Ken Auletta’s new book about the challenges facing the advertising industry was published this week. Here, Geoffrey Precourt, WARC’s US Editor, discusses what these problems mean for agencies, brands and media companies.

Marketers don’t have to look down dark digital channels or deconstruct an obtuse algorithm to find hard evidence of a threat to the current ecosystem.

“I go to the New York Times and there are 300 people on the sales floor,” recounts New Yorker author Ken Auletta. “A third of them are bypassing and competing with advertising agencies. Look at the consulting companies that used to be accountants; they are now creating ad agencies.

“Look at the PR agencies. They’re saying, ‘Oh my god! The traditional public-relations business is over, so we have to get at the advertising.’”

To an established agency, they’re all “friendly enemies” to tradition. And, in advance of the publication this week of Frenemies: The Epic Disruption of the Ad Business (and Everything Else), his account of a three-year investigation of the advertising business, Auletta was back on tour with a stop-over at the Association of National Advertisers’ (ANA) 2018 Advertising Financial Management Conference.

“Those frenemies are rivals to the agency model and a challenge to the agency business,” he contended, reinforcing a message he delivered three weeks earlier to a discomforted audience at the 4A’s (American Association of Advertising Agencies) annual meeting.

And, in this second appearance, he widened the scope of the freneny scourge: “As I did more and more reporting,” he proposed, “I came to see that the real frenemy was the public. The public doesn’t want to be interrupted, particularly on their mobile phones, by a 30-second spot.

“[The term] ‘frenemies’ doesn’t just cover the business frenemies and the official ad agency,” he continued. “The bigger frenemy is the public – an existential threat to the entire advertising business.

“How do you reach the public with an ad that doesn’t run? ... Or how [does an advertiser] communicate to the public without annoying them with an interruption?

“Nielsen says that 54% of TV audiences that record shows on their PVRs [personal video recorders] skip the ads when they watch those programs; TiVo says it’s 64%.”

And, he added, the numbers won’t get any better for advertisers: “How do you deal with the generation that grows up on Netflix, HBO, or YouTube, which don’t have any ads? That’s the existential threat I think your industry faces,” Auletta told the audience of marketers.

The challenge may have been daunting to the ANA audience, but not a conference delegate retreated to the doors of the Hollywood, Florida, meeting room. And The New Yorker author/media critic – whose previous books have included reportage on Google, the three over-the-air TV networks, and media mogul Ted Turner – did have some words of comfort.

Four hundred interviews with more than 325 subjects have convinced him, “Without advertising, we’re all dead. At Facebook, 97% of their revenue comes from advertising; at Google, it’s almost 90%. The New York Times is now down to 50% – and the same is true with CBS. But if that goes to 25%, they’re dead.

“So, we need advertising.”

But advertising opportunities are not as simple as they once were: “There are very few places where you still can get a mass audience,” Auletta remarked, “and, as their audience continues to decline, I have a hard time believing that the networks will be able to get more money from a smaller audience.”

In the pages of his book, he writes about David Poltrack, CBS’s chief research officer and president of CBS Vision, and Les Moonves, CBS’s chair/president/CEO, who say, “Our primetime audience at CBS is the same as it was ten or 20 years ago, when you count the delayed viewing, PVR viewing, and other platforms.”

Added Auletta: “What they don’t acknowledge is that they don’t have the same audience for the ads. Because if a CBS program is on Netflix, there are no ads. And your PVRs are skipping the ads, that’s a real problem.

“It used to be you were trained: You couldn’t see this program unless you waited until 9pm on Thursday night. That’s gone. The public demands the right to binge – to watch what they want, when they want to watch it, on whatever device they want.

“Unless the TV networks get into the streaming business, as, say, Moonves has tried aggressively to do, the traditional broadcast model has weakened and will continue to weaken.”

The New Yorker author allowed that there are no fast fixes: “Anytime I came to someone’s office for either lunch or coffee, and I sat across from them and they said to me, ‘Let me tell you what the future’s going to look like,’ I immediately thought, ‘This guy’s an ass. He doesn’t know what he’s talking about.’

“I don’t believe anyone who talks like that. Because if you pretend to know the answers, you’re God. And I knew they weren’t.’”

What advertisers now need to do, Auletta told the ANA audience, “is exactly what the newspaper industry should have done 20 years ago: Throw stuff against the wall and see what sticks. Try lots of different things –  six-second ads, or sponsorship programs, or targeted ads that give people coupons or things that they want. But you’ve got to try lots of different things.”

For anything to actually adhere to the wall, he continued, marketers – and those who create and run their messages – need to work to find new ways to work together. After three years of close examination, Auletta concluded, “You can’t immerse yourself in this industry and not be punched in the nose constantly by the growing level of mistrust between client and agency.”

Ask an agency holding company about why and how the agency business is changing and, said Auletta, “the assumption is that procurement officers that are nickel and diming them on the cost ... The advertising side is actually paranoid about the procurement officers.”

The result: CEOs are paying more attention to their CFOs. The bottom line, in many cases: “They don’t see marketing as an investment in growth; they see it as a cost. Many [brand] CEOs have fallen into the trap of short-term thinking: Get those costs down, get your margins up. And the enticing target to do that is to cut out marketing.”

And, when agencies are forced to react to those cuts, quality suffers. 

“The advertising-agency world has a pay problem,” Auletta explained. “Many of their people in their 20s and 30s are the lowest paid of many professions.”

Frenemies cites a 4A’s/LinkedIn study that reported the average first-year agency salary is $45,000 less than the comparable compensation in the technology sector – and almost three times below that of management consultants.

It’s not just an industry embarrassment, Auletta remarked; it’s a cost-saving strategy that can become exorbitantly expensive when it comes to gaining or retaining business. Clients complain, he said, that they’re only getting junior writers on their accounts. But one of the reasons the junior people are elevated to key positions is that the more expensive – and experienced – people are too expensive.

“But there’s no question that if an advertiser is going to get better work, they’re going to have to pay more, which gets to the [conflict] between art and science in every industry. There’s an art to good advertising.”

Auletta’s message to the ANA Financial Management audience about their agency partners: “Don’t minimize those people.”