The ad industry has a problem: people hate ads

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In the pre-digital era, ad agencies were ruled by swaggering creative directors who gorged themselves on lavish client contracts and sometimes created campaigns that set the cultural agenda and captivated audiences.

Almost every element of this equation has changed. Agencies are better informed about consumers than ever, having amassed huge reserves of their data. But many of these consumers, especially young affluent people who are popular with advertisers, hate the ads so much that they pay to avoid them.

At the same time, companies that hire ad agencies demand more from marketing campaigns, while paying them less.

As a result, the ad industry faces an “existential need for change,” according to a stark report released Monday by research firm Forrester. Now, agencies must “dismantle what remains of their outdated model” or risk “falling even further into irrelevance,” the report concludes.

“It’s harder to reach audiences, the cost of marketing is increasing, the number of channels has proliferated exponentially, and the cost to cover all of those channels has proliferated,” said Jay Pattisall, the report’s lead author, in an interview. “It’s an ongoing pressure for marketers – we’re no longer just creating ad campaigns three or four times a year and running them on a few networks and print.”

As advertisers bombard consumers on platforms like Twitch, Facebook, TV, billboards and more, consumers are trying to get away by signing up to ad blockers and advertising services. subscription.

“People hate advertising,” said Joanna Coles, the former chief content officer of Hearst Magazines, during a session at the Advertising Week conference last month in New York. “And it’s all the fault of the advertisers.”

Sitting next to her, nodding in agreement, was Marc Pritchard, chief brand officer at Procter & Gamble, one of the world’s largest advertisers. The ads, he said, are often irrelevant and sometimes “just silly, ridiculous or stupid.”

“We tried to change the ad ecosystem by doing more ads, and all of that just created more noise,” he said.

The industry as a whole is also struggling to adapt as Google and Facebook reshape ad delivery and Netflix whets the appetite for ad-free entertainment, according to a separate report also published by GroupM on Monday. the media buying arm of advertising giant WPP.

The result is “dangerous days for advertisers,” according to the report.

“With changing viewing habits, commercial impressions in the most visible and high-profile media are plummeting across the world,” the researchers wrote. “The problem is universal, and if young audiences’ viewing behavior is any warning sign, things aren’t going to get better.”

Some start-ups have started rewarding or paying consumers for watching ads. But to effectively reach viewers, advertisers must also “integrate data- and technology-driven approaches and platforms into the creative process and toolkit,” according to the Forrester report.

This includes automation and machine learning technologies, which Forrester says will transform 80% of agency jobs by 2030. In July, JPMorgan Chase announced a deal with ad tech company Persado that would use the artificial intelligence to write marketing texts.

Advertising has become a “very complex and sprawling market”, with agencies grouped under large holding companies like Interpublic Group, Publicis Groupe and WPP, Mr Pattisall said.

To stay nimble, holding companies need to centralize their operations, even if it means “the disappearance of some iconic and quite historic advertising brands,” Pattisall said.

Last year, WPP merged Young & Rubicam, a creative agency featured in “Mad Men,” with its digital advertising business VML. Soon after, WPP combined J. Walter Thompson, which was founded in the 1800s, with digital agency Wunderman.

Consolidation will strengthen agencies as clients shrink their budgets, according to the Forrester report.

Steven Moy, chief executive of the Barbarian agency, said multi-year contracts had gotten shorter, budgets getting tighter and performance metrics getting tougher.

“I haven’t seen a lot of five-year, multi-million dollar projects happen – it’s more like, ‘can you deliver something in six months?’” he said.

According to data released Thursday of the WARC research group.

For the first time next year, Facebook, Google, YouTube and other online platforms are expected to absorb the majority of advertising dollars, according to WARC.

Advertising giants face competition for clients from consulting firms such as Deloitte and Accenture, while independent agencies such as Wieden & Kennedy New York have beaten traditional ad firms for large accounts such as McDonald’s.

Some advertisers, like Unilever and Bayer, take business away from agencies and handle some of the work in-house. Last year, 78% of Association of National Advertisers members had an in-house agency, up from 58% in 2013 and 42% in 2008.

Small agencies, like Cutwater in San Francisco, are feeling the pressure. But Chuck McBride, the founder of Cutwater, said changes in the industry would allow companies to express their creativity by experimenting with increasingly personalized advertising.

“The gloom and unhappiness are greatly exaggerated,” he said. “Things are really messed up, but there’s an opportunity in there.”

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