3 Agencies That Are Moving Away From the Traditional AOR Model

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. "We still believe in the idea of being lean, so we don't have multiple layers of people in creative or account management or planning," instead hiring top creative and strategic talent that remains closely connected to the work, he said. Fellow founder Eric Kallman helps build out the agency's creative ranks with talent from ad schools that are attracted by the proposition of getting more chances to work on meaningful briefs and creatives tired of the limitations of legacy agencies. "It solved a ton of the problems that people who work at agencies always have," Kallman said, such as the hierarchy and bureaucracy inherent in some legacy structures and unnecessary meetings leading to work routinely dragging into weekends. Defaulting to action MediaMonks' production background means it has a fresh outlook on how to approach client challenges as it brings production earlier into the creative process rather than treating it as a last step. "The key to unlocking a lot of that [improved speed] is in better organization of how you work with production companies," ter Haar said. "Our model, as luck would have it, extends production into creative and into closer contact with the brand team." MediaMonks is also comfortable with another development in recent years, which it often sees as an advantage to its style of working with clients: in-housing. While many agencies have been hit hard by the trend, losing both clients and talent, MediaMonks welcomes the impact on client teams. "We're seeing more and more really amazing creative and strategy teams on the client-side, which makes it easy for them to plug in directly to our type of company," he explained. Wearing many hats Deboree described Falkon as sitting at "the intersection of advertising and entertainment," creating branded content, advertising and entertainment while noting that the lines between them continue to blur. A small team of what Deboree called "hyphenated individuals" capable in multiple disciplines at the agency handle assignments from strategy and conceptual ideation to production, sometimes [kickout id="1"] including media planning and buying. "From the very beginning of solving the problem by delivering the physical solution for it … there's a single creative voice and point of contact on it, and the team around me is pretty small and consistent," he said. Deboree said that in addition to being financially efficient, the approach keeps the creative integrity of the strategic solution intact by removing the layers and structures, adding that strategists are enamored with an approach that lets them be part of the entire process. "We can react quickly, and we come in as almost like a strike force and sometimes even feel like an extension to [the client's] internal marketing team," he said. While Falkon does have some AOR relationships, Deboree said it's "not a revenue center" that the agency relies on. The future While the client pressures resulting from needing more content for less won't disappear, Dan said the state of client/agency relationships could depend in part on the economy. If there is a recession, he said clients' emphasis on cost-cutting and project-based relationships would continue. If there is a robust and stable economy ahead, it could be the beginning of a countertrend, as some clients have expressed concerns that their roster of project-based relationships have meant plenty of creative work but a lack of sound overarching strategy. This could lead to some clients returning to AOR relationships or introducing a hybrid approach. He noted that this would be a much more gradual change than the shake-up occurring over the last few years. "I do believe that this is a long-term shift, but one that hasn't quite settled into what it will become just yet," Hill said, who envisions a hybrid between in-house and external agencies as the future norm. "The agencies that will succeed and thrive are the ones that have figured out how to be adaptable and deliver the best work for the brand in any given model."