It’s Not Just Agencies Feeling the Pressure as Clients Demand More for Less

No member of the advertising ecosystem remains unscathed

Illustration of businessman squeezed between two dollar bills
The business model has changed, and companies of all sizes struggle to adjust. Getty Images
Headshot of Patrick Coffee

When former journalist Bernadette Rivero co-founded production shop The Cortez Brothers in 2005, she didn’t foresee that the market itself would one day become her biggest adversary as the increasingly rigorous demands of big advertisers trickled down from agencies to small companies like her own.

The General Mills RFP has been top of mind for me lately, as I try to find the balance as a production company owner, between bidding on jobs with everything I’ve got and being smart about what my team is bidding on in the first place,” she said.

The contentious conditions of that review look awfully familiar to owners of businesses like Rivero’s.

"Seems like they’re trying to squeeze out boutique companies because we can’t float that amount of money."
Post-production executive

It used to be that everyone got paid 50% before the job started,” said one postproduction house executive who spent 20 years in the agency world. But as clients introduced longer payment periods, agencies responded in turn, and their vendors further down the funnel bore an increasing share of the financial strain. Thirty-day terms grew to 60 and then 90 days, and that became standard operating procedure.

Now, the executive said, her business usually doesn’t receive any form of payment until a project ends—and she still has to “chase down the final 50%.”

Perhaps understandably, many such companies have little sympathy for ad agencies still suffering shell shock as clients shift away from the lucrative AOR contracts of yesteryear.

“This is something production companies have been experiencing for a long time, and agencies should not be surprised, because they have been enabling marketers in believing it could be realistic,” said Matt Miller, CEO of the Association of Independent Commercial Producers (AICP). He argued that creative shops have forced themselves into “the same bucket” as other vendors by accepting more restrictive contracts.

Miller also sees a confluence of business models as agencies increasingly handle the sort of one-off projects that once fell almost exclusively to AICP members, eliminating full-time positions and hiring more freelancers to staff big campaign work when it comes in.

Few industry insiders think this approach will work in the long run.

“Ultimately [marketers] will have higher costs per day, because project work is more expensive than retained work,” Miller said, adding that clients have minimized the leverage they hold over their partners by approaching the challenge “from a position of ignorance about the way the industry really functions.”

At the same time, those parties on the lowest end of the funnel ultimately suffer most.

“It all rolls down,” said the postproduction executive. “They get paid late, then we get paid late.”

Rivero noted another practice by which agencies have long held power over their production partners.

“In the same way that General Mills is asking for agencies to pitch on an RFP, for free, and give up control of any of the creativity they bring to the table (also for free), ad agencies have routinely asked production companies for years to triple bid on branded content jobs,” she said.

Indeed, a 2017 ANA survey revealed that agencies regularly used illegal “bid rigging” practices to divert work on client campaigns back to their own production departments.

The founder of a West Coast production shop said CMOs once saw companies like his as adversaries, and responded by instituting cost controls.

“Now the tables have turned, and clients feel like agencies aren’t being honest with them,” he added.

That lack of trust, combined with a gradual and profound shift in consumer behavior, has changed the way his company and its partners go about their business.

“With so many screens to put content on, it’s just a lot more asks for less money,” he said. “That’s the root of it.”

The ripple effects of this shift also touch on matters of intellectual property, and they travel all the way down to the mom-and-pop (or just pop) shops.

Doug McGoldrick, owner of a Chicago commercial photography studio, told Adweek that his contracts almost always forbid him from sharing his own work and using it to promote his business.

These days with Instagram and Facebook, I feel the need to shovel out an image or two every day to feed the social beast,” he said. “You do get to charge more, but, in all honesty, I would rather have the ability to put the work [out there].”

That standard, for example, applied to a recent campaign he shot for an ad agency based in New Jersey.

“They don’t want to go to bat for people like me,” McGoldrick said, noting that this has always been the case for utility players like producers and cameramen.

"This is something production companies have been experiencing for a long time, and agencies should not be surprised."
Matt Miller, CEO, Association of Independent Commercial Producers

The production-company founder said most agencies are “now reaping the rewards of not having a spine” and allowing clients to dictate their every move, but these problems persist even when agencies don’t factor into the equation.

In direct-to-client arrangements, the postproduction executive said her company has to accept reduced fees in order to receive payment in less than 90 days. “Seems like they’re trying to squeeze out boutique companies because we can’t float that amount of money,” she said. “I see no upside to this.”

When asked how this model might move forward without eliminating large swaths of the creative services industry, the production-company founder said the lines are blurring with clients building in-house agencies, agencies establishing their own production divisions and companies like his own working directly with clients and cutting out the middle-man. Top talent will go where it’s needed.

In other words, the future could be wide open, depending on one’s perspective.

And he remains optimistic.

“It’s still a viable, exciting time, and creative is more important than ever before,” he said.

Brands may need to realize through trial and error that the classic manufacturing maxim “Fast, cheap and good: Pick two,” applies to advertising.

As Rivero put it, “Until we, as an industry, start asking why we value the impact of creative campaigns on sales but not the process necessary to develop and shape the creative that drives those sales, we’re treading water.”

@PatrickCoffee Patrick Coffee is a senior editor for Adweek.