Credit: Roz Chaz, The New Yorker, The Cartoon Bank

[Author’s note: WPP, Omnicom, and Dentsu are financial holding companies, dedicated to enhancing their financial performance. Publicis, by contrast, is more like a fully-integrated operating company, more focused today on improving advertising effectiveness and benefiting financially from its focus. This artcle should be read in this context].

I published Madison Avenue Manslaughter in 2015, with new editions in 2017 and 2019.

The book tried to explain why creative agencies, who were paid by staff-hours, did not document or measure the work they did for clients. How could they know staff-hours if they did not measure how much work they were doing? Procurement was cutting agencies fees while agency workloads were growing. Agencies had no way to defend themselves against these fee cuts, knowing so little about their growing workloads.

I thought, naively, that agency and financial holding company executives were over-focused on enhancing creativity while ignoring the need to change the way they priced their services. I hypothesized that they were “stuck in the past,” when the 1960s *Creative Revolution *(i.e., Think Small; We Try Harder) and 15% media commissions really drove industry success.

I recommended that agencies move on and begin to document deliverables and charge clients for them. I offered them ScopeTrack® and ScopeMetrics®, SOW measurement systems that already know how to do the job.

Pure naivety on my part — I assumed that the holding company world wanted to do more than “make their numbers.”

Since then, this year, I have researched and drafted another book, revisiting the history of the industry but including, this time, *media *along with *creative *operations. The book is at the publisher and will be launched at Cannes in 2026.

This revised view of industry history makes it clear that the financial holding companies have simply been milking their media and creative ad agencies for their own financial gain, seeking to drive up their share prices at any cost, including the cost of enfeebling and reducing the effectiveness of their agencies. C-Suite executives may have made inept strategic decisions in the past, but only because they had a different agenda. “Make our budgets. Watch our share prices rise.” They were much less committed to “make our advertising more effective.”

The financial holding companies have endured or initiated seven major crises since the Creative Revolution days of Bill Bernbach and David Ogilvy. At each crisis, financial holding companies have made decisions that sought to continue the status quo, minimize internal disruption, minimize investment and enhance short-term financial performance. The result has been the weakening of media and creative agency effectiveness for clients.

**The shift from 15% media commissions to staff-hour billing. **Media costs rose at twice the rate of GDP inflation after 1975, driving up media costs and agency commission revenue. Clients reacted by reducing media commission rates and then shifting to staff-hour billing. Since staff-hours and fee income vary with agency workloads, this should have been the time for agencies to begin documenting and measuring their creative and media agency workloads.

Doing this for the first time is not easy, but it is certainly possible.

This SOW documentation / measurement has never been pursued as a priority by the financial holding companies. Workloads and fees have moved in opposite directions for three decades, with workloads growing and fees declining.

Instead, financial holding companies have resorted to cost reductions, downsizings and agency cost-reduction mergers, weakening agency capabilities by juniorizing agency staff and eliminating experienced senior positions. It’s hard to see how cost reductions of this type helped to improve advertising’s effectiveness. 1.

**Introduction of procurement into client-agency relationships. **Procurement’s arrival was predictable, given the complexities of staff-hour billing. Procurement typically came from manufacturing operations and knew little about how ads were created and aired / inserted in the marketplace. Procurement sought guidance and cooperation in the beginning, but agencies were neither knowledgeable about their own internal operations nor very cooperative with procurement.

This led procurement to think “they’ve got something to hide.” Subsequently, procurement’s attitude hardened, leading to their use of outside benchmarking data along with implementing chronic fee reductions. This should have been an avoidable outcome. 1.

**Split of media agencies from creative agencies. **To compete with independent media agencies, who were stealing media work with clients, financial holding companies took the easy way out, splitting media from creative rather than working with their agencies to enhance the perceived value of *integrated *media. The unbundling of media began the fragmentation of the agency world, reducing the scale and importance of individual agencies, making them more vulnerable to procurement.

Bill Duggan of ANA was appalled by the unbundling decision. ”The unbundling of media from creative was one of the worst things that happened to the agency business. Once upon a time, an ad agency was the most trusted external partner for many marketers. Unbundling made each individual agency less important.” 1.

**Acceptance of separate (rather than integrated) digital and social agencies. **Holding company creative agencies resisted the need to diversify into direct marketing, CRM, digital and social, wanting to remain *creative *(and leave the software stuff to others).

Financial holding companies, rather than insisting on and leading / promoting integration for their agencies, chose to create “holding company relationships,” offering their diversified portfolios to their clients, thinking that this would enhance revenue prospects.

Holding company relationships further weakened the status of their agencies, further fragmented the marketplace, and encouraged even greater fee reductions and agency reviews by procurement. Agencies, who used to have long-term relationships, found themselves in the costly “new business development” game. 1.

**Ignoring the substantial slowdown in advertiser brand growth rates after 2008. **Since 2009, forty of the top sixty advertisers have seen brand growth rates fall **below **nominal GDP growth rates (below normal growth plus inflation).

Rather than upgrade services to help clients grow, like the consulting firms, financial holding companies promoted the concept of their “efficient” and “low cost” services, giving procurement (but not marketing) what it wanted. This strategy encouraged the use of low-cost programmatic advertising, which does very little to accelerate client brand growth rates and uses the time of low-cost junior creatives. 1.

Initiation of non-transparent and principal-based media operations. Although rebates and self-dealing in media existed for a long time outside the US, the practices came to the U.S. when holding company media agencies, unable to generate profits due to fee cuts in media, sought alternative ways to shore up financial holding company revenues. The issue led to ANA investigations in 2016 and ongoing concerns about the lack of trust that non-transparent practices promote. 1.

**Introduction of AI into creative and media operations. **AI, which is capable of reducing agency staff-hours in a dramatic way, and giving procurement a new basis for cutting fees, is being promoted by financial holding companies in the name of low cost and efficiency.

Financial holding companies believe that fee losses can be made up by charging for AI platform use. At present, the threat of AI has not yet motivated management to begin documenting and measuring agency workloads to change the basis for charging for agency outputs.

These crises have occurred over many decades. Surely, financial holding company executives are not so chronically inept so as to have made wrong decisions at every bend in the road, crisis by crisis.

The reality is financial holding company executives have sought to milk agencies, particularly through cost reductions and self-dealing in media operations, rather than do the tough work to bring about changes in pricing, to strengthen the capabilities of their agencies, and to support clients by bringing effective advertising to the brand-growth problem.

Predictably, the milk has begun to dry up, as shown by the declining performance of holding companies on their respective stock exchanges.

The Omnicom acquisition of IPG is a last-minute Hail Mary, designed to remove another billion of costs without any commitment to improving the effectiveness of advertising. “Increased collaboration among agencies” along with “reduced costs” and more programmatic media is what Omnicom’s C-Suite leaders are promising.

Clients who want and need improved performance from more effective advertising should be looking elsewhere for help.

Publicis’ growth suggests that Publicis has something attractive to offer. Independent agencies should step up and offer their services. They will certainly commit themselves to their clients’ success rather than pander to Wall Street or The City.

No posts