Private: Intelligence

Here’s a crazy idea to think about; what if the large agency holding companies start to get into the publisher rep business?  Hear me out on this before you pass judgment, it’s not as crazy as it sounds.

The agency holding companies have a model that requires continued growth and the fact is the agency business is shrinking.  You can see earnings releases from the big 5 that will contradict what I’m saying, but if you slice and dice the numbers you’ll see that as a whole, revenue generated by all agencies in the US put together is probably going down.  Some companies are winning due to consolidation, but margins are getting squeezed, especially when it comes to media.

Hence, the birth and fast adoption of DSP’s and the automated buying tools that many agency holding companies are investing in.  The biggest success of this in the agency world is Cadreon, which seems to be continuing a fast pace of growth.   The agencies are finding a way to commoditize that portion of the online ad business that is based on data and standardized units.  There are also a number of companies that are creating “network” solutions for non-standard units, so the trend here is to automate, decrease the staff, and increase the margin against this portion of the business.   It’s logical.

Not all the online media can be commoditized, and that leaves some large, stand-alone, well-branded publishers who will continue to staff a sales team and service the agencies, but what if the agencies began to pitch the publishers with a model that was based on guaranteed inventory, decreased staffing costs and increased profitability?  That is a formula that many of these publishers, many of which are having profitability issues of their own, would listen to.

If I were the CEO of one of the holding companies, I’d begin to build a business plan that created a rep management service to consolidate the sales efforts, cross media (including online and offline) for vertical categories of publisher and guarantee the revenue to the publishers in exchange for them taking their sales teams off the streets.  In doing so they would decrease the costs of those publishers, they would lock in the premium inventory they need for their clients, and they would become a one-stop-shop for all media (targeted and untargeted) for their clients.  They could still sell the media to their competitors at market prices, probably making money on the deals, and they would sell the media to their own clients, making money on the difference between their upfront buys and the selling price to their clients.

It may sound like a conflict of interest, but if you dive a little deeper you can find that the holding companies are already getting into this business little by little and it makes sense.  Their job is to get their clients messages into the hands, eyes and ears of the target audience.  If they happen to represent that media or buy it separately, there’s minimal difference.  In many cases the holding companies already do deals for kick-backs and commissions on the flip side, so why not just bring it out into the open.  They have to make money somehow, right?  Additionally they already own the DSP’s and in some cases the networks where the money is being placed, so the conflict already exists and many people don’t seem to mind too much.

The rep firm model has taken a nose-dive in recent years, but if you consider that it still works for premium, cross-platform inventory which is not well-serviced through a commodity trading desk than you can see where the opportunity lies.  And for publishers, who are combating rising costs to sell their inventory in a cluttered market, this represents a solution that though unconventional, still satisfies their needs. 

Think about it.  The holding companies are going to reinvent the business at some point.  It may not be overnight, but if they can control the flow of media dollars on both sides of the equation, then they can set prices and maintain profits.  It’s not a monopoly because anyone can get into the market if they can be competitive, but it is an interesting idea.  What do you think?  Tell me on the Spin Board!