The march of the production specialists through ‘de-coupling’ threatens key ad agency revenue stream

The news about Tesco’s appointment of production company TagWorldwide alongside agency Wieden+Kennedy seems to have opened a window on a quiet revolution taking place behind the scenes in adland.

The buzz phrase is ‘de-coupling’, which sounds a bit suspect, depending on where your mind goes when you hear the phrase. It refers to the separation of creative development from implementation, i.e. one party develops the creative treatment and then another party does all the techy stuff to get the work out to media owners. Which is exactly what Tesco has decided to do.

Similar arrangements have been around for some time but rarely, or maybe never, have they been in the public domain. The surprise with the Tesco move is that both W&K and Tag have been named publicly as the chosen relationship. I don’t think I’ve ever seen that before, maybe someone can correct me.

The reason this is a silent revolution is all about history. Back in the days before television ad agencies produced press and posters, i.e. print. So for the first half of the 20th century specialist production suppliers would do all the mucky work necessary to convert a piece of artwork to a lovely colour (or mono) DPS. This was handled by the ad agency, was a key part of their remit, and clients would never meet the production suppliers.

Indeed 95 per cent of ad agency management would never meet these chaps, it was all left to their production staff who lived below stairs and were usually missing between 12 and 3pm as (in London anyway) they were down the Dog and Duck with the production reps consuming five pints of the black stuff. Production was a dark art where people in suits never ventured.

Moving the clock forward to the second half of the 20th century more and more ad agencies experimented with different models for print/studio work and joint ventures became popular. In essence the ad agency and the production supplier would create a vertical, solus relationship. In some cases all of the production work would be outsourced, reducing agency costs whilst not losing any profit. This arrangement would be 100 per cent private and very rarely, again almost never, would a client ever inquire about these relationships. So long as the work appeared, on time and on budget, nobody had any inclination to ask about how this happened, it was still a dark art.

The slow fragmentation of the industry began with the move to media independents as opposed to in-house media departments. This began in the 80s and had a profound impact on how agencies were paid. When media was in-house the 100-year convention of ad agency remuneration was 15 per cent of the gross media spend but this was thrown up in the air when media was separated from creative. Suddenly clients began to seek ways of assessing the true cost and value of the differing tasks they were paying for.

Cut to the 90s and client procurement departments became more and more prominent and they started asking awkward questions. They would compare pricing for production for example. One obvious question was the relationship between the creative agency and the production partner – where was profit being made and how much and who was benefiting? Ultimately this led to some clients going direct to the production partners and agreeing separate contracts.

Prior the the appointment of W+K, The Red Brick Road handled the Tesco business for several years. My wild guess would be that their media budget might have been 40/60 TV and print, say £66m-ish on print. Say the production for print was ten per cent of the media spend then the gross production billing would be about.£6.6m annually. Say the profit on production was 20 per cent (a common goal for all ad agencies) then I make that about £1.3m-ish. That’s a lot of income and a perfect target for procurement to get their teeth into.

The slow move to ‘de-coupling’ is clearly now out in the open, no longer a mystery in the background. It however is only relevant where the volume of production is significant with either large domestic accounts such as retailers, banks, insurance, etc., and/or large international accounts such as Unilever, HSBC, British Airways.

Looking forwards the smart money would be on these production suppliers becoming as well-known as the big agency names as more and more clients ‘de-couple’ and, again, it will be the major, large advertisers who will go there first. Names like Tag, Zone, Splash, Hogarth, Communisis and Welcome may not be on the tips of most clients’ tongues just yet but they will be over time as their roles, at the very least, become equal to those of the creative agencies. Power follows the money which is exactly what has happened with the media sector; large media independents like Aegis (left) dwarf creative agencies in terms of turnover. Whilst I would be very focused on my TV work if I was a major retailer, for example, I would be extra-focused on the print side of things if that was where the majority of my spend went.

The next big question is who are the new buyers and influencers in this ‘de-coupled’ world we are moving towards? In the past it would have been the ad agency production people but now it is advertisers. That must mean marketing folk and marketing procurement plus intermediaries such as the AAR, ISBA and Oystercatchers, who worked on the Tesco pitch, to name a few. This is a seismic shift in target audience for the emerging big players in production services world. They will start to hire account management people from conventional ad agencies and before you know where you are Campaign’s front page headline will be “JWT and Tag in shoot out for £50m RBS.’ Who would have thought it before last week but that’s the way things are heading.

I do not think for a second this trend will diminish the relevance and importance of a first division creative agency in its role with clients but it does chip away at revenue, something that started when media moved out to a media independent back in the 1980s. My agency Simons Palmer was either the first or second creative agency to start up without a media function as it was obvious there was no point. HHCL was the other one. But when production moves out wholesale that’s another revenue stream down the pan.

This threat has been noticed by at least one of the big marcoms groups. WPP has its own production supplier, Hogarth, which it describes as providing “production and transcreation across all media channels for global clients.”

Legendary media man Mike Gold, one of the founders of Gold Greenlees Trott, once said the biggest innovation in the advertising industry in the 20th century was poster contractors moving from wooden to alluminium ladders. What a lot has happened since then!

You May Also Like

About Paul Simons

Paul joined Cadbury-Schweppes in brand management and then moved to United Biscuits. He switched to advertising in his late 20s, at Cogent Elliott and then Gold Greenlees Trott. He founded Simons Palmer Denton Clemmow & Johnson in the late 80s, one of the leading creative agencies of the 90s. Simons Palmer then merged with TBWA to create a top ten agency. Paul then joined O&M as chairman & CEO of the UK group. After three years he left to create a new AIM-quoted advertising group Cagney Plc. He is now a consultant to a number of client companies. Paul also shares his thoughts on his blog. Visit Paul Simons Blog.