Where did the advertising industry go wrong?

Our guest author traces the recent history of the ad agency business and raises some thought-provoking questions about how it’s run today. 

There are a lot of newspaper articles, blogs, LinkedIn posts and general talk about why the advertising industry is going through a rough patch, the issues of creative credit, how the industry needs a rethink, how it failed to keep up with the times, and so on. 

In my opinion, over the last two decades, Indian advertising has put out some of the best work in the world. Vodafone, Surf Excel, Tata Tea, Asian Paints, Fevicol, Cadbury, Tanishq, Happydent, Maggi, PaperBoat, Flipkart, Google, Swiggy, CRED, Thums Up - fabulous work, popular work, building-brands work, blood-and-sweat work. 

And, a lot of teamwork. The client had an interesting brief. Someone in the agency said something in the conference room and some planner was bouncing off something in the corridor. Four people sat, jammed and rejected everything that they had. Two of them came up with an idea during the smoke break. Someone texted a cool headline in the group. Three people created a deadly look. Two people sat and wrote the films overnight. And then, came in a filmmaker, whose treatment took it to the next level, along with the music director, who came up with a world-beating track that blew everyone’s mind! 

I can repeat the same process for developing a social campaign or an activation idea. There won’t be much difference.

When I am talking about the best brands, I am also talking about some of their best advertising campaigns. Work that made brands household names, made consumers reconsider their choices and fall in love. Created by Piyush Pandey, R Balki, Prasoon Joshi, Agnello Dias (Aggie), and so many good men and women. Along with Prasoon Pandey, Prakash Varma, Ayyappa KM, Bob, Suresh Natarajan, and so many others. 

But in all the fun, passion and excitement of creating path-breaking work, the one thing that the advertising industry has forgotten, is to protect itself and its people. It has been struggling for a long time to pay and retain talent. And, this is not a recent problem, it’s been there for many years now, more than decades. 

Doing the math

When I started off in advertising (about 20 years back), I used to complain about the salaries, as I came from a software background. I used to say if only I had stayed in programming, I would be driving a Lexus car and living in a lakefront house with Labradors, like many of my college friends in the US.   

But my complaint was more in jest, with cockiness, because most of my Lexus car-driving friends envied my job in advertising, “Machan, at least you’re doing something interesting; we are part of white-collar factories; you’re in love with your job.” My usual response is to wholeheartedly accept the compliments and ask them to pay for the drinks.

In contrast to what it is now, advertising in the 1980s and 90s was a period of intellectual high and indulgence - everyone flew business, sipped scotch and hung out at five-star hotels. But then, in their defence, they could afford it. There was a 15% agency commission, as an industry standard. If Unilever or P&G spent Rs 100 crore in a year on advertising, the agency made Rs 15 crore. The math was good, and it all worked out. 

This was followed by a short period, around 2001-02, where it was 12.5% (creative agency 12.5% + media agency 2.5%), when media departments stepped out of the agency system and became independent businesses themselves. 

About 10-15 years back, the agency remuneration model slowly shifted to retainer fees - like how law firms and audit firms charged. The client signed up the agency on an annual retainer and paid a monthly fee basis the scope of work they had outlined for their business. The agency put together a team with X number of agency folk, spending Y number of hours. 

There was an annual review, based on which the contract was renewed or renegotiated. (The change in business models was not an Indian phenomenon, it was a consequence of what was happening in the US, supposedly led by Martin Sorrell/WPP.)

The decline

While many predicted that the move from a commission model to an annual retainer would be beneficial for the agency over the long-term, it ended up as a price correction. For example, in the new model, if Unilever/P&G was spending Rs 100 crore on advertising in a year, instead of the Rs 12.5 crore annual billing, the agency billed about Rs 6-9 crore. 

The change also brought in differential pricing among agencies and cut-throat competition. The fees started getting tighter and tighter as more new agencies were formed and launched in India, including Korean and Japanese networks. 

All the agencies slowly started to cut down their overheads, and one of the things they did was to reduce the salaries - especially at the entry-level. There was a time when agencies used to go for campus interviews at IIMs and NIDs, and hire people paying top dollar. Now, they were forced to pay less - about half or one-third to account executives and copywriters. 

A new trend

Over the last 5-6 years, the business has been moving to another model - projects. Currently, about 30-40% of the industry (or maybe more) works this way. Every brief is a project, and the client pays for specific output - like we need a campaign with X number of TVCs, Y number of digital/social assets and print ads and outdoor. And once the campaign is done, they disengage and meet again the next time there’s a brief. 

This model posed a challenge to annual projections and targets which, in turn, determine investments in people. An annual retainer of Rs 5 crore meant, ‘this many people and this much overheads’ can be committed because client-agency had a contract. But annual billing basis projects are a lot of uncertainty, especially for big network agencies with a large workforce. Also, in this project model, due to competitive pricing and undercutting, bottom lines and profits shrunk further. 

It's like in the beginning, there were six people sharing a 24-inch pizza, which later became 12 inches and then eight inches, and now has become the size of a Kerala Parotta. And, there are still six people sitting at the table (the illustration is a little exaggerated, but not entirely untrue).

In all this, good talent has been exiting. It’s far more financially rewarding if an agency person joined Facebook or Amazon. A huge disparity in salaries, about 2-3 times more. If a well-performing account director/creative director was making Rs 15 lakh in a leading ad agency, he/she is likely to get Rs 30 lakh in Swiggy or Netflix on joining. In the second year, they’re likely to reach Rs 40 lakh. 

That’s almost 300% of what they were making just two years back. Therefore, for any mid-level advertising person, to continue to stay in an agency, there is a price to pay - an opposite version of the pink tax, the ‘price for being in advertising’. 

Protecting agencies 

Overall, until this elephant in the room is not called out and addressed, and a solution is found out for this, the situation will continue to be difficult for all agencies. More so for large network agencies, with a large workforce. 

What Satbir Singh, founder and chief creative officer, Thinkstr, said in a recent interview, is very true. If a voice-over artiste and the music director are paid an additional fee for every year the ad is aired, why not the agency? The agency is the one that cracked the idea, wrote the script, identified the director, brought the production house onboard, supervised the shoot, worked out the changes between the clients and production, and was uploading the masters till late in the night. 

Same with celebrity contracts. Every creative asset and exposure of it is riding on the equity of the celebrity, I understand that. Also, appreciate the value that Virat Kohli and Deepika Padukone bring to the table. But compared to those astronomical figures, don’t the modest, frugal agency numbers deserve a rethink? 

The lack of a thriving and profitable remuneration model is the biggest problem that the advertising industry is facing today. Till date, there is no formal representation or collective effort, made successfully by the agencies. There used to be an Indian Documentary Producers Association (IDPA) rate card for down edits or language dubs. 

In 2019, the Screen Writers’ Association (SWA), which is also a labour union, put out a remuneration model for writers based on production budgets - structurally similar to the 90s agency commission model. The music industry has been at the forefront of championing IPs.

Then, there’s the Association of Advertising Producers (ASAP), which works to protect the interests of the production houses, among many other things. But for some reason, advertising agencies have not managed to come together and do anything of this nature and scale. It might be too late, but there is no long-term solution possible without a collective dialogue.  

Finally, an appeal

Okay, now let me try and wrap this up with an appeal to the signers of cheques, the clients. 

Dear clients, agency boys and girls are very good people. They take their jobs personally and slog their bums off for not-so-good salaries. They are super passionate and sincere. They are obsessed with the craft. They love their brands. They believe in baselines. They work for you. They are your team. And, they have made a choice to be in advertising. Like Al Pacino says in ‘Scent of a Woman’, “You hold their future in your hands. It’s a valuable future. Protect it. Embrace it. It’s gonna make you proud one day - I promise you.” 

Ayyappan Raj is the founder of The Script Room

Photo by Jose Francisco Fernandez Saura/Pexels