3 Agencies That Are Moving Away From the Traditional AOR Model

Expanded content needs and tighter budgets fuel innovation

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Agencies of record are undergoing a continual disruption.
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Amid massive shake-ups to how audiences consume content, clients and agencies alike are searching for the best way forward.

Marketers have seen their need for content rise exponentially to meet audiences on a host of platforms. Traditional agencies are struggling to keep up with such demands while also seeing budgets shrink. At the same time, these industry disruptions have led to opportunities for a new breed of agencies that claim to represent an alternative to the old model.

“The explosion of content changed the game completely,” said Avi Dan, founder and CEO of search consultancy Avidan Strategies. “A big packaged-goods brand [used to be able to] get away with three commercials a year. … Now some of them need [thousands] of pieces of content.”

“Very few ‘traditional’ agencies were set up that way and struggle to accommodate that sort of volume,” Nancy Hill, former 4A’s CEO and Media Sherpas founder, said. “That’s why you’ve seen the rise of streamlined production company models take on some of the work that the individual agencies just can’t handle at a decent profit margin.”

Dan estimated that AOR relationships still comprise 70–80% of agencies’ revenues, but said that number has been in decline for the past three to four years and is closer to 50% for small and midsize shops. For digital content, project-based assignments are even more prevalent, possibly representing a majority of duties, he said.

The crisis

This transition has left traditional agencies more reliant on AOR relationships in trouble, with the starkest example being the impending closing of New York independent agency Barton F. Graf after clients such as mobile game developer Supercell moved to project-based relationships. 

“For years after the demise of commission-based models, agencies … fell into a model … that allowed clients to push for lower and lower hourly rates,” Hill explained. “The model was bound to break at some point.”

Falkon founder Dexton Deboree explained that legacy agencies continued to rely on the formula of retainer relationships because the revenue streams of project-based work can’t match AOR assignments.

Dan pointed to how “you have to react with a model that makes sense and can still allow you to make money,” something that newer agencies without legacy layers are better built to handle.

Alternatives to the traditional agency model range from slimmed down creative boutiques to shops with a production/content studio background. All of them seem to address client concerns around efficiency and costs.

“The number one [client concern] is a lack of speed, this idea that traditional agencies and agency networks just have too much weight … to be able to really support the speed at which most of these brands and businesses [need to operate],” said Wesley ter Haar, founding COO of MediaMonks, which in July 2018 was acquired by S4 Capital’s Martin Sorrell, the former WPP CEO, who said this was his company’s “first significant step in building a new age, new era, digital agency platform for clients.”

A creative boutique, but scaled down

Erich & Kallman founder Steve Erich explained that the agency built an approach that keeps creativity a priority while cutting down on unnecessary administrative costs and infrastructure that slowed down the process. This was in response to industry trends that required fast delivery of content and moved away from the AOR model. 

“We wanted … to be able to handle projects just as well as we’d handled AOR,” he said, estimating that about half of the agency’s clients are AOR with the rest on a project basis. 

Initially, the agency leaned on a small core team while hiring “the best freelancers in the world,” but has since transitioned to mostly relying on full-time roles, Erich said.

This story first appeared in the Sept. 30, 2019, issue of Adweek magazine. Click here to subscribe.

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