The Ad Agency Market Shift: Part I
Why the decreases in work has NOTHING to do with the economy
Intended for: Those whose depend on the creative advertising economy.
Primary Audiences: Production, Agency, Brand,
Site tags: Advertising, Creative Market Shift
Why the decreases in work has NOTHING to do with the economy
Overview
Focus of this piece:
A) To dispel the myth that the decrease in creative services is related to the well-being of the economy
Style: Written to be dummy-proof, as not everyone is hip to advertising vernacular.
Note: This is Part I of a three-part series detailing the shifts in the creative agency advertising economy.
Part I: debunks the myth that the creative slowdown is caused by the economy.
Part II: explores the structural incentive issues of the agency holding company model.
Part III: explores the limited leverage production has in the pipeline, and what the industry should push for.
The Conditions
Let's establish some truisms, and agree on things we know. There is much less Creative Agency work available. I.e. work that goes to Creative Ad Agencies. As a whole the spend towards Creative Agencies has been down. This has manifested in agency spending freezes, freelancer freezes, auxiliary project freezes and a deep decrease in use of production companies.
AN ASIDE NOTE FOR FILM PRODUCTION: There are secondary reasons Production Crews may be experiencing work loss (not related to advertising market shifts) that I won’t be addressing here.
Symptoms
Starting in late 2022 the amount of freelance gigs in both production and creative agency work started rapidly dissipating.
Major Agency layoffs starting in late 2022. Continued happening well through 2023. And have continued happening into this year. Most recently in 2024 including layoffs at Wieden+Kennedy, Havas, R/GA, Huge, Ogilvy, Grey, Anomaly, Mother, Rethink.
The decrease in work, means the decrease in workers.
Currently everyone from creative directors, copy writers, art directors, commercial directors, production companies, production crews, rental vendors, and stage vendors can attest to some form of a work scarcity.
At its most basic level, all of the above means Brand Clients are spending less on what they have earmarked as Creative Professional Services. It’s worth saying this out loud. Somewhere in the pipeline Brands are actively deciding to spend less. According to Brian Wieser, advertising analyst, "they are unmistakably pulling further away from the zero-based budgeting ethos that saw Kraft Heinz "explode"". I.e. investment into brand image. I.e. investment into the services that create+conceptualize brand image.
Introduce Misconceptions
When the 2022 cuts in client-spending started happening, the assumption was that they were driven by headline fears of a pending recession. When one says, they don't have a budget for it, it's an intuitive thing to think that they can't afford it. It's less intuitive to think that a shiny new toy caught their eye, and they've decided to afford that instead.
Somethings we heard in 2023, regarding creative cuts
The threat of a pending recession, "challenging economic conditions"
Corporate belt tightening
Low interest rates, federal reserve, etc
But the numbers of 2023 did not bear out these realities. The economy improved and the conditions of the ad agency world did not. But "Advertising" as a whole is actually alive and well, because across the board Brand Clients have increased spending. Just NOT spending for Creative Services.
Difficult Realities to Parse
What made it difficult for me to diagnose, or research, or read about the state of the industry is- the vast multitude of things 'Advertising' can return on search results.
A casual Tuesday article in the Wall Street Journal, stating "Advertising is Dead, Long Live Advertising" might have no bearing or relation to the Creative Agency Advertising economy. A trade press headline from Ad Age, like, "WHY GLOBAL AD SPENDING GROWTH IS EXPECTED TO NEARLY DOUBLE IN 2024" might also have absolutely no bearing on the Creative Ad Agency economy.
This is because Advertising itself is actually comprised of different sectors, each existing at different stages in the overall pipeline.
Categorical Issues in Reporting
The reality is most of the reporting done on the advertising economy, is exclusively about Media or Publication. To my knowledge, there is no reporting done in a similar way that discusses broad revenues of spending strictly for the Creative Services economy. This is in part because that data doesn't exist. At least not neatly.
For this reason, it's hard to fault NYT (too much) for not reporting on all of the Art Directors turned Dishwashers.
The NAICS breakdown of advertising doesn't map out to sector specific differentiations in a meaningful way.
The BLS job reports, do not capture the creative agency gig economy in a meaningful way. Of course it doesn't help, that most gig employment is mischaracterized as payroll, so this contributes to further aberration
Major 'advertising' industry reports done by the likes of GroupM, Dentsu, Warc, and others offer no notation of where creative services factor in. If I’m wrong here, somebody please tell me.
Trade Press reports on advertising focus entirely on media buying, or publication.
Categorical Issues in Client Record Keeping
What the client refers to as Advertising is equally as murky, and to add to further confusion no two clients use the same standard of terminology.
The record keeping of clients made available through annual reports rarely makes the distinction in what's considered Creative Agency spend and Media spend.
More sophisticated bookkeeping is available confidentially of course.
Increases in Advertising Spending
Clients are 'generally' spending more on advertising & advertising related line items. In some cases it’s hard to be definitive, and assert this is increase is strictly media related but lets not concern ourselves with appeals to ignorance (the notion that- that in which cannot be proven to a certainty must be false.)
Media reporting claims spending for experiential sponsorships are on the increase.
Media reporting claims "retail media such as DoorDash, UberEats, Amazon, InstaCart on track to surpass overall TV revenue by 2028."
Media reporting claims spending on Digital Outdoor Displays, such as savvy tech electronic is on the increase.
GroupM media reporting claims spend on Digital Media overall is up by 11%. Digital Media accounts for a nebulous amount of different things, but 11% is a big number to increase spend by.
The annual report of brand client Proctor&Gamble noted increasing their media spend by $100 million in 2023 compared to 2022. And decreasing their marketing spending. Citing 'greater efficiency and 'productivity' in how they spend their marketing money as the reason for the decrease.
The decrease in marketing spend here is presumably for Creative Services such as Ad Agencies, and content creation.Other major Brand Clients such as Unilever also describes increasing their media spend in their annual report. Although there's no language to describe what else does or does NOT falls under that line item.
Nestle's 2023 annual report reflects increasing their "marketing and advertisement expenses" line item by nearly 500 million, to which most of it was dedicated to a media based AI strategy. They also cite finding operational efficiencies and cost saving initiatives elsewhere to offset their media investment.
L’oreal increased their "advertising and promotion" line item by over 1 billion in 2023, from 2022. Analysts suggest it's nearly all short term performance sectors, ie media, tech, analytics, etc,.
So to be clear, the shift in advertising is NOT an issue of affordability, or an issue of corporate belt-tightening. Major Brand Clients have increased their advertising budgets in swarths. Clearly affordability, and caution towards spend are not what's at issue here. I’m skeptical that economic conditions were ever anything more than a red-herring platitude.
The Shift
If advertising is going up overall, but definitively decreasing in the creative agency sector. It's reasonable to infer Brand Clients are actively moving money away from Creative Branding Line Items and applying it to media, analyitcs, and other performance based measures of advertising.
Why
On another occasion it may be worth exploring why Peter is stealing from Paul, and what the mal-interests at play here may be. And while personally I believe it to be a misguided decision on part of the client, to devest so heavily in branding, it's also a complex subject.
For now it's enough to know that
Clients are actively devesting in costs related to branding.
And investing more in what's categorized broadly as media costs, or more specifically performance advertising.
Performance advertising is able to attach ROI + analytics to spend, in a way the intangible value of branding cannot.
Many aspects of performance spend are not necessarily related to content, and might reflect advanced customer segmentation strategies, pay for increased search rankings, and access to eRetail walled gardens referred to as RMN's.
Note: According to Izabela Derda's book ‘Advertising as a Creative Industry: a Regime of Paradoxes’(2024) (available for free as Open Access Content.) There is a battle amidst creative agencies and media agencies, and media has won.
The Beef
Far be it for me, or for anyone to tell anyone else on how to spend their money. If the client decides that they need to spend less on branding, or "creative services" than that's their decision to make.
However, where this becomes problematic is when the false premise of a 'limited budget' is passed down the line. And a meager production manager such as myself is requited to plead poverty on the behalf of billion dollar brands.
If you, the Brand Client, is deciding how much you would like to spend. You are also affectively deciding how much you can afford. There needs to be congruency between those ideas. The decrease in budget, must match the decrease in scope.
Various anecdotal reports state the following
increasing agency in-house workloads
decreasing agency staff to manage existing workloads
and decreasing commercial film budgets
If these are to be true, the amount of decreasing client spend is NOT matching a decrease in budget. But why is this being accepted as feasible?
It Gets Worse
I don't blame Brand Client for their discord of scope and budget, because someone on the other side of the negotiation table is accepting bad terms. It's my belief that this form of poor behavior is not only being enabled by bad actors in the pipeline, but it is being encouraged for ulterior motivations.
In Part II, I’ll touch on the unfair schism at play giving Agencies such an unrealistic workload. 'The Holding Companies.'
Afterword
A market shift lubricated by fear
What’s happening in the advertising world is reflective of a market shift, not so much the economic conditions of last year.
The central tenant of the above piece is to address the false narrative coupled with the procurement of creative services and film production in the ad agency world. But its worth mentioning (because if not here, than where), that I believe uncertainty of 2023 is what catalyzed said-shift.
The Catalyst
This is one of those things that will always be difficult to quantify or prove. (Especially by me.)
But as I see it ... the 2023 conditions of economic unknowns allowed for a pretense of bargaining and budget cuts to take place, in a way that was viewed as believable.
Knowing what we know today all of the belt tightening anecdotes were not true. And pinpointing the amount of conscious-dishonesty will always be allusive
But what's most interesting to me..
→ Is similar dealmaking happened so broadly across the table, like an organic instance of coopetition.
→And this draws a similarity to what happened in the TV Production world.
Prior to the strikes the streaming companies were deadlocked into a Nash Equilibrium scenario of high volume production competition amongst each other.
When the strikes hit, and production paused.
They had the unintended effect of allowing all of the major streamers to withdraw from production long enough to reset their neck-in-neck dynamic.
When the strikes were over, the competing streamers no longer had the impetus to resume high volumes of production, purely for the sake of competition.
An organic instance of coopetition..
Similarly, I wonder if the conditions of uncertainty, allowed for major brand companies to relax their competition with each other in terms of spend on branding.
Think someone else would find this valuable?