In what might be a sign of a shift in the agency market, PepsiCo and AB InBev have announced they will be pooling their media buying and will likely be approaching media companies direct to get better rates. Based on how quickly the buying partnership expanded to cover media, shows that this could easily be the beginning of the tipping point that this shifts the market away from large media buying agencies and bring about an open and transparent market place between media and clients?
Some of the initial discussion in the article seems to try and down play the financial impact on agencies but this is likely just allowing the agencies to keep face in case the direct buying model fails. If clients can manage to run media buying in-house and get the same rates as media buying groups by going direct, this movement will be hard to ignore. So in the Australian market the question is who will be more affected more by a direct play? Will it be the media buying agencies or the marketing agencies?
According to Nielsen AdEx estimated Media Agency billings in 2009, the top 10 agencies have up to $4.74 billion at stake annually if clients buying direct becomes common. With this much money involve it is likely that a number of the large media groups and clients have already begun discussions on how they can work direct better. In the digital marketing space it has become more common for clients to have dealt with search engines direct to save on agency management fees, so why wouldn’t this extend offline?
The direct model move creates a moral paradox for clients and media as both maybe struggling to decrease costs or increase revenue and cutting agencies out solves both issues. It is likely a moral question as the marketing agency likely introduced the business relationship but also benefit as long as it continues.
The downside to a direct relationship between client and supplier is that there is often less client support and possibly less integration with current and future marketing campaigns. So the moral paradox for clients is do they want to sacrifice business relationships and support networks for lower agency bills?
The media industry also faces a similar moral paradox as do they risk existing relationships with agencies by aggressively pitching direct to advertisers in the hope they can get an increase media spend if agency fees are removed? Just because a client will save money by booking direct and not paying agencies fees does not mean they will spend the difference….
So the question that needs to be asked is this the beginning of the end for media buying agencies or a race to the bottom with agencies cutting fees trying to retain clients buying budgets? Let the dice roll… come on lucky 7….