Shops Are Increasingly Pivoting to Production as the Race to Make Faster, Cheaper Content Heats Up

Business models converge in decades-long trend

Steelhead, which started as Deutsch’s in-house production division, hosted Eminem’s album release campaign in 2017 and filmed two episodes of Modern Family this year. Steelhead
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When Martin Sorrell revealed the long-term plans for his new venture, S4 Capital, earlier this month, he listed several key elements in the “advertising delivery chain,” including “content, data analytics, media planning and digital media buying.”

Notably absent from this list was the work of traditional creative agencies like the ones Sorrell acquired via hostile takeover some three decades ago.

The ex-WPP CEO’s $350 million purchase of digital production company MediaMonks, which forms the core of his new business, signaled a potential industry-wide shift as marketers place greater value on the production and postproduction work that turns a concept into a campaign.

“There’s absolutely no question that, over the last several years, more agencies and holding companies have been setting up production divisions,” said Dustin Callif, managing partner at Tool of North America. Many compete directly with their third-party production partners for business as clients spend less on broadcast campaigns.

At the same time, these agencies’ actions have drawn the ire of some production company executives who believe they may be using unethical methods to win bids. They even led the Department of Justice to launch an investigation into potentially illegal practices in 2016.

Santa Monica’s Tool of North America has recently worked on direct-to-client projects for Celebrity Cruises, Google and IBM.
Tool of North America

Going where the money is

Matt Miller, CEO and president of the Association of Independent Commercial Producers, said his group launched in 1972 to address “production companies’ concerns that agencies were trying to start in-house entities.”

Those efforts initially failed due to an inability to secure directorial talent, according to Miller, but in recent years the trend has turned into a race to meet client demands for faster, cheaper, more ephemeral content.

The past 12 months alone have seen Deutsch (Steelhead), 72andSunny (Hecho Studios) and Anomaly (Unreasonable Studios) spin their production departments off into separate businesses. On the holding company level, WPP’s decade-old Hogarth recently announced a global partnership with Ogilvy and Grey, which officially launched its own Townhouse unit in 2016, while Publicis Groupe’s Prodigious and Omnicom’s eg+ celebrated their fourth anniversaries.

This shift also followed The Wall Street Journal’s reporting about the DoJ investigation into the practice of “bid rigging,” by which agencies allegedly act as both buyers and sellers of production services. According to the reports, these companies beat out other bidders by either asking them to share their budget proposals in exchange for later favors or disguising in-house production teams as outside vendors competing in three-party “triple bids” designed to ensure an equal playing field.

Two years ago, we started getting calls from our own production vendors asking why they were getting calls direct from agencies to bid for the same jobs,” said a production company principal who spoke on condition of anonymity for fear of being “blackballed.”

Several production executives also said agencies have reached out to their sales representatives or asked to work with their directors “on loan.” Miller recently wrote a memo warning all AICP members to refuse such requests and “take responsibility for the preservation of your own value and future.”

An open investigation

News of the DoJ’s involvement put the industry on high alert and led to changes in standard contracts. But according to one party with knowledge of the matter, the case remains open more than a year after the last contacts between federal investigators and holding company legal teams.

A subsequent report by the Association of National Advertisers appeared to confirm years of anti-competitive practices, and AICE, which merged with AICP in 2017, went so far as to shame agencies with a video suggesting their award shelves would be bare if not for their postproduction partners.




WPP, Omnicom, Publicis and IPG, all of which were subpoenaed by the DoJ, declined to comment—as did spokespeople for the U.S. Department of Public Affairs and K2 Intelligence, the firm that reportedly played a key role in the investigation.

Production leaders question how much has changed.

You have to do lots of digging on these jobs to find out who you’re up against,” said Humble managing director Rich Pring. “It’s really about trust,” added Jason Mayo, managing director of Humble’s postproduction sibling Postal.

Some agencies accordingly position public production offerings as a move toward transparency. When Anomaly announced the official launch of Unreasonable Studios, managing director Clare Donald cited “a certain negative association with in-house agency studios.”

Other operations remain somewhat opaque. For example, little-known Studio6 is part of the Havas organization, with teams embedded in five offices. But the only direct mention of the production company comes in a 2015 Medium post.

They’re a modern digital-age family

Deutsch chairman and CEO Mike Sheldon said Steelhead avoids any perception of conflict by requiring clients to sign a “single-bid letter” and thus won’t pitch against independent production companies. “We don’t have direct competitors,” he added.

Since opening in late 2017, the 50,000-square-foot facility (which is fully owned by IPG but is not technically part of Deutsch) has handled everything from motion graphics for the agency’s Taco Bell ads to a campaign promoting Eminem’s album Revival; two episodes of ABC’s Modern Family were also filmed there this year.

“As [managing director] Ted Markovic says, you walk in the front door with a script and out the back door with something that’s running on ABC,” said Sheldon, who described Steelhead as “a toolbox for other agencies, non-Deutsch clients and entertainment companies.”

The driving factor behind this increasingly competitive web, according to Tool’s Callif, concerns clients “acting like kids in a candy store” who can “work with whoever they want to.” This trend has commoditized creative ideation and turned brand strategy and production into the industry’s most valuable services—just as in Sorrell’s prospectus.

Celebrity Cruises, for example, recently went straight to Tool to execute an idea first developed by Venables Bell & Partners. “We had a concept, and what they brought back to us was light-years ahead of where we’d been,” said CMO Peter Giorgi, who spent nearly a decade on the agency side at CP+B before leading Airbnb’s advertising efforts and described Celebrity as “uniquely positioned” for this model, thanks to its internal creative team.

“The idea that an agency owns an idea comes from an era that has been gone for decades now,” he said.

The all-important price point

Tool rarely bids against creative shops for production assignments, but Callif said his company has begun to position itself as “the un-agency” by signing top creatives to “work as SWAT teams for brands.”

Modern Family filmed two episodes at Steelhead's studio.

Founder and managing director Greg Beauchamp of Manhattan’s Bindery, which produces feature films and collaborates with indie shops like Bullish and Humanaut, also said “the vast majority of work we do [75 percent] is direct to brand.” He implied that price is increasingly important, adding, “We end up on phone calls saying, ‘That’s a great joke. It’s a $50k joke; let’s try to make it for $5k.’”

Another critical differentiator concerns the increasingly fraught relationships between advertising companies and labor unions. Beauchamp cited the “incredible nonunion talent” in New York as one of the reasons Bindery can complete projects for less than its competitors.

Two sources close to Grey’s Townhouse said one of its main reasons for being—at least initially—was avoiding conflicts with SAG-AFTRA. Grey has since negotiated a truce with the union while BBH publicly withdrew from the commercials contract, writing that it “placed signatory agencies at a competitive disadvantage” by requiring them to use union talent.

A Grey spokesperson declined to comment, but a party familiar with the agency’s thinking said Townhouse was created to counteract a production model that trades creative quality for savings.

In short, agencies and production companies are converging in the latest iteration of a decades-long trend.

For some, this endless desire for fresh material is a positive thing, even if many clients are no longer willing to pay premium prices. “There are so many different mediums and types of content today that companies like ours have the opportunity to work with both agencies and brands to execute,” said Postal’s Mayo. “There’s business for everybody.”

And the new boss might not look so different from the old boss after all. Regarding Sorrell’s strategy-production-distribution model, Giorgi of Celebrity Cruises asked, “Isn’t that just an ad agency, again?”

This story first appeared in the September 24, 2018, issue of Adweek magazine. Click here to subscribe.

@PatrickCoffee Patrick Coffee is a senior editor for Adweek.