agency's hands) for income. This in turn leads to clients pushing for uneconomic commission levels. "We get clients demanding the full package of media planning and buying for 2%, with a threat to take their business elsewhere if we don't comply," says Nussey.
"It is all about buying cheaply. They don't care about the quality of output. When you do business for free, several things happen. The agency is tempted to withhold discounts, or is encouraged to ask media owners for a confidential discount. And there is often blatant dishonesty. You refuse to pay the media owner because you are not happy with the registration or repro. They give you one make-good for free and you tell the client you have negotiated a 50% discount and you pocket the difference.
"And you can only make money out of cash flow if you are paid on 30 days and that doesn't always happen."
Optimedia MD Ana Oxlee Moore sees the price war as an ego-driven drive for size. "We will not do it. It starts destroying your business. The bigger agencies can afford to put on some business at a low margin. But eventually their clients will realise they are not getting good service and they will move."
As a former media consultant herself, she has no doubt there's a role for the small shops. "It is not all about bigness. That was the trend five years ago. But now it is people wanting to find good work. There's work out there for consultants."
Optimedia, the most recent of the big shops to open in SA, was created in mid-2001 with Publicis SA and Saatchi & Saatchi as joint owners. It absorbed the rump of Penta Communications, a media agency joint venture between Saatchi and Bates which had been closed.
One of the most intriguing of the media shops is Media Coordination, or MEC, which started out as a media buying shop responsible for the "co-ordination" of all Rembrandt Group media placement. Long before we'd ever heard of the concept, it was, in effect, what later became known as a media specialist. Initially it was owned by Rembrandt, but it was then sold off to management and is today an independent shop struggling to diversify after the loss of tobacco advertising as a result of government legislation.
"At one time, we had about R175m in cigarette billings," says MD Edu van Rijswyk. "That came down to R75m in the final year before tobacco advertising was banned. We set up a planning department, and the Rembrandt Group has gone from 99% of our business to about 50%, so we have a much better mix."
Before the loss of the cigarette business, MEC's billing was about R300m/year, but having diversified its portfolio to compensate for the loss of tobacco it's now down to R270m. Major clients include liquor, Vodacom, Robertsons, SupaQuick, Tracker, Transvaal Sugar, Sony and Air Mauritius.
It's an attractive enough package to lure suitors, and Van Rijswyk has had four takeover approaches in the past year from bigger media groups. But he's in no hurry. "We are not under pressure. My first aim is to empower ourselves. There is social pressure for black empowerment and you can't ignore that. But it must be done properly - win-win for both parties. Empowerment is more than walking around with share certificates. It must also include training."
(See also How they earn their money)
