Media's Rising Digital Acuity Puts Agencies at Risk

The following is also my column in next week's issue of Advertising Age...

It wasn't the most talked about session at the IAB Annual Meeting this week in Phoenix, but it should have been.

In a series of fascinating frames peppered with statistics, Christopher Vollmer from Booz Allen Hamilton laid out how media companies have increased their digital skills, added new services and are winning over marketers. In the process, they're disintermediating agencies - even as they all downplay it.

Three data points from the joint IAB/Booz Allen Hamilton study are particularly noteworthy:

* By 2010, 53% of media companies surveyed expect to do more business directly with marketers. The majority of marketers (52%) feel the same about publishers

* Only 27% of marketers expect to be doing more business with agencies two years from now

* Today nearly every media company (91%) offers some kind of "agency-like" services. This includes former untouchables like idea generation (88%) and creative development (79%)

The image of media companies as lumbering dinosaurs lingering toward extinction in a world of infinite content is downright wrong. They are more in sync with consumers than any other contingency in the marketing ecosystem. Their entire DNA is digital.

Consider too the bubbling innovation taking place across the Chinese Wall on the editorial side. Almost every single media brand has embraced a spirit of openness and collaboration that was unheard of a few years ago. New York Times Tech section editors curate and link to relevant posts from the blogosphere. Reporters at BusinessWeek are re-writing three-year-old cover stories with the help of readers. CNN's new iReport.com site solicits contributions from around the world, all without filters.

The digital rallying cry that started in the executive suite is being executed flawlessly across almost every media business. Digital editors and salespeople are fully integrated with their print/broadcast counterparts. However, the same cannot be said for agencies. During his keynote at IAB, Group M CEO Rob Norman outlined how the company just recently became more digitally integrated. (Note this related story on agency Web 2.0 skills that ran in AdWeek)

Still, Group M can't be blamed for starting late since the clients too are behind. The Booz Allen Hamilton study found that only 26% of marketers believe their organizations are "digitally savvy." Nevertheless, as the media remain in the vanguard and closest to the ever-changing habits of consumers, it's clear that as they get smarter the risk to agencies has never been greater.

Comments

[Stuart MacDonald]

Steve, what an eye opener. Thanks for sharing. Clearly there are a lot of things changing and the agency world is at risk (or dealing with a colossal opportunity)- but I wouldn't have bet on the media companies themselves stepping in to fill that gap.

Hope you're well,
Stuart

[Max Kalehoff]

Steve,
I wish I got to sit in on that presentation! The Booz study is absolutely right and consistent with what I've been seeing. A few complementary thoughts:

1. Marketers -- not agencies -- have been more experimental in new, innovative media (which digital generally lends itself to).

2. Agencies are particularly good at being territorial and watering down the potential of new media opportunties.

3. Media can command greater margins if intermediaries are squeezed out.

4. Consider the world's most highly valued advertising/media company: Google. It does a damn good job of maintaining and enforcing direct relationships with the marketers. Why wouldn't others follow?

5. There still is so much legacy money in old, siloed traditional media channels, which prevents agencies from really stepping up.

6. The leadership of most of today's agencies know their old models well. They need to retire so new agency leadership can step up and invest where the future is.

7. Finally, new, innovative digital media often don't show up on the radar of agency planning and accountability conventions. Therefore, it's often left to the media companies themselves to show ROI, or MAKE ROI happen -- often by taking over duties traditionally held by the agencies.

Cheahs,
Max