reveries - burtch drake

MARCH 2002

He won't predict when things will go back to the way they were. But Burtch Drake, president and CEO of the American Association of Advertising Agencies, says he's as optimistic as he's ever been about the advertising agency business.

"Between the recession that was well in force before the September 11th tragedy, and then of course September 11th itself, nobody wants to revisit the past," he says. "That's all behind us now. I'm very bullish on the prospects for the advertising industry in general, and advertising agencies in particular."

It's still tough out there, just the same. Even before the nightmares of the year just past, ad agencies were taking a protracted look into that deep, dark, truthful mirror.

The big agency networks are getting bigger, but their challenges are anything but smaller. The Web, along with other new media and technologies, are throwing giant question marks after a number of long-held assumptions about the business of marketing. Relationships between advertisers and their agencies may still be strong, but maybe not exactly like they used to be.

Advertising accountability, some critics suggest, is an oxymoron.

Through the turmoil, however, Burtch Drake cedes no ground to those who say that advertising agencies have lost pre-eminence, or maybe even relevance.

"You know, when you walk into a room and somebody asks you what you do, and you say that you're in the advertising agency business -- they get it right away. If you were to say, 'I'm in the communications business,' then they'd think that maybe you worked for a telephone company or something."

Usually when I open up our annual conference I show a video that recaps the events of the previous year. Last year was such a terrible year I don't plan on looking back on it.

Burtch Drake will have none of that, steeped as he is in the beauty of the advertising agency world.

Before he joined the American Association of Advertising Agencies (affectionately known as the "4As"), Burtch had been in the advertising agency business for 27 years. He started at Dancer Fitzgerald Sample (now Saatchi & Saatchi Advertising), in media, in 1961.

He ended up as president of FCB/Europe in 1987. In between, he was president of DFS/San Francisco and FCB/Leber Katz Partners in New York. He also spent two years in London on the client side, as European Area Director for Life Savers, Inc.

But that's enough about the past.

"The ad agency business has hit the bottom," says Burtch. "Now it's time to look forward."

Why are so many of the big agency networks struggling these days -- and what should they be doing to pull out of their troubles?

It's not just big agencies -- the struggles stretch across the entire advertising agency business. However, long-term, I feel strongly that the big holding companies are very well positioned for the future. These are big, big companies now, with revenues in the five, six billion dollar range -- bigger in many instances than some of their clients. They have the financial resources and the wherewithal to weather a long recession and still be well positioned for strong growth in the future.

They basically have all of their bases covered in that they have a piece of anything that involves marketing communications. So, whenever a marketer decides to invest marketing dollars, these holding companies are going to get a piece of it. Last I've heard the big three holding companies now account for almost sixty percent of all advertising spending. If you looked at all marketing spending, the percentage is probably even higher.

As agency holdings become more complex, what is the real benefit to the advertisers?

Advertisers have been downsizing themselves and much of what they were doing is being outsourced. It has to be outsourced somewhere, so the holding companies tend to benefit from that. There are some clients who will always say, "I'm going to shop around and I don't want all of my business in one basket." But there are just as many advertisers who are finding that working with the holding companies makes sense. It gives them greater leverage, it's easier to control. I think agencies are getting better at integrating their services and will only get better at it in the future.

But aren't the glory days of the long-term agency-client relationships over?

I see two sides of it. We just completed a study of what we call "account longevity," and there is no question that the average number of years an account is with an agency has shortened considerably.

But at the same time, you've got Ford now pretty well wrapped up with WPP. You've got Chrysler wrapped up with Omnicom. And you've got General Motors pretty well wrapped up with Interpublic and Bcom3. Those relationships are likely to go on for a long, long time. They may move some brands around, but you can bet your bottom dollar that WPP is going to be the Ford holding company for the foreseeable future. It almost has to be that way because if Ford wanted to move, where would they go, without running into a conflict?

Is that relationship strengthened by more senior, boardroom-to-boardroom, contact?

It's very definitely strengthened. Martin Sorrell, who is not necessarily an adman by training -- but one hell of a smart guy -- is at the boardroom table with much of the Ford business. John Wren has shown his ability to deal at the highest levels with Chrysler and PepsiCo. And certainly John Dooner, who has been a line agency manager for years, has the same capability at Interpublic.

Who will be the Leo Burnetts and the Bill Bernbachs of tomorrow?

Integrated marketing is not perfect. There is still tribal warfare sometimes between the PR firm and the sales promotion firm, the direct marketing firm and the general agency.

Burnett and Bernbach were creative people, but today's leaders are not creative people. They're creative financial managers perhaps, but they don't create the advertising. They're respected in a different way -- for their financial acumen, for example. They're respected for their ability to ingratiate themselves at the highest levels of these client companies and then marshal the resources that are needed for what are really massive marketing budgets and very complex business situations. But I don't think they'll ever be viewed in the same way that a Bill Bernbach was.

Have agency search consultants helped or hurt the agency business?

I have mixed feelings about that. There are some that we think have been good and there are some we think have done a disservice to the industry and, long-term, a disservice to advertisers.

Some of them have been helpful in the advertising agency search process in that when they're good at it, and if they do it right, they can level the playing field and make it easier for clients to go through what is a very difficult, complex process.

But there are others that have done enormous damage to the industry, who have created trouble and issues where it wasn't appropriate, that have squeezed agencies unmercifully on compensation.

Is there a next step in the evolution of agency compensation as it goes from commission to fee?

The next step -- and we're already taking it -- is towards performance-based compensation. Basically, the whole industry has moved towards fees that are in most cases based on man-hours, marked-up. However, an increasing number of compensation agreements do include a component based on incentive. It's never probably more than 10 percent of the pie and I don't see it growing too much beyond that.

A lot of people ask, "what is the next 15 percent?" I don't think there is a next 15 percent. Each advertiser will find a system they're comfortable with and go with it, but basically there's going to be some variation on fees, with probably an added kicker on top for incentive.

What should agencies do to prove the ROI of their work?

Tools are becoming increasingly available to provide better measurement in this area. Some of the big, sophisticated marketers already have very, very good tools, particularly in the way of systems. Kraft is a good example in this area, but they're not sharing that information too much. There's a lot of technology coming down the road as we are increasingly digitized, and we get into digital set top boxes. You start by tying viewing and purchasing with Nielsen data -- it's a Holy Grail for advertising. It's coming and it will be technology-driven.

Is integrated marketing now a reality?

It's an absolute reality. All you have to do is look at Ogilvy, which is one of the best examples. They do it very well. Foote Cone does it very well. A lot of the Interpublic agencies do it; McCann is doing it very well.

The difficulty, as always, is the need for a manager who sits on top of the account. Be it at an agency or wherever he is in the system -- and increasingly it could be a PR guy -- it's somebody who sits on top of the account. It's somebody who has a broad view so that the immediate reaction is not just, "give me a thirty second TV commercial." That requires some training across the various marketing disciplines.

Slowly, but surely, people are working their way up through the ranks who have touched on a variety of different disciplines. When they get to the very top they have a broader perspective than I probably did when I was running accounts a long time ago. Shelly Lazarus is a great example -- she really came up through the direct side of Ogilvy.

What role do you see agencies playing in developing entertainment programming?

I don't see that happening in the small or mid-size agencies, but clearly the holding companies are all over this. You're going to see more and more of that. You're going to see increasing ties with these holding companies to Hollywood. Procter & Gamble has been in the production business for a long time, but it's been through their agencies, with their daytime soaps. You need some big resources to be of assistance to clients in this area, some real expertise and some real contacts. Frankly it's an edge that the big holding companies will have.

I don't know about satellite radio. The concept sounds great, but I think there's a tremendous loyalty to local stations, local news, drive time, weather conditions and things like that.

Where do you see the Web headed as an advertising medium?

I've never been a believer in the Web as a great advertising medium. I think it's tremendous as a response mechanism, it's great for delivering information, dealer information and product information and things like that. But it's not a classic medium. It will continue to grow as a medium of commerce and a way for marketers to disseminate information a lot more cheaply than by brochures or direct mail, or whatever. It does have a lot of marketing advantages, but it just shouldn't be thought of as a classic advertising medium.

What will the agency of the future look like?

Boy, that's a tough one. The agency business doesn't move very rapidly. I've been around it for a long time now and it's still pretty much doing the same thing that it was twenty years ago. Increasingly, the business is global. You're going to have to have global presence to be a player, and that's already pretty well been proven out. We will see increasing use of technology, so that you can produce and get your materials out much more quickly. Increasing accountability on the part of advertisers looking for it and agencies being able to deliver it. We will see increasing target marketing, and this whole CRM business, which is the current buzzword. I see the big getting bigger, the holding companies getting bigger.

What will start-up, independent agencies have to do to succeed?

Well if you look at the most successful independent agencies, which actually aren't independent anymore, it always comes down to a brilliant creative product. The best examples have been, in terms of agencies that have broken out in the last twenty years, Berlin, Goodby Silverstein, Weiden & Kennedy, Fallon, Donny Deutsch. Those are five great agencies that weren't on anybody's radar screen probably twenty years ago that have grown to be close to a billion dollar operations now, each of them.

And yet all of them, except for Weiden, are now owned by one of the holding companies. It was creativity that got them really award winning, break-through. It was high recognition creative that got them started on the path and kept them on the path. And they're also among the most frequently recognized commercials at the award festivals around the world.

There obviously are niche agencies out there that don't have the glamour and visibility of those that I've named, but I'm hard pressed to name any that have achieved anywhere near the volume and stature that those five I've named have.

Does the 4As do anything to help the smaller agencies succeed?

It's true that the smaller agencies, or smaller companies, don't always feel that they're getting the attention that they should from the 4As -- there's a perceived bias towards the largest members, or in our case the largest advertising agencies. We've worked very hard to overcome that perception through a whole variety of special programs for our smaller members. For example, we have two types of committees -- one committee servicing the very large agencies and one serving the smaller agencies in the membership. We now have six or seven committees that have dual levels like that.

And we've put a number of other programs in place. Probably the most notable is called the "forum program," where principals of agencies of a similar size, but geographically dispersed so they're not head-to-head competitors, come together two or three times a year, CEO to CEO. We act as a facilitator, but whatever size agency you're running, there is a group where you can join and learn, essentially from your peers, all of whom face similar problems and issues.

Kids come in this business and they want to win a Cleo, they want to win at Cannes, and most times you're certainly not going to win with day-to-day retail advertising.

Second, we have tremendously broadened our offerings in the areas of professional development. When I came to the 4As, we essentially had one national meeting and it was for CEOs. It was held at the Greenbriar, intended to be pretty much a socialfest, attended by the very largest agencies.

We now have seven annual national conferences a year -- most notably a media conference that attracts upwards of twelve hundred people from across all media disciplines. It's become a huge success and an important meeting for that segment of the advertising agency business.

We have a Creative Director's Conference, a Human Resources Conference, a CFO Conference, and so on. Those have broadened both the face of the 4As to parts of the agency business that we weren't too visible to before, as well as providing networking opportunities for the people working in each of these disciplines.

What advice would you give a young person who wants to break into the ad business today?

First I'd get an MBA, which is kind of heresy because I never used to say that you needed an MBA. But there are so few people with an MBA today in the advertising agency business -- and yet all of their clients basically have an MBA. Having one could put you on a different playing field than your competitors within an agency. The networking opportunities you get out of attending business schools are unbelievable and most of the folks you go to business school with are going to wind up in significant marketing positions around the country.

Second, you should try to get as broad an exposure to the various marketing disciplines that you can. The person who can be a generalist, sitting up on top of an account and can help an IBM -- or any other large, complex account -- marshal all of the resources of your agency, will have an edge.