In the predigital days, advertising agencies were ruled by swaggering creative directors who gorged on lavish client contracts and sometimes created campaigns that set the cultural agenda and captivated the public.
Nearly every piece of that equation has changed. Agencies are better informed than ever before about consumers, having amassed huge stores of their data. But many of those consumers, especially the affluent young people prized by advertisers, hate ads so much that they are paying to avoid them.
At the same time, companies that hire ad agencies are demanding more from marketing campaigns — while paying less for them.
As a result, the advertising industry faces an “existential need for change,” according to a blunt report published on Monday by the research firm Forrester. Now the agencies must “disassemble what remains of their outmoded model” or risk “falling further into irrelevance,” the report concludes.
“It’s harder to reach audiences, the cost of marketing is going up, the number of channels has exponentially proliferated and the cost to cover all of those channels has proliferated,” Jay Pattisall, the lead author of the report, said in an interview. “It’s a continual pressure for marketers — we’re no longer just creating advertising campaigns three or four times a year and running them across a few networks and print.”
As advertisers bombard consumers across platforms like Twitch, Facebook, television, billboards and more, consumers are trying to get away, signing up for ad blockers and subscription services.
“People hate advertising,” said Joanna Coles, the former chief content officer of Hearst Magazines, during a session at the Advertising Week conference last month in New York. “And it’s all advertisers’ fault.”
Seated next to her, nodding in agreement, was Marc Pritchard, the chief brand officer at Procter & Gamble, one of the largest advertisers in the world. Ads, he said, are often irrelevant and sometimes “just silly, ridiculous or stupid.”
“We tried to change the advertising ecosystem by doing more ads, and all that did was create more noise,” he said.
The industry, over all, is also struggling to adapt as Google and Facebook reshape ad delivery and Netflix stokes appetites for ad-free entertainment, according to a separate report also released on Monday by GroupM, the media buying arm of the ad giant WPP.
The result is “dangerous days for advertisers,” according to the report.
“With shifts in viewing habits, commercial impressions in the most viewable, highest-attention media are in free fall across the world,” researchers wrote. “The problem is universal, and if the viewing behavior of younger audiences is a harbinger, things are not going to get better.”
Some start-ups have begun rewarding or compensating consumers to look at ads. But to effectively reach viewers, advertisers must also “incorporate data-driven, tech-fueled approaches and platforms into the creative process and tool kit,” according to the Forrester report.
That includes automation and machine learning technologies, which Forrester expects will transform 80 percent of agency jobs by 2030. In July, JPMorgan Chase announced a deal with the ad tech company Persado that would use artificial intelligence to write marketing copy.
Advertising has become a “very complex, sprawling marketplace,” with agencies grouped under large holding companies like Interpublic Group, Publicis Groupe and WPP, Mr. Pattisall said.
To stay nimble, the holding companies must centralize their operations, even if it means “the disappearance of some pretty storied, iconic advertising brands,” Mr. Pattisall said.
Last year, WPP merged Young & Rubicam, a creative agency cited in “Mad Men,” with its digital ad business VML. Soon after, WPP combined J. Walter Thompson, which was founded in the 1800s, with the digital agency Wunderman.
The consolidation will bolster agencies as clients scale back their budgets, according to the Forrester report.
Steven Moy, the chief executive of the Barbarian agency, said that multiyear contracts had shortened, with budgets tightening and performance metrics becoming more stringent.
“I haven’t seen a lot of multimillion-dollar, blue-sky, five-year projects happening — it’s more like, ‘can you deliver something in six months?’” he said.
Global spending is expected to grow at slower rates this year and next year compared with 2018, weighed down by signs of a weakening economy and rising geopolitical tensions, according to data released Thursday from the WARC research group.
For the first time ever next year, Facebook, Google, YouTube and other online platforms are expected to soak up the majority of advertising dollars, according to WARC.
Advertising giants are facing competition for clients from consulting companies such as Deloitte and Accenture, while independent agencies such as Wieden & Kennedy New York have beaten out legacy advertising companies for major accounts such as McDonald’s.
Some advertisers, like Unilever and Bayer, are pulling business away from agencies and handling some of the work internally. Last year, 78 percent of members of the Association of National Advertisers had an in-house agency, up from 58 percent in 2013 and 42 percent in 2008.
Smaller agencies, such as Cutwater in San Francisco, are feeling the pressure. But Chuck McBride, Cutwater’s founder, said that changes in the industry would allow companies to express their creativity as they experiment with increasingly personalized advertising.
“The gloom and doom is greatly exaggerated,” he said. “Things are really messed up, but there’s opportunity in this.”
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