A slow first quarter, as a result of economic macro issues and the changing nature of advertising, have seen many local creative arms of global holding groups slim down.
The last week of March saw WPP and M&C Saatchi restructure leadership teams, with WPP announcing its second creative agency merger in six months.
The resulting redundancies didn’t surprise most industry insiders, with more cuts in other agencies speculated but not yet reported on.
WPP said it had a "resilient" 0.9% like-for-like growth in 2023, with more negative growth expected in this March quarter. They are trailing some global peers in terms of growth. Only dentsu, which reported 2023 growth at -4.9%, has a similar forecast for 2024 at around 1%.
Clients are under financial pressure and pass budget cuts to agencies which in return must take a hardline on costs.
Australian Association of National Advertisers (AANA) CEO Josh Faulks told AdNews the flat economy is continuing to create challenges for marketers.
“Revenues are reasonably flat or have declined in some cases, while the costs of doing business and supply chain costs increase,” Faulks said.
“Businesses are trying to not pass on costs to consumers ... that actually feeds the inflationary cycle."
Faulks suggests agencies need to articulate, in CEO and CFO terms, how marketing gives a return on investment.
“If agencies can tell their client how to articulate that return to their finance teams, their boards and potentially sometimes the market that will secure the budget,” Faulks said.
“And this is coming up a lot lately - marketing can’t be seen as a cost centre, it needs to be looked at as an investment centre because an investment in marketing delivers growth and long term profitability. “
But consumer appetite for ads has also changed meaning less work for creative agencies.
With more expensive bigger brand campaigns becoming fewer and cheap short form becoming king.
Holdcos for some time have stopped buying creative agencies and instead are more interested in digital businesses. Last month Accenture Song acquired Melbourne martech consultancy The Lumery.
One senior holdco leader told AdNews that the industry’s biggest change in the last few years is that transparency is no longer a focus, instead "clients just want cheap".
“That’s why indies are doing so well in this current climate, because those businesses, who don’t have to report to the New York stock exchange, can do cheaper deals,” the leader said.
“Indies can pass discounts onto clients and do anything to win an account, but holdcos have to report to global departments.
“Even the best salespeople in the industry can’t compete with the independent founder story. Clients love to hear that.”
One independent agency owner told AdNews the staff affected by the recent redundancies will find jobs at independents.
A slow descent
An agency consultant told AdNews that the consolidation of WPP’s agencies is a result of clients now being less concerned about client conflicts.
“Holdcos used to run multiple separate agencies for client conflict reasons but that is becoming less and less important,” the consultant said.
“Most clients now accept the conflicts are fine.
“Mainly because all clients use consulting agencies and those businesses always work with all types of clients so those conflicts have always existed there.
“And as consultancies buy more agencies, the conflicts have become resolved as big issues.
“As long as an agency creates bespoke teams for a particularly big client, ie Telstra, clients are happy."
This is not a catch-all theory, as it depends on the client industry. Conflicts are always a consideration for the top advertisers.
Some agency staff also told AdNews the poor first quarter is a roll on effect from the talent war.
Last year saw such a shallow talent pool that agencies paid top dollar for inexperienced employees, sometimes more than double what the salary would be.
Now those people who were promoted too fast are sometimes the first to be made redundant as cost-cutting strategies come because one they're too expensive and two they’re too inexperienced.
“There’s a lot of good people who are keen to work for less now,” an agency consultant told AdNews.
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