The news about Tesco’s appointment of Wieden & Kennedy along with TagWorldwide seems to have opened a window to a quiet revolution taking place behind the scenes in adland.
The buzz phrase is ‘de-coupling’, sounds a bit suspect depending on where your mind goes when you hear the phrase. It refers to the separation of creative development from implementation, i.e. one party develops the creative treatment and then another party does all the techy stuff to get the work out to media owners. Just like the way Tesco have decided to go.
The thing is similar arrangements have been around for some time but rarely, or maybe never, have they been in the public domain. The surprise with the Tesco move is that both W&K and Tag have been named as the chosen relationship. I don’t think I’ve ever seen that before, maybe someone can correct me.
Why this is a silent revolution has to do with history firstly. Back in the days before television ad agencies produced press and posters, i.e. print. So for the first half of the 20th century specialist production suppliers would do all of the mucky work necessary to convert a piece of artwork in to a lovely colour dps. This was handled by the ad agency, part of their remit, and clients would never meet the production suppliers. Indeed 95% of ad agency management would never meet these chaps, it was all left to their production staff who lived below stairs and were usually missing between 12.00 and 3.00 as they were down the Dog and Duck with the production reps consuming 5 pints of the black stuff. Production was a dark art where people in suits never ventured.
Moving the clock forwards in to the second half of the 20th century more and more ad agencies experimented with different models for print/studio work and joint ventures became popular. In essence the ad agency and the production supplier would create a vertical, solus relationship. In some cases all of the production work would be out-sourced reducing agency costs whilst not losing any profit; this arrangement would be 100% private and very rarely, again almost never, would a client ever enquire about these relationships. So long as the work appeared, on time and on budget, nobody had any inclination to ask about how this happened, still a dark art.
The slow fragmentation in the industry began with the move to media independents as opposed to media being in-house. This began in the ’80’s and had a profound impact on how agencies were paid. When media was in-house the 100 year convention of ad agency remuneration was 15% of the gross media spend but this was thrown up in the air when media was separated from creative. Suddenly clients began to seek ways of assessing the true cost and value of the differing tasks.
Cut to the ’90’s and procurement departments became more and more prominent and they started asking awkward questions. They would compare pricing for production for example. One obvious question was the relationship between the creative agency and the production partner – where was profit being made and how much and who benefits? Ultimately this led to some clients going direct to the production partners and agreeing separate contracts.
The Red Brick Road have handled the Tesco business for several years, my wild guess would be their media budget might be 40/60 TV and print, say £66m’ish on print. Say the production for print was 10% of the media spend then the gross production billing would be c.£6.6m annually. Say the profit on production was 20% (a common goal for all ad agencies) then I make that about £1.3m’ish. That’s a lot of income and a perfect target for procurement to get their teeth in to.
The gentle move to ‘de-coupling’ is clearly now out in the open and no longer a mystery in the background. It however is only relevant where the volume of production is significant with either large domestic accounts such as retailers, banks, insurance, etc., and/or large international accounts such as Unilever, HSBC, BA.
Looking forwards the smart money would be on these suppliers becoming as well known as the agency names as more and more clients ‘de-couple’ and again it will be the major, large advertisers who will go there first. Names like Tag, Zone, Splash, Hogarth, Communisis, Welcome may not be on the tips of most clients’ tongues just yet but they will over time as their roles, at the very least, become equal to those of the creative agencies. Power follows the money which is exactly what has happened with the media sector; large media independents dwarf creative agencies in terms of turnover. Whilst I would be very focused on my TV work if I was a major retailer, I would be extra focused on the print side of things if that was where the majority of my spend went.
The next big question is who are the new the buyers and influencer’s in this ‘de-coupled’ world we are moving to? In the past it would have been the ad agency production people but it is moving to advertisers. That must mean marketing folk and marketing procurement plus the intermediaries such as the AAR, ISBA,Oystercatchers to name a few. This is a seismic shift in target audience for the emerging big players in production services world. They will start to hire account management people from conventional ad agencies and before you know where we are Campaign’s front page headline will be “JWT and Tag in shoot out for £50m RBS”. Who would have thought it before last week but that’s the way things are heading.
I do not think for a second this trend will diminish the relevance and importance of a first division creative agency in their role with clients but it does chip away at revenue, something that started when media moved out to a media independent back in the 1980’s. (My agency Simons Palmer was the first or second creative agency to start-up without a media function as it was obvious there was no point. HHCL were the other one.) When production moves out wholesale that’s another revenue stream down the pan.
The infamous Mike Gold once said he biggest innovation in the advertising industry in the 20th century was poster contractors moving from wooden to alluminium ladders. What a lot has happened since then!