MDC’s woes are the tip of a creative agency crisis

Is the tide going out for creative agencies, a sort of tsunami in reverse?

Yesterday MDC Partners stock took a powder as CEO Scott Kauffman (below) announced “unacceptable” earnings for the first quarter, a nasty surprise as MDC outperformed its bigger holding company rivals in terms of organic growth in 2017. MDC consists almost wholly of creative agencies, some with their own mini-networks, including big industry names Anomaly, 72andSunny, KBS and CP+B (Crispin Porter+Bogusky as was).

In an earnings call earlier in the year WPP’s Sir Martin Sorrell (now departed of course) surprised some by saying that WPP was feeling the heat mainly in its creative agencies. Media was doing OK despite a raft of reviews following the US ANA report into “media transparency” or the lack of it. Advertisers, it seems, still need big media agencies but they’re not prepared to pay – or not prepared to pay as much as they did – for creative.

Creative agencies across the piece have been cutting back, quietly or, in some cases, more noisily. Droga5 in New York, long regarded as a beacon for new-style creative agencies, has made two rounds of redundancies.

One executive from a highly successful and profitable creative agency, told me the other day that they were keeping their head above water (to reverse the above watery analogy) but they could feel the waves lapping around their feet.

Who or what is to blame?

Clients, obviously, as it’s their money and they’re not, by and large, spending it on creative. Digital equally obviously. It’s being driven by mobile (not much of a home for anything even loosely described as creative) and the social media terrible twins Facebook and Google. Money is pouring into these two despite their widely advertised problems and, especially in the case of Google, it’s not really advertising at all it’s direct marketing.

Which brings us to the third member of this deadly triumvirate: data. when we know (or think we know) everything about everybody why take a risk with an idea? Targeting, increasingly automated targeting, can get us there with a guarantee of results. Or so people think.

The writing’s on the wall for the big holding company creative agency networks as well as their smaller brethren. Increasingly they’re pitching as part of a bigger group offer and, in many parts of the world, they’re all being lumped together in one HQ. Prince Arthur Sadoun at Publicis is ahead of the game here.

The upshot of all this won’t just be grim for agencies. Clients too will find that when they need top of the range creative resources there won’t be any, or not enough to go around. Unilever may be patting itself on the back about all the money it’s saving by sourcing work through its U Studios operation provided by on-site specialist Oliver but can this produce a Dove or, going back a bit, the great Axe/Lynx campaign from BBH? Since sacking BBH Axe/Lynx has been all over the place. Is this a better use of money?

MDC has had problems all of its own of course, chiefly through the ministrations of colourful founder Miles Nadal. But as an (almost) solely creative agency operation it’s a decent bellwether. (Note to Accenture or Deloitte, you can have it all for $290m this morning.)

There will be always be decent creative agencies producing, clients permitting, good creative work. But maybe not enough to create a healthy marketplace.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.

2 comments

  1. Creative agencies have been pummelled for more than a decade by declining fees and growing workloads, and in order to generate holding company margins, agencies have downsized — thus reducing their capabilities. For a long time, this was not evident, since holding companies were growing and widening their margins. But value was being extracted from their portfolios, year after year, and it looks like 2017 and 2018 were the years when there was nothing left to extract. Holding companies then showed disappointing performance, and the stock market market punished them.
    Both WPP and now MDC have suffered in this way. The other holding companies may not be far behind. The issue isn’t more cost-reduction, since there’s nothing left to extract. Better pricing and fees is the only way to go, but top management has not mobilized for this as yet.
    Michael Farmer
    Author, Madison Avenue Manslaughter

  2. Michael…
    Don’t worry, Sorrell is going to sort it out with his next venture. As I say on AdScam perhaps he’ll start off with a new shopping trolley business… WPP… What. Pernicious. Perspicacity.
    Cheers George

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