Hard Times for the Advertising Industry
          Amit Ray, E.V.P. Media - Mudra Communications Pvt Ltd                                                        December 11, 2001

I have always felt that the advertising business has had it easy for a long time. Based on the myth is that a media owner offered 15% commission to anybody who got him ads. That's probably why the 15% is so mysterious. No sound logic here.

This happy state (for ad agencies) of affairs, which has continued for decades, is finally no more.

Historically, the advertising business was about creating a piece of art to influence people. So it naturally attracted people from wealthy background (exception being art & media operations). That's why, this business was run more like a club.

Then MBAs came to advertising. Followed by television - this signaled the entry of the middle class to the 'club'. In the last decade, words like strategy, research, media planning, tracking etc. entered the advertising dictionary. As always, the new middle class members brought logic.

The next milestone for professionalism was liberalization (globalization) of India, which led to channel proliferation. And the final professional was set by global recession". This journey took 10 years, but what a decade!

My belief is that now advertising will become a proper business, will become an industry with norms & benchmark. This may sound sardonic, but the writing is on the wall. Clients have stopped agencies from keeping 15% of the gross media cost as commission. Earlier, each agency had the option of deciding the extent of percentage they wanted to pass on to their client - but today it is the client who decides how much of that 15% an agency can keep!

Today the same 15% has become a relic of the past. And the main culprit is MEDIA. The moment clients realized, that the cost of the entire 'media' service was nowhere proportionate to 15% of gross cost, he started asking questions. Someone replaced the earlier magic figure of 15% with another magic percentage of 2.5 %. And the economic condition forced agencies to accept, reluctantly, the lower commission.

Since advertising agencies always got paid by media, they never really understood the concept of 'pricing' their own service. So, when reduced commission hit them they dived for the cover called "FEE". But again the problem became the lack of understanding vis-à-vis own costs & pricing.

The axe came on the staff. Ironic - because advertising was always touted as a people's business!
Has the nature of advertising business changed? Or was it never ever a people's business?

So, here's the likely future. For above-the-line communication, it looks like the client will decide on at least three partners, viz. Brand Strategy, Creative Execution and Media Planning/Execution. While Brand Strategy will increasingly fall in the consultancy domain & Media in a specialists domain, the hardest hit may be creative (and client servicing) as they can become the last of the legacy system.

But don't worry. There are ways to beat the heat. Watch this space for the rejoinder.

This article reflects the views of the author and the author alone.