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Ad agencies ruing loss of the big idea

THE advertising industry has lost its electric personality and with it the big idea seems to have slipped beneath the board room table.

That is the message a group of executives from some of Perth’s biggest advertising agencies delivered to WA Business News at a boardroom function last week.

The industry is still reeling from the global advertising downturn.

Marketing and advertising professionals do not share the same standing as other professional business services.

Marketforce chairman Howard Read said this inequity was reflected in the service fee structure the advertising industry was still tethered to.

“Our business is not valued,” he said.

Mr Read said the senior audit partner at one of the big five accounting firms could command hourly head fees of up to $600 an hour yet advertising agencies did not charge an hourly rate.

“We’ve been taken over in terms of intellectual property,” he said.

With the loss of that intellectual property the industry has seen the real value of creativity slip away.

“We’ve lost the franchise of the big idea,” Mr Read said.

“The advertising industry was the custodian of the big idea and it had a lot of intellectual property.

“The big idea just doesn’t carry as much weight now.

“We’re asked to be more accountable, there’s a great deal more knowledge on the client side and people want to see what that [the advertising] is producing.”

Production budgets for clients have also decreased over the same period.

Mr Read claimed that in real terms budgets had fallen by about 25 per cent.

“I think the advertising industry has suffered because the intellectual property of the big idea has not been valued,” he said.

“We just don’t have the same clout around the marketing table or the board room table.”

The Brand Agency managing director Ken James said clients were relying on research to prove the effectiveness of an advertisement rather than trusting in an agency to develop a strong idea.

“Clients have become very conservative,” he said.

“When I first met Howard [Read] he was working for the Bond Corporation. Where are the new businesses like that?

“Howard [Read’s company Marketforce] just picked up the WA Tourism Commission ac-count.

“That should be the biggest piece of business in the State.

“It’s a $3 million account and that’s half of where it was in real terms three years ago.”

Vinten Browning director Wayne Vinten said the industry really seemed to have lost its buzz.

“If you look through WA Business News or the West the vibe just seems to be very flat,” he said.

“I rarely hear anyone say hey have you seen that new ad?

“When you talk about advertising there’s not that excitement any more.”

Further segmentation of the media market will drive up media costs and force clients and agencies to more carefully research any execution.

As pay television penetration increases advertisers will have to consider a much broader media buy.

Initiative Media managing director Debra Neve said pay television only had between a 25 per cent and 28 per cent penetration but that was expected to grow as the medium matured.

“Pay television will make that television buy even harder,” she said.

“It’s also why, from a media perspective, we’re looking at more research. What we’re finding is that by looking at lifestyle we can then react when the market begins to fragment.”

In terms of the charging structure in the industry a number of players suggested a shift to charging head hours rather than a service fee would better serve the future of the industry.

Bowtell Clarke + Yole managing director David Owen said the advertising industry still drove most of its revenue through the service fee.

“We don’t charge for the managing directors time or the production managers time, it’s all in the amorphous mass that is called the service fee,” he said.

“If head hours were the only way we charged it would look horrific.

“And yet we’re used to paying $400 an hour for a barrister.

The size of the service fee in Australia is well below other countries including New Zealand where 22 per cent is standard.

303 managing director Jim Davies said the norm outside Australia was 15 per cent.

In Australia it is 10 per cent.

“In a way the advertising industry in Perth is smaller than New Zealand,” he said.

“If you applied the New Zealand model to Perth 10 per cent is a bargain.”

The issues of fees aside, the steady flow of major clients to advertising agencies in Sydney and Melbourne has left the local market to fight over a small number of lucrative clients.

Mr Read said on balance there were more accounts moving back to the eastern States.

“SGIO just went [east],” he said.

“In terms of SGIO the writing was on the wall. It just adds to Challenge Bank.

“If there is business coming back it doesn’t make up for what we’ve lost.”

The cost of pitching for accounts on the eastern seaboard is a big deterrent for local operators.

Mr James said an advertising agency would only go east if there was a better than 50 per cent chance of getting the work.

“You really need the resources on the ground to deal with it,” he said.

“We wouldn’t have Bunnings if I didn’t go to Melbourne eight years ago. Bunnings today is directed out of Melbourne.

“Red Rooster we picked up because their head office is here but that’s also run out of Melbourne.”

Other attendees at the WA Business News luncheon were Starcom general manager Kerry Gretton, Gatecrasher creative partner Lori Canalin and Adcorp general manager Ian Mackie.

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