In the scenario of brands leaving TV advertising, advertising agencies are expected to change their business model
Analysts once surmised that digital advertising would make TV advertising obsolete. Indeed, digital was growing massively over the past 2 decades, and it continues growing by borrowing the TV’s most important feature: Content. The more the digital medium grows, the more it disrupts interesting content on mobile, video and Over-The-Top (OTT) platforms. Relative to billboards and TV advertising, digital advertising also holds better measurement abilities and is significantly cheaper.
Although digital advertising is the only, highly growing medium in advertising, and despite analysts’ predictions, TV advertising spend is not declining but rather remains stagnant.
TV is still the most significant medium in terms of global ad spend, and advertising agencies are encouraging advertisers to maintain traditional advertising while providing comprehensive strategic and creative services.
Since agencies’ business model is based on media commission, they are becoming more digital-oriented to cope with brands’ digital needs on the one hand, but are still relying on TV spend as their major income source on the other hand.
Predictions about advertising are largely consensual, revolving around the speculation that TV is expected to remain stagnant, or slowly grow, while digital is expected to show an impressive growth. Eventually, digital advertising spend is not growing at the expense of TV advertising in a zero-sum manner.
However, broadcast TV channels do deal with zero-sum game issues, especially in markets where broadcast TV reached saturation. In such cases, more channels are competing on the same ratings’ pie and therefore lose income.
This trend even transcends to non-competitive markets with the penetration of Netflix, a long-tail of additional OTT services and the change in viewers’ habits. The Israeli market sets a great example, as reality TV hits such as The Voice and The Big Brother that once surpassed the 30% ratings average easily are far away from reaching it in 2017.
For reaching the same reach on TV, advertisers need to spend more up to a point it is becoming too expensive and somewhat ineffective. This logic may explain why Adidas has recently announced it ditches TV advertising and focuses on mobile advertising instead. In return, Adidas hopes to quadruple its earnings from e-commerce sales in the following 4 years.
Adidas takes an audacious, yet calculated, risk. However, such act holds 3 major consequences.
First, by ditching TV advertising Adidas also ditches its older target audience, while planning to compensate the future income loss with an increased e-commerce activity and lower point-of-sale expenses.
Second, Adidas is probably the only mega brand that declared it would stop using the TV medium. Although Global consumer goods corporations like P&G did allocate more for digital, they still advertise massively on TV. It is likely that after such crucial decision, other companies might take the same approach on the local and global scale.
Third, this act affects directly on advertising agencies’ business model. While Adidas is capable of buying digital media independently, it does rely on advertising agencies for strategic and creative services. In this new marketplace, agencies would fight on digital budgets and might even charge for their services, the same way consulting companies are charging their clients for billable hours.
Currently, Adidas remains a pioneer and other brands are yet to follow. However, if Adidas move indicates a new trend, we are expected to view an accelerated growth in the three growth engines of digital advertising — Mobile, Video and OTT.