After the last three years, it was really nice to hear predictions about a big turnaround in advertising spending in 2004.
But before we open the champagne, let’s think about the realities of the advertising business today.
Sure spending will increase; it always does in the quadrennial election/Olympic year. But what does that increased spending mean to a business that has by and large said goodbye to the commission system. There was a time when an increase in spending meant a proportionate increase in agency revenue, because commission was based on spending.
But almost no one is on commission anymore and while an increase in ad spending will mean increased agency activity and activity usually means revenue, the proportions are wrong. A $50 million dollar media buy does not require twice as much work as a $25 million buy. You may not even add to the pool of TV spots to accommodate the increased spend. Ditto for research (which by the way is mostly farmed out anyway) and the demands on account management, while increasing, will not be doubled.
So what does all this mean?
Will the 25% of agency jobs that have been eliminated since the end of 2000 come back? A few will return, but not most. Agency revenue and profitability numbers simply can’t support it. In addition, it’s hard to see some hot new category like tech, telecommunications and financial services were in their time, which is going to create new job openings.
Will the agencies return to their former levels of profitability? Not likely, especially since major advertisers like Chrysler are putting the heat on their agencies to trim expenses, while others like General Motors are putting their agencies through the wringer in an attempt to understand exactly what they consider to be overhead.
Will agencies regain what they once considered their rightful place in the boardrooms along with the consultants, bankers and lawyers? Yes, if they can demonstrate measurable value to their clients. But the metrics need improvement first.
So what can we expect for the agency business in 2004?
- Increased budgets, but not a proportionate increase in revenue;
- No letup on the pressure placed on margins by an increasingly analytical client base;
- Continuing client demand for upgraded metrics to provide some accountability;
- Some small increase in jobs, especially at the lower levels;
- The holding company model will come under increased scrutiny and pressure to deliver on the promise of better efficiency strategic uniformity;
- Increased pressure on the big guys from independent agencies who have learned to provide integrated services without the pressures of individual profit centers and the overhead of a corporate umbrella;
- No upgrading of the quality of personnel, especially at the entrance and lower levels unless agencies get the salaries up.
In short, I think 2004 for will be better than 2003, but you’re going to have to look very closely to see it.