The Association of National Advertisers (ANA, the trade organization for Big Advertisers) recently released a report alleging, amongst other things, widespread "rebates" (e.g., kickbacks) being paid to media agencies without the knowledge of their clients. In general, the reported found "a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship."
Reaction to the report has been swift. Martin Sorrell, who is the de facto spokesman for Big Agencies, called the report "emotional and intemperate". The AAAA (the trade organization for Big Agencies) decried the report as having "immense shortcomings." And so on.
So who's telling the truth here? Do Big Advertisers deserve a huge refund from the Big Agencies for years of underhanded dealings? Or does the ANA report just miss the point?
Hannah Arendt once described bureaucracy as "rule by Nobody:
Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act; for the rule by Nobody is not no-rule, and where all are equally powerless we have a tyranny without a tyrant.
Big Agencies believe the tyrant is the Big Advertiser, who mercilessly negotiates fees lower and lower. Big Advertisers believe the tyrant is Big Agencies, who surreptitiously receive kick-backs and create convoluted contracts that conceal extra fees. It's always someone else's fault - rule by nobody.
And yet, the very parties complaining about the brokenness of the system are the ones who perpetuate and profit from the status quo. What do Big Advertisers do after deriding Big Agencies for bad service and bad contracts? They send out an RFP -- exclusively to Big Agencies. The definition of insanity is . . . you know the rest of the expression.
And Big Agencies, who complain about their margins being crushed by heartless procurement teams at Big Advertisers, still find a way to spend millions on opulent offices and pointless award ceremonies.
The truth is that both the Big Agency and the Big Advertiser are dependent on each other, have grown powerful together, and will die together. Advertising has changed - TV is barely a mass medium anymore, budgets have shifted to digital, and performance-driven marketing is slowly but steadily gaining market share at the expense of brand advertisers. The companies that are winning are New Agencies - agencies that quantify the value of everything they do for advertisers - and New Advertisers - advertisers that measure and optimize their budgets based on ROI.
Companies like Facebook, Square, SurveyMonkey and GoPro were birthed in the last decade but are now multi-billion dollar companies. These companies did not achieve success through massive branding campaigns crafted by massive brand agencies, but rather through "New Marketing" - digital marketing, user-generated contest, and even growth hacking. And of course a whole ecosystem of agencies have emerged to service these new leaders.
Big Advertisers and Big Agencies pretend to be interested in New Marketing, but only to a degree. After all, the biggest digital marketing campaigns rarely exceed $10 million a month - Big Agencies can't maintain their massive revenue on "percentage of spend" deals at that size - they need advertisers that are willing to pay them millions a month for award-winning (read: expensive) TV commercials, sponsorships of stadiums, and over-the-top event marketing. Similarly, Big Advertisers have to justify their large budgets - e.g., "use it or lose it." A retreat from traditional advertising means less power - smaller headcount and smaller budgets.
As a result, the Advertising Industrial Complex of Big Agencies and Big Advertisers throw insults at each other, pretend that they want change (here's an example from a Big Advertiser, and another from a Big Agency), but continue to preserve the status quo. They are dinosaurs getting married before the meteor hits. Releasing a damning report that confirms what everyone already knows may help justify trade association dues, but without real change from the participants in the system, it is nothing but an epitaph for a dying industry.