After last week's romp on the "shameful" state of negative Australian industry debate versus international markets and a shakedown on the industry's exotic media arbitrage arsenal, Peter Horgan switched gears to argue why the media agency model isn't broken and that the scope creep of his Omnicom sister agency CHE Proximity was good for competition. 

We’ve broken it down into bite-size chunks here: 

CHE Proximity's media scope creep is ok

Although some of the rumblings inside the broader Omnicom group have suggested there was tension in the air between the media and creative divisions long before CHE Proximity CEO Chris Howatson hired PwC's punchy Ben Shepherd in May as his chief media officer, Horgan brushes off the idea.

CHE pushed into digital media buying about three years ago and some scenarios had the creative and digital shop ultimately being forced to channel back through OMG's infrastructure. Horgan says it’s not the case. 

"Competition from external parties or even within the family is not a problem," he says. "Omnicom tends not to be that prescriptive as to where its components play so we welcome competition from CHE. It’s a hybrid model. They can buy [media] themselves or they can buy through us and a bit of both happens. I think the capability they’re evolving around addressability and media execution comes from more of a creative-led perspective. Omnicom Media Group agencies will come at the same problem more around audience curation and execution. So it’s a slight nuance in approach but we welcome it. They’re building out capability that makes us sharper. It should make others sharper if they want to survive.”

Tension with the AANA 

Equally, there’s been tension brewing for months between the Australian Association of National Advertisers (AANA) and media agencies via the Media Federation of Australia (MFA), which as chairman of the industry group, Horgan does acknowledge.

At the heart of the grind has been the AANA’s plan to update the media contract template to govern the rules of engagement between advertisers and media agencies after the US-led transparency blow-up three years ago on agency remuneration, rebates and other exotic revenue streams.

Horgan rather bluntly says the first version, introduced about three years ago here and adapted from the original Association of National Advertisers draft in the US, was an “unmitigated disaster. It was a list of auditors, lawyers and procurement all crawling over the top of each other to work out how they can waste these naughty agency people. There is an ethical problem that needs to be addressed around how advertisers and agencies behave in the right way. The notion that you can't self-correct and that you're going to need more and more auditors crawling over the relationship to get there I think is fundamentally wrong.”

This is certainly Horgan at his most feisty: “I’m about to make a very important point because the AANA and its advertising members now understand that within a contract, which is a matter between two entities, you can’t have a single template contract that covers for fair clients who want to pay for the expertise they’re accessing and deserve all the transparency in the universe, and a procurement obsessed entity that has no interest in paying for the access and doesn’t give a damn how an agency makes their money. That cannot exist, those two structures cannot exist on the same contract. It needs to come down to ethics and principles and asking the right questions."

Horgan says the outcome of the coming media contract update has "been a journey" where the two entities fundamentally understand each other. "It's a great example, what the AANA and the MFA are doing at the moment - having robust, open conversations about how agencies, how consulting businesses, make money and the kind of questions that advertisers and procurement should be asking to build fair and sustainable remuneration structure to govern that relationship. The first iteration of that three years ago was an unmitigated disaster."

When it's suggested that the critics will say the current contract guidelines have been watered down and compromised, Horgan retorts: "Only the zealots will say that and it's because they don't understand or are uncomfortable with the notion of a fair and balanced contract. What we're talking about is total transparency and clients that actually understand the supply chain and the cost of the expertise they're accessing and what fair payment is. The fact that it hasn't been all plain sailing in this process should keep the zealots happy." 

The procurement people

Australian expat and principal at New York-based R3, Greg Paull, made a speech to the Internal Auditing Association of Australia earlier this year in which he argued many company procurement teams were effectively complicit in agency misdemeanours and non-transparent behaviour - because they turn their heads on how value is extracted by an agency if they meet their cost-out KPIs. Paull's premise is that in order to clean up the media supply chain, internal auditors would have to move in. "I completely agree that procurement has the propensity to encourage behaviours that are not in the interest of their organisations, depending on their KPIs," Horgan says. I've said quite frequently, the co-tenants of procurement is the sustainability of quality of supply and that is often the first thing to be jettisoned. You often see marketers wincing as their procurement colleagues are squeezing the lifeblood out of a value supplier with the marketer knowing they will be picking up the pieces and probably missing their own KPIs and the business health suffering as a result. I don't think a Spanish Inquisition or an audit orgy is the answer by any means. There is a single and notable exception across my career and he knows who he is - the lonely but shining example of a procurement boss who will pull his team into line and say 'people, we are sweating the wrong metrics here'." Horgan clearly won't be drawn on who is this Captain America for Australian procurement. 

The term 'agency' stinks

Horgan says the term agency and its historical definition is now part of the problem in the enduring standoff between marketers and partners.

"Clients are benefitting from expertise, non-core expertise, that they outsource to entities that can do it better because they aggregate expertise on a global scale. In the media industry's case that's media strategy, optimised spend, execution, negotiation and knowledge around marketing automation, tech stacks and where organisations should invest next to move up the marketing maturity curve and improve predictive and individualised marketing capability. Putting yourself up as an agency in doing that suggests you should subordinate yourself at every step to the agenda of the client, which is the definition of a legal agency. It's not what we are at all," says Horgan. "We are an aggregation of capabilities. We're fundamentally a contractor that an advertiser is outsourcing to. We're stuck with the term 'agency' but it keeps looping us back to the same problem that people think we shouldn't be making money. The conversations are different to the conversations they have with a consultancy."   

But the agency model is not broken

Complexity and scale will remain the agency ally in Horgan's worldview. He accepts there is a broadening remit beyond paid media and traditional communication services which agencies have been slow to crack - but they are mounting the horse.

"I don't think the model is broken," he says. "Clients will always need to outsource capability that is non-core. The complexity and risk involved in targeting audiences and reaching them, whether through paid media or optimisation around owned and earned channels is high. The complexity and opportunity that targeting at scale through marketing automation and leveraging first party data means that expertise will be required more than ever. Horgan acknowledges marketers are increasingly considering in-housing their capabilities around data, analytics and automation, but he says "they will soon realise that some of it is a non-core capability best handled by experts."

A future beyond paid media 

Horgan's last point around some of the new core capabilities not being suited to internal client operations will no doubt prove contentious. But it is true the marketer's remit has broadened substantially beyond media into enterprise-wide customer experience management, marketing technology-led transformation and customer data and analytics. On many of these fronts, media agencies have arguably been slow, outside their sweet spot in advertising activities. Horgan isn't buying it, however. "I think there's a massive expansion of the media agency remit," he says.

"The remit is only narrowing if you've restricted yourself to being paid on the basis of paid media you transact. Anyone who's playing in that area is not going to be around for long. The notion that a media agency is about selling solutions and expertise that helps clients win and grow their business, that has an almost endless scope - especially with the increased power now of how clients leverage their first-party data."

Horgan is reluctant to give a leg up to competitors "but the fact that Dentsu bought Accordant and Merkle, and Publicis into Sapient and Epsilon, the indications are there that the holding groups are putting huge bets down in this area. This is an area that has fundamentally changed over the past three years, Yes, martech optimisation has been the domain of the consultancies but as Henry Tajer said here recently - and I said earlier this year - clients have had enough of big worthy recommendation documents that consultancies deliver at huge cost and then wash their hands and blame other parties when they don't work. Media agencies, particularly, are in a position to understand what next to fix in the client tech stack - and then be on the hook for executing off the back of it."

Still, haven't media agencies and in many instances, holding companies, been pre-occupied with the communications element of customer experience when there has been a screaming need to fix clients' organisational structures and process to focus better on the entire customer interaction? That comes before communications can really have a business impact.

"Yes, absolutely true," Horgan says. "The role of a media agency is not to re-plan the culture or structures within an organisation. It's incumbent on us to be single-minded around messaging, communication and how that organisation shows up for customer. We're not going to get lost in the Bain and McKinsey world of going into organisations and decree how they should be strucutured. We wouldn't be welcomed and it's not our core expertise. There is immense opportunity out there."

That's more than enough from Peter Horgan. Stay tuned for the next despatch in the Mi3 Leader series.