Wall St. Speaks Out: Death of a Centralized Agency Trading Desk - Pivotal Research Group

At most agency holding companies39 media divisions when programmatic buying initially emerged over the last decade it was typically centralized into something with a distinct PampampL which became what most of us now call agency trading desks Client teams inside of the conventional media agency businesses were commonly quotencouragedquot in one way or another to direct digital budgets to these entitiesThere were clear advantages to centralization initially The units housed individuals who had what was highly specialized knowledge of best practices in the application of programmatic buying strategies towards client goals Further by aggregating budgets they were betterpositioned to aggregate more clout with a fragmented group of vendors allowing them to better negotiate for lower technology and or media pricing or higher rebates and in some instances preferred terms for equity investments which may have allowed for lower client pricing higher agency revenues or a mix of both The flipside to this approach is that agency trading desks may not necessarily have operated in as holistic a manner as some clients might have preferred given different reporting lines and sometimesdiverging financial interestsWhile practices have varied within holding companies to some degree including what passes for centralization vs decentralization and the degree to which all client teams within a holding company adhered to the same practices for the most part we have observed that Interpublic39s Mediabrands and WPP39s GroupM have taken a decentralized approach towards trading desks in recent years At both of those holding companies centralized groups have provided tools and advisory services around best practices with an eye towards supporting implementation by client teams It is important to note that the increasingly wellknown Xaxis is a business unit sitting inside of GroupM that performs many functions which are similar to trading desks but is more akin to a media owner than a trading desk By contrast Dentsu39s AmNet Havas39 AffiPerf MDC39s Varick Media Management and Omnicom39s Accuen are all relatively centralized agency trading desk units Until last week39s news emerged so too was Publicis39 AoD which has historically supported clients of Publicis agency groups Starcom MediaVest and ZenithOptimediaIn our view more decentralization seems inevitable as skills become more diffused across the industry and as the clientteam orientation retains its importance It is also a positive trend for agencies and clients alikeAs we note above one of the consequences of centralization is that trading activities may align less well with client needs than if trading activities are attached to client teams It may only be a coincidence but we have noted that Publicis media agency clients are disproportionately represented among those who have brought programmatic buying inhouse More specifically Starcom MediaVest clients PampampG Kellogg39s and Allstate are among the only large brands which have actually done this or announced intentions to do the same To the extent that other agency holding companies align programmatic trading more closely with client teams our guess is that such changes will be well received diminishing to some degree the risks around further announcements that might cause investors to fear agency disintermediationOf course the broader issues associated with media owner rebates on programmatic trading and what we think is a widespread lack of understanding among marketers with regard to how some agencies are being compensated despite providing legaltechnical signoffs will still contribute to an industrywide trust gap leading some marketers to explore bringing programmatic buying inhouse Some marketers will find real benefits in tying their highly sensitive customer data to digital trading and will find that they have the technical and financial will to establish inhouse brand trading desks although marketers who can do so sustainably will be few and far between Thus there are still risks associated with disintermediation although we think they are minimal However we also think they are diminished any time agencies operate in a manner which clients see as clientfirst and towards this end the news about AoD can be viewed positively for the industry in general and for Publicis in particular REPORT INCLUDING DISCLOSURES CAN BE FOUND HERE Madison and Wall 22015pdf Brian Wieser is a Senior Analyst at Pivotal Research Group where he covers securities which are impacted by the advertising economy including Facebook Google Yahoo Interpublic Omnicom WPP Publicis Nielsen CBS Viacom and Discovery Communications Brian can be reached at brianpvtlcom amp160Read all Brian39s MediaBizBloggers commentaries at Brian Wieser39s Pivotal ReportCheck us out on Facebook at MediaBizBloggerscomFollow our Twitter updates MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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Wall St. Speaks Out: Death of a Centralized Agency Trading Desk - Pivotal Research Group

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