Correction to This Article
The Steven Pearlstein column in the Sept. 20 Business section incorrectly described Saatchi & Saatchi chief executive Kevin Roberts as Australian. He is from New Zealand.

What Happened To Creative Advertising?

By Steven Pearlstein
Wednesday, September 20, 2006

NEW YORK

The advertising industry is having trouble figuring out whether these are the best of times or the worst of times.

They are the worst of times because the business model on which the industry was built -- hefty profit margins for pitching mass products through mass media to mass markets -- is finally collapsing.

Gone are the days when gray-suited admen would commute to Grand Central Terminal from the Connecticut suburbs, walk the few blocks to Madison Avenue, spend the day concocting clever, feel-good ads, collect 15 percent commissions for placing them with the three TV networks and glossy magazines, and schmooze clients over three-martini lunches.

Today, the center of gravity has moved downtown to SoHo and TriBeCa, and much of the work is done by twentysomethings in jeans and T-shirts. They earn less and work harder to peddle niche products through a fragmented media market to savvy consumers who tune out messages they find boring or irrelevant. The cushy commissions have been replaced by stingier, cost-plus-fee schedules imposed by numbers-driven corporate marketing officers who care less about the creativity of advertising than its return on investment.

None of this happened overnight -- the process began more than 20 years ago. But it's fair to say the industry has recently been through a less-than-golden era, whether measured in profitability, creativity, or the satisfaction level of clients or employees.

In the search for what went wrong, one path leads to industry consolidation.

Starting in the early 1980s, the storied independent agencies that bore the names of their witty and intelligent founders -- Ogilvy & Mather, Young & Rubicam, J. Walter Thompson and Doyle Dane Bernbach -- were bought up by big holding companies. The problem, of course, was that the buyers paid ridiculously high prices for firms where the talent and the clients can walk out the door anytime. And some did, heading for nimbler, cheaper and more creative regional shops. So the consolidators figured they had no choice but to buy those, too. To that were added foreign firms, public relations firms, research firms and production agencies, on the theory that they could provide one-stop shopping to their global corporate clients. When Internet marketing firms became all the rage in the late 1990s, they overpaid for those, too.

As it turned out, much of this consolidation was based on false premises.

There weren't really many economies of scale to be achieved by combining all these competing agencies, and not much cooperation ever developed among former rivals. Corporate clients still wanted to be pitched by agencies, not conglomerates, and were less interested in one-stop shopping than first thought. And in time, clients such as McDonald's and Procter & Gamble realized that to get breakthrough work, they had to look beyond their primary agency to upstart firms.

The consolidation also transformed advertising from an industry that was mostly private to one dominated by public companies. Combining agencies under one roof, the consolidators reasoned, would provided a hedge against the trauma of a big client moving from one firm to another.

In practice, however, things haven't exactly worked out as planned, including for investors, whose annual returns have ranged from mediocre to awful. Creative-services firms have proven ill-suited to the demands of public shareholders and analysts, with their fixation on quarterly earnings targets and double-digit growth. The emphasis on cost-cutting and meeting financial goals dampened the enthusiasm for risk-taking at the heart of creative advertising.


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