What do Brad Pitt, Ridley Scott, Danny Dyer, Salman Rushdie, Zone of Interest director Jonathan Glazer and Guy Ritchie all have in common? They started their careers making British ads – from Ridley Scott’s 1984 one for Apple through Rushdie’s ad slogans like “that’ll do nicely” for Amex, Pitt’s Levi’s commercial in 1990 and Glazer’s epic surfer ad for Guinness, they honed their skills on big budget ads that made UK advertising world famous.
Last week, British ad agencies revealed just how much trouble the industry was in – with Martin Sorrell’s S4Capital and the Saatchi brothers’ agency M&C Saatchi issuing profit warnings after Sorrell’s old agency group WPP criticised its own “unacceptable” performance after issuing a profit warning at the end of October.
Yet forecasts from the Advertising Association issued at the end of October predict that total UK ad spend is set to rise by 8.2% to £46bn in 2025 and a further 6.6% to almost £50bn in 2026. How can ad agencies be struggling in a booming market?
“The ad agency is being pushed out of the market by the tech platforms,” said one senior agency figure. “Five years ago, agencies controlled maybe half of the UK’s ad spend. Today, that is probably 30%. Google deals directly with companies and the ad agency is gradually being disintermediated.”
“When you look at the big five ad agency groups’ financial performance over the last 10 years, there is no growth, because they are just passing the remaining large clients between themselves,” said James Hankins, who runs Vizer Consulting. As the City looks for profits growth, he says, the agencies’ easiest option is to cut jobs.
Tech platforms, AI and the pandemic are all to blame – but we may face a future in which advertising will no longer be a place where UK creatives train to be movie directors and novelists, replaced by inappropriate and potentially alarming AI-generated ads that in theory target individuals but ultimately fail to please everyone.
Bryan Cano, head of marketing at the clothing brand True Classic, which targets men aged 30 to 45, recently used Meta’s generative AI advertising tool and was aghast when Meta switched his top-performing ad – a cheerful millennial man wearing a fleece and sitting on a stool – with an AI-generated photo of a cheerful but spooky granny in an armchair.
The footwear brand Kirruna also used Meta’s AI, which produced an ad featuring a model whose leg had twisted around until it faced the wrong direction.
“AI is unlikely to replace creatives for some time,” says one former agency boss, “but it is being used by creative teams to storyboard, generate ideas and try out creative ideas. It will hit the bottom line because creative agencies bill by the hour, and the more efficient the process the less time they can bill for.”
Claire Holubowskyj, senior research analyst at Enders Analysis, identifies an arms race between agencies and tech platforms that the former are struggling to win. “Ad agencies have more and more in-house tech divisions, which they bought in over the last six years, but they’re just not as advantaged by it as the big platforms, because they don’t also own the supply and the data,” she says. But she acknowledges that creative skills remain something agencies do better, as clients are uncomfortable with the lack of transparency in how generative AI creates adverts.
She notes that strong brand-building campaigns are showing benefits over pure performance campaigns even in the platform’s own data. Laurence Green, director of advertising effectiveness at the Institute of Practitioners in Advertising, says only 3% of sales-activation advertising makes a long-term sales contribution while 95% of brand-building advertising also drives short-term sales.
“Although agencies are taking a smaller slice of a fast-growing pie, all the evidence is that long-term brand-building investment remains the path to sustainable, profitable growth and returns… and agencies still dominate and excel in this particular field,” he says. “If all you’re doing is harvesting current demand, you’re going to run out of road pretty quickly. Priming future demand is the key, whether that’s using TV or working with creators.”
Which may come as some relief to those who are concerned that Britain could lose fertile ground for future movie directors and stars.
Photograph by Retro AdArchives via Alamy Stock Photo