The Roundtable: State of the Agency | Adweek The Roundtable: State of the Agency | Adweek
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The Roundtable: State of the Agency

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ADWEEK'S 25TH ANNIVERSARY

Industry leaders debate media unbundling, branded content, compensation, the dearth of talent and advertising's identity crisis.

Adweek's 25th anniversary comes at a time of dynamic changes and challenges in the marketing communications business. Never before has the industry faced such a confluence of new technology, burgeoning options in media and branded content. Not to mention difficult economic times worsened by compensation pressures and bottom-line realities dictated by public ownership. Reaching consumers has become harder than ever, given their growing control over how and when they receive commercial messages. Still, participants in Adweek's roundtable discussion, moderated by editor Alison Fahey and editor-at-large Noreen O'Leary last month at the W New York in Union Square, say that the more things change, the more they stay the same. The business remains a test of developing marketing strategies that succeed, in whatever form they assume. Here's what the experts had to say.

Let's start by talking about the state of the industry and how tough these past few years have been.



BERLIN: One way of looking at it is seeing how the overall economic circumstances have been affecting agencies' business plans. If you're looking at it that way—as opposed to the development of the business, which is somewhat separate from that—yeah, we had a bad time. But things are getting better.



LAZARUS: I would say something else that's very positive. Over the past five years, we have come to play a much more essential role in our clients' lives, in their businesses. Brands have become a CEO matter, not an ad-manager subject.



But haven't brands been a CEO subject for decades?



LAZARUS: Advertising was a subject for CEOs for a while. But as ad budgets got more diverse and larger, whole departments of ad managers grew up around them, and advertising stopped being a CEO subject. As the importance of brands came to the fore again, over the last five years I think it's a CEO focus again.



Donny, would you agree with that?



DEUTSCH: Yes. Out of adversity always comes some positive. Obviously, it's been tough. We mirror what's going on in the world, and hopefully agencies will come out of the last four or five years stronger, tougher. But I don't see that things ever change dramatically. We go up and down in terms of compensation issues and economic issues. But the fundamentals—building great brands, telling great human stories—aren't dramatically different.



DROGA: I agree. The principles are exactly the same.



KLUES: I think the business has dramatically changed.



How so, Jack?



KLUES: First of all, media people live in a constantly changing business, to Donny's point. The point of contact always moves around. You change or die. A huge change is that I believe there is a greater need for connectivity between contact points and message content and message distribution. Consumers have too much control right now, and there are many options. For a powerful advertising message to really communicate now, it's become much more important that message distribution be talked about in a simultaneous fashion.



DEUTSCH: Yes, fragmentation happens, and we have to be more and more on our game as the consumer gets more empowered. But the fundamentals of what we've had to do to make those connections have not changed.



KLUES: I don't want to be painted with a CRM brush, but what we have to do is more one-on-one marketing and focus on consumer relationships. Within the industry, we need to be talking more closely to each other in 2004 than we did five years ago.



LAZARUS: Who's "we"?



KLUES: Content creators, message-distribution specialists.



LAZARUS: But we did that when we used to be together under one roof.



KLUES: It was easier to be together when there were three networks and a hundred magazines.



Do you think agencies are threatened by the growing clout of media companies?

KLUES: They shouldn't be threatened by me. Clients have led media specialization, not any holding company. Clients led it, because in a more complicated world, they recognize that they needed an expertise they weren't getting from the traditional agency organization.



How does separating media make it more sophisticated? And wasn't there a financial motivation to unbundling?



KLUES: I've lived for twentysomething years in a media environment where we were at the bottom of an agency food chain. I'm a better partner to my creative-agency brethren because I run my own business versus having to work my way through some agency food chain where I'm driving profit in and can't get the money back to reinvest in my product. That's what specialization is about, and to suggest it's just about financial efficiency is wrong.



BERLIN: You've defined media as a distribution business, in part. It's also an intellectual-capital business, and certainly, if convergence ever happens, it will become more and more of an intellectual-capital business. But to the extent media is a distribution business, it is something that financial people believe can be consolidated. Clout is a benefit to clients.



KLUES: We're past the clout story. Clout was what you should have talked about at Adweek's 20th anniversary.



LAZARUS: I miss the kind of intellectual collaboration I had with my media partners before the separation.



KLUES: I'm sorry to hear that you don't have that, because with the partners we work with, whether they are in the Publicis Group or outside, it's not about our flipping the bird at the agencies.



DEUTSCH: Being under one roof is a real advantage to us. Under one roof, literally sitting next door to [Deutsch chief media officer] Peter Gardiner—our brilliant media thinker, planner and buyer—is our head of account planning, our creative people, whatnot. It's completely one profit center, completely de-siloed. Common sense would tell you that just setting up the football field that way probably makes it easier to do all of the exciting things that are happening.



KLUES: I won't dismiss the benefits to physical proximity, but I would argue that your media director has the same access to resources, intellectual capital, financial capital, and can be as good as an outside strategic media partner. I would argue that just because he sits near you doesn't make him the peer of a more unbundled operation.



LAZARUS: I don't understand that. We have brought public relations inside the company, and they haven't lost any of their expertise as PR people. We have direct marketing people who have done the same. What we have found is the benefit from the ferment of just sharing ideas, because people are physically close and thinking together.



Let's move on to finance, since we seem to be writing more about CFOs than creative directors some days. How has the emphasis on financial issues impacted creativity?



DROGA: I have no interest in financial issues. I want to be the only person in the company that is not paid to be held accountable for margins. I think there are too many people in the company, every company, where that's their whole agenda. There's a caveat with that. Fundamentally, I have to believe that what finance guys do is going to work for the client and help the business. But I don't want to be sitting at my desk and looking at spreadsheets and thinking like a finance guy. I don't think any decent creative wants to do that.



DEUTSCH: Can I talk about what I think are the two most fundamentally huge problems that face our industry today?



Sure.



DEUTSCH: They are seismic and very related. There are two mathematical certainties that are happening in this business, and it's bad. One is the constant squeezing of agencies on compensation, how we provide service, what we provide. On top of that, more than ever—certainly in the last 15 or 20 years—there has been such a dearth of talent coming into the business. It's not necessarily creative talent, but business talent as well. When I came into this industry, a smart businessperson went into advertising because it was a great craft, it was a great business. Who in the last 20 years, coming out of any top business school, would go into advertising? If you look at a top young person coming out of school, they're going into the investment-banking business, the consulting business.



Right, but that's been the case for years.



DEUTSCH: Yes, but it wasn't the case 25 years ago. We are now suffering from that. If you look at the ranks of agency people under the age of 50, 55 years old—I don't want to make this an ageist thing, but there is so little smart business talent coming in.



And you think the reason is compensation?



LAZARUS: I don't think compensation is the primary issue.



DEUTSCH: It's the outgrowth.



Are you having trouble finding talent, Shelly?



LAZARUS: No.



DEUTSCH: You're telling me I could go through your organization and find a next generation of business competency that is equal to what you had 20, 30 years ago?



LAZARUS: No, I wouldn't say that, because I think it's the middle level that is the problem.



DEUTSCH: Well, that's the upcoming level.

LAZARUS: I don't think there's a fundamental problem of people coming into advertising, because we get talent out of the schools. But the question is, Can we keep the talent? That has less to do with compensation than it has to do with the industry per se.



DEUTSCH: Those are two different issues.



DROGA: There are a lot of recruits coming into the business. It's a caliber issue. Just from a creative perspective, I don't think it's as sexy an industry as it once was.

LAZARUS: So where are the bright, young business minds going?



DROGA: They're going to work for software companies.



DEUTSCH: There are 500 channels out there.



BERLIN: What you can do is build an agency today without a middle layer. You can build a two-layer agency.



What do you sacrifice by removing that middle layer?



BERLIN: An agency of scale.



DEUTSCH: What's happening today would almost allow you to do it. There are a lot of clients who are waking up and saying—whether they're right or wrong—they're saying, "I want the top layer of fruit, the big creative ideas, and then I want to buy them from a great group of people. Then I can go to other distribution systems and pay them for that service."



BERLIN: Here's a different model, which has to do with a structure that works with that idea: Instead of thinking of rigidly defined, separate achievements by discipline inside the agency, think about people that provide an intersection of a number of capabilities.



Most of you have different business models. That's why you're here.



BERLIN: We have radically different models. But Shelly and Donny, whom I know somewhat, are people who know management issues, who know creative issues, who know strategic issues. Both of them have built integrated businesses. In terms of the future, I find it more interesting that they combine many different skill sets besides their own judgment. That is the really interesting way to think about building for the future. You can have a delayered organization if you have talented people who are capable of thinking that way.



KLUES: Andy, you said it. I think it's about skill sets. The agency model of the future has to reorient and redefine what the level of client service is, what the business of an account executive is, because clients have assumed a great part of that role for themselves. From my personal experience, a lot of my co-workers in that situation are very smart people. But they are not quite sure of themselves or about where they fit into the new agency paradigm, because clients clearly will pay for brilliant creative work from other places. They will pay for high- quality media work.



BERLIN: I do want to argue about that—and not against you. A great account person is the hardest person to get, and I wish there were more of them. These are people who manage a business. They represent a client inside the agency. They are the people inside the agency that understand the client's business. They are, in fact, people with very strong creative judgments. They help everyone else to do their jobs well. They are critical to the process. When you have a great account manager, everybody knows it. Everybody loves it, and clients don't question their role. When you don't have good account management in an agency, sure, clients will believe that they can do it well. But they don't do it well.



KLUES: It's not the quality issue. In terms of fees being squeezed, what I sense from clients is, they're asking for specific skills.



LAZARUS: I disagree. I don't think clients ask for skills—they ask for solutions. They know that there are three guys within any agency who bring them the answer. The more integrated the solution is, the less they know which department the solution comes from, the stronger the relationship.



KLUES: That's semantics.

LAZARUS: It's not semantics.



KLUES: Let me finish. Are they going to be the account executive on the business presenting a solution, or are they going to be more like Andy's description of an account person who is more of a facilitator?



DROGA: How do you explain agencies like Mother in London? It's the most creative agency in the U.K.; it's probably the fastest- growing. It's starting to get the big accounts now. It doesn't have any account service.



BERLIN: That's not true. They have account management by a different name. [Mother co-founder] Robert Saville is a creative guy who also has an account-management skill. He believes creative people and planners ought to be able to handle account management. Account management takes place there; there's just not a department called that.



They have the function, it's just not labeled the same way.



BERLIN: But I don't think it's just semantics. It's more the point I was trying to make, which is, they've got people at Mother who multitask and multitask well. Yes, they made the name of the function disappear; yes, they also disappeared salaries.



DROGA: That's my only question: Do you think it's moving to where creatives need to play more of an account-executive role?



BERLIN: I don't think creatives need to read balance sheets, although I do think that all creatives, including you, should have some sense that you have a budget to work within.



DEUTSCH: I won't confuse the two things, integration and financial accountability. What's happened at successful agencies—at our place, what's happening at Shelly's place and Andy's—is when you start to have creative people, account people, planners, media people, PR people, direct response people all coming off the same page and working towards a solution together, they become excited by coming up with winning formulas. Our creative directors are not hands-off on direct response. Clients want solutions. They are not coming to you and saying, "We want 70 percent direct response." They want 100 percent of a solution.



Let's talk about consumers and their increasing control over media with new technologies like TiVo.



DEUTSCH: There are two kinds of commercials that are not being zapped on TiVo. One is beer advertising, because it's the most creative, and people like to watch it. The second—which may come as a surprise—are phar- maceutical ads, because they're giving people important information they want. So what's the reason for advertising? We better damn well be giving them something. You're entertaining them, engaging them, teaching something.



Isn't that what most agencies have been trying to do?



DEUTSCH: What's happening now is it forces you to do that. If you don't survive [things like TiVo], it brings the stakes to a completely different level. That's the good news.



BERLIN: TiVo is a technical force that is doing something we have always wanted to do, which is to make the advertising better. By the way, 25 years ago Nielsen was able to scan the boxes in their system every 15 seconds. If they wanted to, they could have seen what commercials cause consumers to tune out and what commercials cause them to tune in.



KLUES: I think you are right. I'm not afraid of the whole issue of TiVo, either. One of the things that we on the media side—your media partners—need to push, and our clients need to push, is Nielsen does have minute-by-minute, second-by-second data. We are the only country in the world that buys TV media based on program advertising. Our clients know that that's kind of bullshit.



BERLIN: We as a media industry should be buying commercial ratings so that our clients are only paying for the exposures that they truly get for the commercial when it's being seen. It's outrageous that we're in this really nasty spot with our clients where we're having them buy one thing and saying, "Well, I hope it doesn't get zapped or something." At the end of the day, Nielsen can give us the data, tell us commercial ratings, have us buy on commercial ratings, and you know what? It will be cool. Zapping will be zapping. A crappy Preparation H commercial should cost more than a great-idea commercial, as judged by the viewers. I am talking about using the data, the capabilities that are there, and setting the rates on the basis of whether you contribute to or subtract from the audience. That would make the argument that creative people have made for years.



KLUES: Part of it has to be our responsibility in placement. Part of it is that our clients should only pay for what they really get. We've got an issue of measurement in this country—at least versus the rest of the world—where our clients are buying and paying for something where they are not getting full value, just because of the way our market measures audiences.



Let's get back to Shelly's point about agencies becoming more essential. I would have thought differently: that clients are seeking ideas from more resources these days.



BERLIN: We are the growth consultants. We do things the McKinseys and Booz Allens can't do. We are the people who create organic growth.



KLUES: Do you guys feel the same pressure from the McKinseys and their involvement more now than you did five years ago?

LAZARUS: No. I think we play different roles. There's room for both of us at the table.



Don't you think their involvement hurts the reputation and clout of agencies?



LAZARUS: The industry somehow feels less appreciated than it did before.



BERLIN: I think that insecurity is self-inflicted, and I think it's hurtful.



What about the compensation consultants?



DEUTSCH: There are two kinds of consultants. The ones that help clients and agencies work better and help clients get greater efficiencies are valuable. They help clients get the most out of their advertising dollars. Consultants that come in and just slash and burn are destructive, not constructive. They serve no function.



BERLIN: We have been told on a number of occasions by big clients that we are to make a certain profit margin. We say, "No, we won't work with you."



That's a client running your business.



DEUTSCH: When we parted ways with a [recent] client, that's exactly what it was. It was a client saying, "I'm going to run your business." It's so absurd. Can you imagine calling a law firm or an accounting firm and saying, "This is what your rent should be, this is what your salary should be, this is what your cab ride home should cost?"



I don't think anybody disagrees with that. But you realize some agencies do cooperate?



DEUTSCH: They roll over.



BERLIN: Generally, the people who break ranks are doing it because that's the only way they can get business.



LAZARUS: The focus is now on cost-cutting rather than on revenue generation, and revenue generation is driven by idea generation. So, rather than figuring out how much they are paying for the film, they should be worrying about how they can get a better idea.



KLUES: That's the dark side of procurement. In order to generate ideas, you need to be paid fairly for those higher ideas.



Let's move on. What do you all think about product placement—too much hype?



BERLIN: I think the furor over product placement and convergence—both of which, when really done well, are extremely interesting—is an outgrowth of the industry's insecurity and self-hatred. Advertising as it exists is the norm now. When it is done really well, it is more controlled based on a better revenue model, based on a better relationship model. With convergence, there is no brand control.



LAZARUS: There are so many new opportunities, so many new ways to use space and placement. We have to feel comfortable playing with these new things, but they've got to be measured. And I think one of the things that happened when budgets were cut is that the experimentation goes away.



Is the next generation of talent prepared to handle those experiments?



DROGA: [Creatives] are very simple people. We have huge insecurities. It's a weird one, because we all talk about these new mediums and we're all integrated, but, you know, they are still brought up to think the blue-ribbon event is a 30-second television commercial.



Who's driving these ideas? The creatives? The media agencies?



KLUES: Ultimately, the client. Sometimes the media guy says, "I have got this idea," and sometimes the creative person has this idea. Again, it doesn't matter, but I think we'd all agree that in five years from now, I would hope we are seeing much more connectivity between the message content and the medium that is carrying it.



DEUTSCH: I want to throw something out. Let's use BMW as an example. I am completely in the dark here, and I'm not bashing it. This has been lauded as this breakthrough. I wonder, if you took these exact same dollars and bought 35 more 30-second spots—whatever the math is—would they have sold more BMWs? Have they sold more BMWs?



LAZARUS: That's right. There has to be some accountability [for these experiments].



With all this blurring of advertising and content, there's got to be backlash.



LAZARUS: Look at The Restaurant.



DEUTSCH: Right. Shelly and I both have clients involved in that, and there's been a lot of debate over whether it was shameless promotion.



It was a bit much.



DEUTSCH: When a Mitsubishi pulls up and Rocco says, "Boy, that's a real chick magnet" —I think there's this line, and at the end of the day, the consumer is going to decide where that line is going to be.



How far away is that point?



DROGA: It's happening now.



Because people are getting sick of it?



BERLIN: Sick of the bad stuff.



DEUTSCH: Why do we keep casting the consumer as this helpless dupe? Consumers like being marketed to. Consumers like being sold stuff. You talk to kids today and they understand what the word "demo" means. We are all kind of hip to this thing that's going on.



DROGA: Everyone knows they are being marketed to. They just reject what they don't like, and that's been the formula forever. One of the differences between here and the U.K. is that people here are a little more optimistic to be sold to, where the English are much more cynical. Therefore, the advertising there is a little more subtle.



DEUTSCH: The 30-second and 15-second commercials are not going away. Advertising is not going away. It's part of the currency of who we are. People love it—they love to hate it. They love to talk about it.