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The advertising industry has a problem: people hate advertising

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In the pre-digital days, advertising agencies were ruled by boastful creative directors who fed themselves with lavish client contracts and sometimes created campaigns that set the cultural agenda and captivated the public.

Almost every piece of this equation has changed. Agencies are better informed than ever about consumers because they have amassed huge amounts of data. But many of these consumers, especially the wealthy young people who are valued by advertisers, hate ads so much that they pay to avoid them.

At the same time, companies that hire advertising agencies demand more from marketing campaigns – and pay less for them.

As a result, the advertising industry is facing an “existential need for change,” as a blunt report by research firm Forrester published on Monday shows. Now the agencies have to “dismantle the rest of their outdated model” or risk “becoming further insignificant”, the report concludes.

“Audiences are harder to reach, the cost of marketing is increasing, the number of channels has increased exponentially, and the cost of covering all of those channels has increased,” said Jay Pattisall, lead author of the report, in an interview. “There is constant pressure on marketers – we no longer just create advertising campaigns three or four times a year and run them through a few networks and print media.”

As advertisers bombard consumers across platforms like Twitch, Facebook, television, billboards and more, consumers try to flee and sign up for ad blockers and subscription services.

“People hate advertising,” said Joanna Coles, 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 advertisers’ fault.”

Next to her sat, nodding in agreement, Marc Pritchard, the chief brand officer at Procter & Gamble, one of the largest advertisers in the world. Advertisements are often irrelevant and sometimes “just silly, ridiculous or stupid”.

“We tried to change the advertising ecosystem by running more ads and that just made more noise,” he said.

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

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

“Given changing viewing habits, commercial impressions are in free fall in the most viewable media with the highest attention around the world,” researchers wrote. “The problem is universal, and if the visual behavior of the younger audience is a harbinger it won’t get any better.”

Some startups have started rewarding or compensating consumers for viewing ads. However, to effectively reach viewers, advertisers must also “incorporate data-driven, technology-driven approaches and platforms into the creative process and toolkit,” according to the Forrester report.

This includes automation and machine learning technologies that Forrester expects to transform 80 percent of agency jobs by 2030. In July, JPMorgan Chase announced a deal with advertising technology company Persado that would use artificial intelligence to write marketing copy.

Daily business briefing

Updated

Aug 3, 2021, 4:18 p.m. ET

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

To stay agile, holding companies need to centralize their operations, even if that means “the disappearance of some pretty famous, iconic advertising brands,” Pattisall said.

Last year, WPP Young & Rubicam, a creative agency quoted in Mad Men, merged with its digital advertising business VML. Shortly afterwards, WPP combined the company J. Walter Thompson, founded in the 19th century, with the digital agency Wunderman.

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

Steven Moy, the general manager of the Barbarian Agency, said multiyear contracts were shortened, budgets tightened, and performance metrics tightened.

“I haven’t seen many multimillion-dollar projects with blue skies over five years – it’s more like, ‘Can you get something in six months?'” He said.

According to data released by the WARC research group on Thursday, global spending is expected to grow more slowly this year and next compared to 2018, weighed down by signs of a weakening economy and mounting geopolitical tensions.

According to RWB, for the first time next year, Facebook, Google, YouTube and other online platforms are expected to soak up the majority of advertising money.

Advertising giants are competing for clients from consulting firms like Deloitte and Accenture, while independent agencies like Wieden & Kennedy New York have beaten old advertising firms for large customers like McDonald’s.

Some advertisers, like Unilever and Bayer, are outsourcing business from agencies and doing some of the work in-house. Last year, 78 percent of Association of National Advertisers members had their own agency, up from 58 percent in 2013 and 42 percent in the year 2008.

Smaller agencies like Cutwater in San Francisco are feeling the pressure. However, Chuck McBride, founder of Cutwater, said changes in the industry would allow companies to express their creativity as they experiment with increasingly personalized advertising.

“The gloom and doom is greatly exaggerated,” he said. “Things are really mixed up, but there is an opportunity in that.”

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