Creativity finds fortune
Posted by: John Toppin - Nomizon Associates
Date added: Tue 12 Apr 2011
Gideon Spanier has identified a new financial trend amongst the more entrepreneurial agencies according to his article in yesterday's Evening Standard. This involves the agency either investing in the client's business by taking share options in lieu of fees or by retaining an interest in the IP rights of an ad campaign.
This is an interesting response from agencies tired of being paid fees based on time and materials that they don't feel bears any relationship to the value their creative work is adding to their client's business.
Up to the mid1980s agencies earned a percentage of the media spend - the more the ad ran, the more commission they earned - it kind of worked as a proxy for valuing creativity and many agencies had a high time. Clients didn't like it so set their procurement guys onto the agencies, resulting in really low fees and smaller agency profits.
Hence the renewed interest in performance related remuneration for the agencies. Bosses at the agencies quoted in the Evening Standard article are coy about how their arrangements actually work. For most clients that have become used to low fees and budgets certainty these new arrangements will probably not take hold - especially where they view the agency as just another non-strategic supplier.
I would guess that the clients who can be persuaded to consider letting some of the value go to the agency will be looking for something in return - for example lower fees as a compromise for the agency having a chance of some of the upside.
One of the hurdles that needs to be overcome by both parties is how to strike such a deal, what parameters to use and the worth of the creative work.
With clients under their own profit pressures and many agencies simply looking to pay the rent, only the most entrepreneurial, creatively confident and bravest agencies and their clients are likely to risk these new ways.
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