The Ad Industry Has Reached a Breaking Point. Can It Bounce Back?

Agency-client relations hit an all-time low

Person in boat rowing towards edge of chart cliff
Many fear the bar will continue to drop once such demands have been normalized. Tang Yau Hoong — Ikon Images/Getty Images
Headshot of Patrick Coffee

Would you work a full-time job for four months without being paid? Could you?

“Once upon a time, the agency was the most important outside relationship most clients had,” said Bill Duggan, group evp for the Association of National Advertisers.

That is no longer the case.

Agency leaders, trade groups and CMOs have united in decrying the conditions of General Mills’ ongoing creative review, which include 120-day payment terms, “blind” briefs and complete ownership of creative concepts from winners and losers alike.

General Mills, which declined to comment on the RFP, didn’t start this trend. Its approach mirrors that of other major advertisers—and the agencies that agreed to sign their contracts.

“Trust between marketers and agencies is at an all-time low,” Duggan said, citing ANA member surveys. The leader of one prominent creative network, speaking on condition of anonymity, went so far as to say some clients that see creative services as another disposable commodity have “crossed the line into usury over payment terms and IP ownership.”

Meanwhile, CMOs face their own uphill struggles. Audi, whose parent company, VW, countered a sales slump by slashing its global media budget, recently launched a review after nearly 50 years with BBH, only to see big-name shops from Leo Burnett to VCCP decline or drop out after the brief.

“The industry really is at a breaking point,” said Crossmedia CEO Martin Albrecht, “because clients don’t see the value, period.”

How can advertising overcome this apocalyptic prognosis?

Creative as currency

The most contentious trend concerns ownership of creative ideas.

“Architecture firms aren’t going to give you their designs for free,” said Matt Kasindorf, svp of agency management services at the 4A’s.

Celebrity Cruises CMO Peter Giorgi called the idea that any client would ask agencies to pitch their best concepts before assigning them to a cheaper shop “offensive.” A consulting firm like KPMG or Accenture, he said, would never even consider agreeing to such terms.

“Trust between marketers and agencies is at an all-time low."
Bill Duggan, group evp for the ANA's.

Yet 4A’s members report an increasing expectation for unpaid pitches, and many fear the bar will continue to drop once such demands have been normalized. The creative leader also said client contracts “almost always” assign legal responsibility for matters like unauthorized usage lawsuits to the agencies, rather than the marketers that approved the work in the first place.

Duggan connects this slow-motion breakdown to the original decoupling of media and creative as brands added more shops to their rosters and began addressing their marketing needs on an à la carte basis. Still, the General Mills RFP served as a wake-up call, with more than one agency declining due to multiple red flags.

Managing director Eric Dunn of San Francisco’s Odysseus Arms, which pitched General Mills in 2016 under similar conditions, called such reviews a “high risk, minimal profit scenario.” The president at another shop who requested anonymity to avoid upsetting client-side purchasing agents added, “We wouldn’t agree to those conditions even if we’d already won the pitch.”

Some draw their own lines.

David Mullen, partner at The Variable in Winston-Salem, N.C., said his agency usually insists on 30-day payment periods, responds to RFPs with extensive Q&As and asks would-be clients to sign basic “ownership of rights” agreements ensuring that all original concepts belong to The Variable even if they don’t get hired. He estimated only 10% have declined to sign.

Search consultants also work to walk marketers back from the edge. “We make it very clear from day one that they will not have ownership of the work unless they pay appropriately for it,” said Ann Billock, partner at Ark Advisors.

Billock added that all vendors feel the squeeze, including broadcasters, publishers, distributors and her own two-person firm, whose clients have demanded 180-day payment terms.

To many industry leaders, the problem comes back to one word: procurement. 

Pricing themselves out of business

As big advertisers heighten efficiencies, teams usually tasked with negotiating the most favorable deals on raw materials, furniture and IT supplies have assumed a larger role in writing marketing contracts.

One agency CEO called 90% of procurement “draconian” and said its influence has further distanced CMOs from creative and strategy, or the very things that should set their partners apart. The 4A’s Kasindorf compared agency services to the distribution of a product like aluminum, which will vary little whether it comes from company A or B. “Switch to legal or advertising and there can be a tremendous difference in quality, price and ultimate outcome,” he added.

“We make it very clear from day one that they will not have ownership of the work unless they pay appropriately for it."
Ann Billock, partner at Ark Advisors.

@PatrickCoffee Patrick Coffee is a senior editor for Adweek.