Kitabı oxu: «Frenemies: The Epic Disruption of the Advertising Industry»

COPYRIGHT

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First published in the US by Penguin Press 2018

This UK edition published by HarperCollinsPublishers 2018

FIRST EDITION

Text © Ken Auletta 2018

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Cover photograph © Johnny Ring

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DEDICATION

For Matt and Sam

CONTENTS

Cover

Title Page

Copyright

Dedication

Introduction

1. The “Perfect Storm”

2. “Change Sucks”

3. Good-bye, Don Draper

4. The Matchmaker

5. Anxious Clients

6. “Same Height as Napoleon”

7. Frenemies

8. The Rise of Media Agencies

9. The Privacy Time Bomb

10. The Consumer as Frenemy

11. Can Old Media Be New?

12. More Frenemies

13. Marketing Yak-Yaks and Mounting Fear

14. The Client Jury Reaches Its Verdict

15. Cannes Takes Center Stage

16. Mad Men to Math Men

17. Dinosaurs or Cockroaches?

18. Good-bye Old Advertising Axioms

19. “No Rearview Mirror”

Acknowledgments

Endnotes

Bibliography

List of Searchable Terms

Also by Ken Auletta

About the Publisher

INTRODUCTION

In a 1970 TV commercial, a group of child actors portraying Louis Armstrong, Fiorello La Guardia, and Barney Pressman as kids are sitting on a New York City stoop and asking each other what they hope to be one day. Armstrong says he wants to be a musician. La Guardia says he wants to be mayor of New York. The bespectacled Barney Pressman is quiet, so they prod him: “Whaddaya gonna be when you grow up, Barney?” Pausing to adjust his glasses, the future founder of Barneys clothing store says, “I don’t know. But you’ll all need clothing.”

For more than three decades, in books and in my Annals of Communications pieces and profiles for The New Yorker, I have reported on the digital hurricane that has swept across the media industry. I have tried to “follow the money,” to understand the source of the economic harm that has struck newspapers, magazines, television, and radio, all reeling from shrinking advertising revenue—revenue now fueling Google, Facebook, and a myriad of other new digital enterprises. You can almost hear the young Barney Pressman trilling the world, “You’ll all need advertising and marketing.”

Worldwide, advertising and marketing is variously said to be a $1 trillion to $2 trillion industry. Of that astronomical sum, roughly three quarters is categorized as marketing dollars. Often, rather than joining together the words advertising and marketing, we employ the shorthand, advertising. We do so because advertising is a more familiar term, and to utter both terms together is a mouthful. In fact, advertising and marketing are interchangeable. They take different forms, but each involves a sales pitch. A thirty-second TV ad or a full-page ad in a newspaper seeks to sell something, which is also a marketing pitch. A direct mail or newly designed brand name or email solicitation or giveaway coupon is listed as a marketing expenditure, but it’s also an advertising sales pitch. So the two categories are really one.

Yet advertising and marketing, like the media industry it has long subsidized, is convulsed by change, struggling itself to figure out how to sell products on mobile devices without harassing consumers, how to reach a younger generation accustomed to dodging ads, how to capture consumer attention in an age where choices proliferate and a mass audience is rare.

In the course of my work as a journalist, I have tended to shift back and forth between the disrupters and the disrupted. My first book, The Streets Were Paved with Gold, published in 1978, chronicled how New York City had been hit by a Category 5 economic and social storm that shattered its manufacturing base and spurred the flight of its middle class. My focus on the people on the wrong end of change continued in 1981, in a three-part series in The New Yorker that grew into a book, The Underclass. A reporting sojourn to Wall Street in the mid-1980s resulted in Greed and Glory on Wall Street, a battlefield account of the corrosive greed that brought low Lehman Brothers, the oldest partnership on Wall Street, and signaled the Wall Street gluttony that produced insider trading scandals and would bear such disastrous fruit in 2008.

It’s fair to say that at this point I was a naïf about the advertising industry’s true economic power. That began to change in 1985, when I embarked on a nearly six-year odyssey through the world of network television while reporting my book Three Blind Mice, a report on how the three dominant television networks—CBS, NBC, and ABC—were being disrupted by a new technology, cable. Advertising was central to that story, for unlike cable, the networks were 100 percent reliant on advertising. And so when the estimable Tina Brown, the new editor of The New Yorker, offered a regular platform in the magazine, which she called the Annals of Entertainment, I demurred. I told her that in reporting Three Blind Mice I glimpsed how the world of media was being transformed, and so we needed a broader rubric—the Annals of Communications—because studios and publishers and television and digital companies were increasingly invading each other’s turf.

Over the next quarter century, unsettling change was the subject of much of my work for the magazine and for my books, and the advertising industry was often a backdrop for the stories, and usually an underexplored one. I witnessed the flight of advertisers from old to new media with my reporting for The New Yorker about Google, which led to the book Googled: The End of the World as We Know It. The flight of advertisers from old to new media started in the late 1990s and accelerated in the new century, and its impact was hard to miss. Less obvious was the impact on the ad industry itself. In the public imagination, we were still in the age of Don Draper, but I began to see more and more clearly how this industry that had been intrinsic to the disruption of old media was itself facing fundamental challenges to its existence.

Trying to understand the media without understanding advertising and marketing, its fuel supply, is like trying to understand the auto industry without regard to fuel costs. A war correspondent would be derelict not to try to calculate whether General Patton had enough gas in his Third Army tanks to race across France in 1944 (he did not). But it’s not merely that a reporter covering the communications business would be remiss not to follow the up to $2 trillion advertising and marketing sector; anyone who takes a moment to ponder this pool of money can’t avoid the inescapable truth that capitalism could not exist without marketing. True, the force of marketing is often malign, seeking to manipulate the emotions of consumers. Readers of this book will, hopefully, share my rage at the many tricks marketers practice. But marketing has a purpose in a free society, and intellectual honesty compels us to recognize that those who sell products need a way to share information about them with consumers. In a non-state-dominated economy, advertising is the bridge between seller and buyer. It would seem an obvious statement, but I’ve found it bears repeating. And that bridge is teetering, jolted by consumers annoyed by intrusive ads yet dependent on them for “free” or subsidized media. In this sense, consumers are frenemies.

To dig deeper into this world is to realize that more is being disrupted here than the flow of marketing dollars. The agency edifice itself is being assaulted, as new rivals surface—tech and consulting and public relations and media platform companies—many of whom have long been allied with the agencies and claim still to be. A once comfortable agency business is now assailed by frenemies, companies that both compete and cooperate with them.

For many years, I examined advertising as an aspect of some other story I was telling. It crept up on me that there was much to be learned by turning that around and looking deeply into the advertising industry itself, and through it out onto the wider world—a world of artificial intelligence (AI) and algorithms and big data that raises fundamental issues, including issues of privacy, issues of whether the science of advertising can replace the art, whether relationships still matter, and where—and whether—citizens get their news.

This book is populated by characters who represent the points of tension within this world. You will meet artists like Bob Greenberg, founder of the R/GA agency, who rail at consummate executives like Martin Sorrell, CEO of WPP, the world’s largest advertising and marketing holding company; the scientists, including the engineers at Facebook and IBM, who fervently believe in their machines; the clients, like Unilever’s Keith Weed and GE’s Beth Comstock and Linda Boff, who must wrestle with trust issues between clients and their agencies; and you will meet Michael Kassan, a charming man who relies on relationships to link the artists and managers and clients and scientists.

This book attempts to peer deeply into this world. I sought to step into the shoes of many important actors and frenemies in the marketing world, old and new, disrupters and disrupted alike. It is a world stocked with passionate and creative people, but it is also a world roiled by anxiety. Ultimately, this is a story of a world whose fate is imperiled, and why that fate matters to us all.

1.
THE “PERFECT STORM”

Characterizing the rebates as “criminal extortion,” he said of the giant advertising holding companies, “At least four of them, maybe five, are doing this.”

—Jon Mandel, March 2015 speech to the Association of National Advertisers

Former advertising colleagues were shocked when Jon Mandel morphed into a whistle-blower. Mandel had been a member in good standing of the advertising establishment for nearly four decades, a former chief executive officer of media agency powerhouse MediaCom, a reasonably popular joke-cracking executive with a chubby, beardless face and a full head of dark hair. But he seemed a different person on March 4, 2015, when he stepped onstage before his former clients, the Association of National Advertisers, or ANA, at their annual Media Leadership Conference in Florida. He looked different to old colleagues. He was rail thin and almost completely bald, with a trim grey beard that gave him a severe, almost Mephistophelian look. Before the very advertisers that fund his former agency, Mandel trembled, knowing that former coworkers would “try to kill me professionally” when he accused them of corruption. Agencies, he declared, engaged in a “pervasive” practice of demanding “kickbacks” from media companies and platforms like magazines, newspapers, TV, radio, and Web sites in exchange for their ad dollars. “There are cases where there are rebates that should be going to clients that are instead going to agencies.”

The assertion was atomic to this audience: the ANA represents about seven hundred companies, including Coca-Cola and Procter & Gamble, which spend more than $250 billion annually in the United States to advertise over ten thousand brands. Moreover, Mandel was placing a cloud over the many billions spent worldwide on marketing as well as advertising. Coupled with the ongoing disruption of the industry by Facebook and Google and the Internet, the controversy threatened to upend the flow of monies that finance the public’s news and entertainment.

Wearing a dark suit and open-necked grey shirt, with tiny eyeglasses perched on his bald dome, Mandel spoke out against what he depicted as the rot in the agency world, the world in which he’d spent his entire career. Now, he and his marketing consulting firm, Dogsled Enterprises, were paid by the ANA to prosecute the case against agencies. Most of Mandel’s career had been spent at Grey Advertising, and when WPP, the giant marketing holding company, acquired Grey in 2004 they retained MediaCom and he had served as CEO of this media-buying unit, reporting to GroupM global CEO Irwin Gotlieb.

The practice Mandel accused agencies of is common, and legal, in countries like Brazil and China. It once was common in France and Western Europe, before being declared illegal. Speaking in a high-pitched nasal voice, Mandel claimed that the practice had spread to the United States. The “kickbacks” or rebates, he said, come in several forms: in cash; in a gift of additional ad space that giant advertising holding companies hold on to and resell to other clients; in the form of promises of a larger future media buy in exchange for an ownership stake in the vendor by the agency; or “in the worst case,” the agency resells the purchased ad time to the client and makes money on it. “Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?” Mandel asked the audience. He estimated that media and digital companies kick back 18 to 20 percent of the media buy to the agencies, and that the agencies hide kickbacks that total “well into nine figures across agencies.”

Mandel’s blast helped stoke “a perfect storm,” in the words of Andrew Robertson, the CEO of the BBDO agency. Advertising clients were already uneasy with their advertising agencies. They had long complained about steep agency costs and a lack of transparency about how agencies made money. Clients were pleased that the agencies that dominated media buying had leverage over media platforms and could demand better terms, but they worried that agencies kept secrets from them. The trust issue was even more acute because advertising clients were under greater pressure to curb costs and were insecure about the digital disruption that shook the very foundations of their business—from smartphones that turned their banner and pop-up ads into annoyances; to ad-blocking software consumers were embracing to repel ads; to a younger generation grown accustomed to ad-free YouTube and Netflix, and to ad-skipping digital video recorders (DVRs). Mandel’s allegations reinforced these anxieties.

His assertions were damning, but Mandel did not cite a single agency by name. In a presentation sweeping in its condemnation of agencies for their lack of transparency, he was hardly transparent himself. Not about the 18 to 20 percent kickbacks. Not about the figure of at least $100 million in kickbacks he said were collected by agencies. His clear implication was that most agencies were guilty.

When Mandel concluded his remarks, ANA CEO Bob Liodice came onstage and energetically shook his hand. “That was fascinating and frightening,” he said, and was “very courageous.” So, Liodice asked, “What should clients do to gain greater transparency?”

“You’ve got to go in somewhat doubtful.”

“You’re saying a prenup is not enough!” Liodice said.

“Yes, and beware: you’ve got to audit not just the agency but the holding company,” Mandel declared.

The stakes are huge, for advertising and marketing dollars subsidize most media and Internet companies. Today, the amount of money spent on advertising and marketing is up to $2 trillion worldwide, says Pivotal Research Group senior analyst Brian Wieser, perhaps the industry’s most widely respected marketing analyst. Based on a Publicis Groupe study, this estimate was backed by Maurice Levy, the CEO of Publicis, and separately by Adam Smith, GroupM’s futures director, who says the estimate “is in the ballpark.” WPP CEO Martin Sorrell insists the true number is close to $1 trillion. Irwin Gotlieb cautions that the figure could be higher, or lower, because these were “soft numbers,” guestimates. For example, Sorrell’s guess does not include marketing awards programs, free coupons, or marketing messages in McDonald’s food tray liners; Wieser’s guess does.

Over lunch some months later, Mandel sipped from a glass of Pellegrino and calmly described the changes in the business that had led to what he considers kickbacks. Agencies, he said, were once “a trusted adviser, just like your lawyer,” and were paid a handsome 15 percent commission. But agencies became part of today’s dominant advertising holding companies—UK-based WPP, U.S.-based Omnicom Group and the Interpublic Group (IPG), France-based Publicis and Havas, and Japan-based Dentsu. Two thirds of global ad expenditures flow through these six companies and through privately held Horizon Media. “What has happened is there is a certain need to grow to show increased profit year to year. At some point the agency business model changed because of the financial pressures. It wasn’t just no more commissions. It was, ‘I don’t care how you make your money. You just better show me ten percent year to year.’ They were incented financially to worry more about themselves.” Over time, clients began to ask, “Is what you’re recommending to me good because it will be great for my business? Or is it because you will be making more money?”

He characterized the rebates as “criminal extortion,” and said of the major holding companies, “At least four of them, maybe five, are doing this.” At lunch Mandel changed his estimate of the unit of money involved from millions to “billions,” which did not inspire confidence. The one company he identified by name as guilty was WPP, for whom he worked before moving in 2006 to take a new job at Nielsen. WPP, he continued, “wanted me to actually set up the thing, ironically, that years later I’m now known for condemning: all those kickbacks. I said to Irwin [Gotlieb], who’s a personal friend—though since March ‘personal friend’ is on the back burner … He wanted me to set this up, to basically take what was going on in Europe and bring it to the U.S. I said, ‘That’s not right.’ He said, ‘We need it to compete.’” His accusations, he admits, are “hard to prove. It’s like sex crimes: ‘He says, she says.’” Gotlieb flatly denies that he had ever encouraged Mandel to set up a rebate system at GroupM’s MediaCom: “Not true. Find one person or one company who would support that statement!”

Michael Kassan was not in the audience when Mandel delivered his broadside, but when he saw the March 6 headline in Advertising Age—FORMER MEDIACOM CEO ALLEGES WIDESPREAD U.S. AGENCY “KICKBACKS”—he knew it would ignite a wildfire. Kassan was troubled. “I felt like the ANA had endorsed his position without evidence,” he says. But Kassan knew Mandel’s assertions would “light a fuse,” and the resulting blaze would produce new business firefighting opportunities for his company, MediaLink, for which he was grateful.

As the CEO of MediaLink, the company he founded in 2003, Kassan is arguably the supreme power broker in the advertising and marketing industry. With a staff of 120, MediaLink serves as a hub, linking clients like publishers who seek ad dollars with the agencies and brands that dispense them, and linking brand advertisers to new agencies. MediaLink’s blue-chip client list includes Unilever, AT&T, L’Oréal, Bank of America, Colgate-Palmolive, American Express, NBCUniversal, the New York Times, the Walt Disney Company, Viacom, 21st Century Fox, Verizon, Condé Nast, Hearst, the newspapers of News Corp., including the Wall Street Journal and the New York Post, the Washington Post, Gannett, iHeartMedia, Turner Broadcasting, Bloomberg, Flipboard, and Vox Media, among others.

Anything that provokes clients to seek a new agency is good for Michael Kassan’s business, for MediaLink conducts agency reviews, orchestrating the entire process from helping choose the competing agencies, defining what the client seeks, helping judge the agency’s creative and strategic pitches, to participating as the client reaches a decision. MediaLink also performs a headhunter role, linking executives to vacant agency and client positions. It also introduces start-ups to investor capital, performing as an investment banker. It serves as a sherpa, making introductions between agencies and Silicon Valley and Hollywood, taking clients on tours of Google, Facebook, Twitter, and Microsoft, all companies it has represented. MediaLink also represents agencies, arranging speakers for various advertising conferences, where Kassan induces them to cosponsor MediaLink parties and arranges for their executives to appear on panels. Agency and client executives are regularly invited to record one of Kassan’s one-minute daily radio interviews syndicated on iHeartMedia, which he tapes in bulk once or twice a month.

The ever-affable Kassan, then sixty-four, is a pear-shaped teddy bear of a man with a soft, round, tanned face, the sunny smile of a practiced politician, and the jokey shtick of a stand-up comedian. In an increasingly insecure business assaulted by change and rife with mistrust, “they are a bridge company,” Charlotte Beers, former CEO of Ogilvy & Mather, says of Kassan and MediaLink. “The way we used to talk to each other now needs an interpreter, and that’s MediaLink.” Baffled by the digital revolution, clients seek guidance from what they think of as “a neutral corner.”

If one thought of concentric circles of power within the marketing and advertising world, Michael Kassan belongs in the center, alongside a few others like Martin Sorrell, CEO of WPP, the world’s largest advertising and marketing holding company. Kassan’s influence would place him ahead of most of the CEOs of the other five major holding companies and ahead of their clients. Yet outside of advertising and media industry enclaves, Kassan is virtually unknown. Create a Google Alert for WPP’s Martin Sorrell and up to a dozen stories appear daily; a Google Alert for stories about Kassan generates maybe one mention per month.

After Mandel’s ANA speech, MediaLink’s neutral corner became a destination for the world’s biggest brand advertisers. It was nothing short of a stampede. Starting in the spring of 2015 and running through 2016, advertising clients announced they were putting up for review a total of $50 billion of advertising business, and clients knocked on Kassan’s door asking him to organize agency reviews. In all, MediaLink was hired to orchestrate two thirds of these reviews. Unilever, Procter & Gamble, Coca-Cola, L’Oréal, Kraft Foods, Mondelēz International, Bank of America, General Mills, Sony, 21st Century Fox, Johnson & Johnson, and CVS were just some of the advertisers who put their agency business up for review.

Mandel’s kickbacks speech was a spur for the reviews, but it was hardly the only one. Indeed, its timing was exquisitely awful because advertisers were already being buffeted by change, facing disruptive forces in practically every sector of their business. As Alvin Toffler wrote in Future Shock, any industry bombarded by menacing changes endures “the dizzying disorientation brought on by the premature arrival of the future.”

MediaLink brands itself as a neutral Switzerland, positioned comfortably in the middle, which is an odd definition of neutrality since MediaLink often represents all sides at a negotiating table. Kassan has been strategically shrewd. “He doesn’t do agency reviews because they are wildly profitable,” his friend Irwin Gotlieb says. “He does reviews to gain information and because it gives him influence in the business. He has a small headhunting operation. That makes money. But it also gives him influence because key people in the business know that if they’re going to make a career move they should talk to him. The reason he is able to galvanize people in the industry is that everybody knows he is going to be conducting a review, so they don’t want to piss him off.”

The agencies were indeed pissed off about Mandel’s speech and agonized about the subsequent tsunami of reviews, which were akin to an audition to keep your job, knowing that your competition would be auditioning to take it from you. Clients putting individual agencies up for review was common; the torrent of reviews was not. The “pitchapapalooza” reviews meant a cruel summer of long hours and canceled vacations in order to create new pitches to clients. Top agency executives frantically tried to reassure and soothe clients. Laura Desmond, then the global CEO of Starcom MediaVest, the media agency arm of Publicis, estimated that over the summer of 2015 the reviews consumed eighteen thousand hours of her agency employees’ time. Agencies had to prepare creative and strategic presentations for current as well as prospective clients. Presentations are time consuming and expensive—about $1.5 million for each, Bob Greenberg, the founder and CEO of R/GA says—and the expense is shouldered by the agencies, not the clients.

The advertising agency community reacted angrily to Mandel’s speech, no one more so than Irwin Gotlieb. He had had a paternal relationship with Mandel, once recommending him as his successor as chairman of a prestigious industry committee. He denied Mandel’s assertions, saying that he had removed Mandel from a trading role at the firm because they had a trading head and “you can only have one head of trading.” So, he continued, “Why would I have a conversation about rebates with someone not involved in trading?”

The day after Mandel’s speech, Gotlieb had GroupM’s lawyers deliver a letter to Mandel accusing him of violating his separation agreement and the “significant compensation” received in return for agreeing not to disparage GroupM. The law firm warned that it was “considering its options,” and urged him to keep his mouth shut. Martin Sorrell suggests that when Mandel left WPP’s employ he did not do so voluntarily; instead of saying he was terminated, Sorrell said, “He was exited.”

The near universal complaint from agencies was that in his speech Mandel named not a single transgressor, and thus was making a blanket condemnation of all agencies. It was not uncommon to hear agency executives accuse Mandel of McCarthyism. “It was irresponsible,” charged Bill Koenigsberg, founder and CEO of Horizon Media, the largest privately held advertising and marketing agency, and the chairman of the American Association of Advertising Agencies (the 4A’s). “It should not have been allowed in a public forum to paint an entire industry with a broad brush without any evidence.”

Yet there is certainly smoke here, if not fire. Rebates are common outside the United States, and media buying is an increasingly global process. And as more and more advertising is being done by machines (called programmatic advertising) across a large number of media platforms, the opportunities to conduct speculative price arbitrage to bank lower prices for ads for later use arguably becomes reasonable business practice. The clients want to share the rewards. The agencies say clients are unwilling to share the risks, so why shouldn’t agencies be rewarded for taking risks?

Of course, the issues raised by this controversy were broader than just rebates. Is advertising a relationship business, where accounts are won and lost on the golf course and over three-martini lunches, as had been caricatured for decades? Or is it a creative business, where consumers’ hearts and minds are captured by big, original ideas articulated with aesthetic brilliance, as the doyens of the Creative Revolution claimed? Or is it, increasingly, a science, in which leadership will gravitate to those who can capture and analyze the most data, as Silicon Valley and its digital gurus claim?

Did Gotlieb’s WPP, which is headquartered in the UK, hide U.S. rebates?

“We don’t do rebates in the U.S.,” Gotlieb firmly answered, leaving no doubt that it was not a practice with which he or WPP were involved. But he left a clear impression that maybe others partook in the United States. Dave Morgan, the CEO of Simulmedia, a marketing technology company that uses data to target TV ad buys, believes most do it. “Mandel is telling the absolute truth,” he says. “Kickbacks are massive in the U.S. I’ve been shaken down constantly. They tell us that if I get fifty million dollars, I have to pay them five million.”

In a public conversation with Liodice weeks after Mandel’s speech, Gotlieb made a larger point, one that illustrates how the relationship between agencies and clients has changed. He challenged the ancient assumption that agencies had an obligation to “put your clients’ interests before your own.” The client is under increased pressure to produce profits, and so are the agency’s public holding companies, he said. Clients insist that the agency be paid based on the clients’ sales performance. “I don’t control the result, so I’m taking a business risk. It renders the term ‘agent’ redundant. You cease to be an ‘agent’ the moment someone puts a gun to your head and says, ‘These are the CPMs [cost per thousand viewers] you need to deliver over X period of time.” If GroupM’s contracts with clients specify that its costs or the amount of rebates received overseas are to be disclosed, GroupM complies. But if the contract is silent, so is GroupM.

On whichever side of the argument one falls, it is inarguable that Mandel’s assault came at a fraught moment and struck a raw nerve. Taken aback by the irate agency reactions, the ANA quickly did damage control, issuing this statement: “We regret any impression that agencies in general are engaged in questionable activities and apologize to those who were offended.” A few days later it appointed a joint task force with the 4A’s to study the issue.

The ANA issued an open, competitive RFP (request for proposal) to locate a firm to conduct the study, ultimately choosing K2 Intelligence, an investigative cyber defense and compliance firm owned by Jules B. Kroll and his son, Jeremy, which employs former prosecutors and law enforcement professionals like former New York City police commissioner Ray Kelly. The ANA also chose Ebiquity, an auditing firm that has a history of challenging agency spending practices on behalf of brand clients. Seething that the ANA made this decision on its own and chose a prosecutorial firm and, in Ebiquity, what he perceived as a business adversary, Martin Sorrell declared, “They went unilateral.” Koenigsberg was equally livid, saying of K2 Intelligence and cofounder Jules Kroll, who helped build his estimable reputation by tracking down the illicit activities of dictators: “Bringing in a spy agency didn’t send the right message. It kind of sounds like a witch hunt.” The rupture between the ANA and the 4A’s ended their joint task force. By the winter of 2016, K2 and Ebiquity were deep into interviews and jittery agencies feared the worst.

Michael Kassan was not nervous; he comfortably settled into his friend-of-all-sides stance. On the one hand, he said, Mandel “painted the industry with too broad a brush. … I’m a firm believer that this industry is made up of good people.” The ANA wrongly “staked out a position” they should not have by embracing Mandel, Kassan says he told Bob Liodice. On the other hand, “If you’re a CMO and your CEO sees an allegation in the press that agencies are getting rebates and undisclosed kickbacks, you’re going to insist on knowing whether your agencies are doing this.” He encouraged clients to do so. Agencies, he agreed, were not sufficiently transparent, particularly about digital ad purchases. “Media agencies began to create trading desks for online purchases of media. And they were doing it without fully disclosing the amount of online media they bought. They did this because they were buying in bulk and reselling and taking a principal position. They were not wrong. If I’m an agency and I say to you, ‘This particular inventory is being bought on a nondisclosed basis, meaning I am not going to tell you what I paid but I am telling you I will get you a really good price, and I’m telling you I will make money on the spread but I’m not going to tell you how much’”—as long as this was stipulated in the agency contract, he thought it was OK. It would fail the transparency test, he says, if it was not part of the contract.

To conduct MediaLink’s agency reviews, Kassan leaned on Bernhard Glock, who for twenty-five years as a senior executive at Procter & Gamble orchestrated more than one hundred agency reviews, and fellow senior vice president Lesley Klein. The process they shaped began with an in-depth discussion with the client as to what was expected of an agency, after which MediaLink would help narrow the choices of prospective agencies to a handful, who were invited to meet with the client for what MediaLink vice chairman Wenda Millard calls “a chemistry meeting. It’s like a first date. If I don’t like you, no second date.”

MediaLink then prepared a dozen-or-so-page single-spaced RFP to send to the contending agencies. The RFP took time to answer, for it sketched a timeline for the review process and imposed upon the agencies a number of key requirements: specify who would staff the account; specify the fee structure the agency would employ and the methodology to be followed to arrive at a fee; delineate the proposed marketing strategy; sketch the agency’s digital, technology, and e-commerce prowess; share the agency’s media-buying capabilities and data strategy; specify the transparency guidelines to be followed to assure, for instance, that the client shares in any rebates; give a detailed account of the agency’s work on other accounts and its approach to innovation; and it stipulates the return on investment, or ROI, targets the agency expects in return for a bonus and, if the target was not met, the size of the agency penalty. After the client digested these answers, agencies were then invited to offer their proposed creative presentations and marketing plans. The RFP always specified that the agency alone is totally responsible for any costs they incurred during this process.

The process MediaLink followed was explored in the fall of 2015 during the weekly Monday afternoon staff meeting at their 1155 Avenue of the Americas office, with employees from the Los Angeles and Chicago offices joining via videoconference. On this Monday, Wenda Millard devoted the meeting to a presentation by Bernhard Glock of the agency reviews MediaLink was coordinating. Standing in the middle of an eighth-floor conference room crowded with staffers, Glock spoke of what the process taught about the changing dynamics between client and agencies. “There are six key components we hear every time from advertisers,” he said. “The first question the advertiser asks is, What are the cost savings the agency promises? Increasingly, they ask a fresh question: Will the agency agree to peg its pay to how the marketing campaign performs? More and more I see performance sneak in as part of the compensation.” Why? “Because there are more and more procurement people in the reviews.” The difference between the chief marketing officer and the procurement people, he said, is that the CMO tends to focus on building the brand and the procurement officer on cost savings.

The agency’s marketing strategy is a second key component; increasingly, he observed, the client is mistrustful of agencies, and he no doubt exaggerated when he added, “They rely on us” to help shape the strategy.

Operations and efficiencies are a third client concern. Clients ask: How fast can we move? How do we communicate with each other? How do we integrate the planning and buying and creative realms?

Partly because of the Mandel speech and the ANA inquiry, transparency became a fourth component, he said. Our clients “want to know: Can I still trust my agency? Do I get to know of kickbacks or rebates?” Are these shared with the client? Inevitably, the increased wariness of clients “leads to tighter contracts.”

The fifth component is the agency’s use of data and analytics and how it measures performance. Clients commonly ask, “Who owns my data?” They want to know the competence of the agency in new machine tools like programmatic advertising. And they want to know if they are paying for fraudulent clicks.

Finally, and as central to the client as are costs, they want to know about what talent will be assigned to their account. “What I see happening more and more is advertisers want guarantees on key people,” Glock said. They worry whether the agency has enough scale to service the client. And the client defines talent more broadly. “It used to be a given that only the creative agency sat at the table. Now that has changed. Public relations agencies sit at the table. Media agencies sit at the table. Digital agencies sit at the table.”

“The problem agencies have,” Millard interjected, is that cost pressures from clients “is causing agencies to pay less to their employees. Because of that, they’re not as attractive. Why would I go to an agency that looks like a dinosauric entity rather than go to Google, or Facebook, or LinkedIn? Why would I do that, and be paid what I would be paid to work in a sweatshop around lots of unhappy people?” Contradicting Mandel’s thesis that agency margins swell, Millard said, “It’s a real problem for agencies because they can’t make any money. Their margins are getting squeezed. This is a very bad scenario for everyone, including the clients who are not getting the best work out of agencies because they are not getting the best talent.”

“I remember,” she explained over a cup of tea in her office after the meeting concluded, “when I was growing up in this business the pride General Foods and Young and Rubicam would have when they’d say, ‘We’ve been in business twenty-five years with Jell-O. We built this business together. This is a partnership, a great cause for celebration.’ That’s gone. Agencies live in great fear that they’re going to go into review at any moment. Agencies are now treated as vendors.”

Millard described a meeting she had that morning with one of her clients, Time Inc. Executives there complained of not being able to “have a strategic discussion with an agency. It’s all about pricing.” She says the same is true of MediaLink’s other media clients who want to sell space to media-buying agencies. She offered this example: “If Time devises an elaborate $3.5 million sale of space for its multiple magazines, the agency says, ‘I need $1 million.’ You’re having a price conversation before you even finish telling them what the idea is. All they know is that they have to skinny you down because they’re being skinnied down. They’re being judged by how well they’re doing on pricing.”

Little wonder clients turn to MediaLink, Millard said. “We don’t have a dog in this race because we love each agency equally. And we’re going to help the brands through some of this decision making because we don’t care if they choose Omnicom or Publicis. But they can’t go to Omnicom and ask, ‘Am I in the right place?’ They are more likely to come to us and ask, ‘Should we be working differently with our agency? Or should we put our account up for review?’”

The tidal wave of accounts up for review swept through the agency business. Agencies lost part or all of the business of longtime clients. Publicis, for instance, lost Procter & Gamble and General Mills, as well as Coca-Cola, Mondelēz, and Delta; it gained Visa, Bank of America, and Taco Bell. Omnicom lost Johnson & Johnson, Bud Light, and Adidas; it gained Procter & Gamble, Delta, and Subway. WPP lost AT&T, as well as Bank of America and Coors; it gained General Mills and Coca-Cola. IPG lost American Airlines and Kmart; it gained Johnson & Johnson, Bank of America, and Chrysler; Havas and Dentsu gained slightly more client dollars than they lost.

Publicis lost more accounts than its rivals, but the loss that especially rankled Maurice Levy of Publicis was an Omnicom win. The company he had embraced as an equal merger partner in 2013, only to watch the merger collapse the following year, took what a senior Publicis executive described as “a $100 million haircut” to snatch the P&G business away from Publicis. On the other hand, Levy was overjoyed to best the man he regularly trades public insults with, WPP’s Martin Sorrell, by winning part of the Bank of America account.

More was at stake, of course, than relations between advertisers and agencies. “Advertising works as a value exchange,” Andrew Robertson of BBDO, says. “In exchange for advertising, consumers get free or reduced content costs.” Or needed information. It is easy to be cynical or dismissive about the role of advertising in a consumer economy, but its role can hardly be overstated. Commerce and most forms of communication would shrivel without it. Many retail stores would shutter, the number of new products would dwindle, financial service companies would sputter, consumers would complain they are shopping blindfolded. Google, with 87 percent of its $79.4 billion in 2016 revenues supported by advertising, Facebook with over 95 percent ($26.9 billion out of $27.6 billion) in 2016, and Snapchat with 96 percent from advertising, would—like the TV networks and most radio—cease to be “free.” A prime reason U.S. newspaper employment plunged from 412,000 in 2001 to 174,000 in 2016 is that advertising dollars—which account for more than half of all newspaper revenues—dropped from $63.5 billion in 2000 to $23.6 billion in 2014, the last year the Newspaper Association of America released newspaper revenues. Facebook’s advertising revenues alone exceeded the combined ad dollars of all U.S. newspapers. Overseas, in that same span, newspaper ad revenues sank from $80 billion to $52.6 billion.

Advertising and marketing “provides the oil for the economy’s energy,” Martin Sorrell says. Princeton professor Paul Starr, whose authoritative history of the media, The Creation of the Media, credited advertising with assuring journalism’s independence: “American journalism became more of an independent and innovative source of information just as it became more of a means of advertising and publicity.”

A 2015 study on the impact of advertising by IHS Markit, a London-based financial services company, concluded that in the United States each dollar spent on advertising alone spawned nineteen dollars in sales and supported sixty-seven jobs across many industries; they predicted that by 2019 advertising would kindle 16 percent of all economic output. A 2016 study of Western Europe for the World Federation of Advertisers, based in Brussels, concluded that each euro spent on advertising equates to seven euros of economic value. Predicting the exact impact of advertising on consumer behavior is not an exact science—though this book will demonstrate that going forward data will yield better evidence—but by anyone’s measure, advertising and marketing packs a mighty economic wallop.

Naomi Klein chose to measure the impact of advertising in a very different way. In her book No Logo,¹ first published in 2000, she portrayed advertising “as the most public face of a deeply faulty economic system” that promoted sweatshops to produce their often unhealthy products, and that propped up global companies that held sway over politicians to advance globalism, which exported jobs. Her harsh critique of advertising as addictively manipulative was echoed sixteen years later by Tim Wu, whose book The Attention Merchants² argues that by demanding their content be “free” and refusing to pay subscriptions or micropayments, consumers invite intrusive ads and receive inferior journalism and content.

No question: without advertising many citizens would feel liberated from annoying and often misleading interruptions. But what’s indisputable is that advertising and marketing dollars serve as an underlying subsidy for much of the media and the Internet—in other words, for our information ecosystem and, often, for the architecture of our everyday lives. Without this free ATM machine, many companies would be doomed. But as any good advertiser knows, asking someone to sit through all the ads in the TV show they’ve recorded because those ads fund the channel the show is on is just about as thankless as asking people to pay more for a product because it’s good for the environment. Some percentage of consumers may make that choice for the greater good; many more will not. Today, the consumer is in control, and increasingly the challenge for advertisers is to create experiences that people will want to have because they will no longer have to have them. That is a tectonic shift for a once comfortable industry, and it is worth a look back at how this economically essential industry got here.

2.
“CHANGE SUCKS”

“I’m prepared to eat our children, because if I don’t somebody else will!”

—Martin Sorrell, WPP CEO

The word advertising derives from the verb advert, which means “to give attention to.” All markets or competitive economies rely on advertising. Thousands of years ago, advertising consisted of Egyptian, Greek, and Roman wall paintings or rock scrawls. Five centuries ago, farmers selling produce relied on word of mouth; villagers selling a service put up signs like TAILOR or BLACKSMITH. With villages transformed into cities as the Industrial Revolution swept across the nineteenth century, sellers of products turned to a better means of communicating with potential buyers. Thus advertising agencies were born.

The first full-service modern advertising agency, N. W. Ayer & Son, emerged just after the Civil War. What would become the primary means of compensating agencies, the 15 percent commission on all advertising, was also introduced in 1905 by N. W. Ayer & Son. The introduction of the automobile early in the twentieth century became an advertising catalyst. As auto companies proliferated, their reliance on ads to distinguish themselves grew, as did the use of billboards to catch the attention of drivers. Radio in the 1920s and television after World War II became inflection points for new waves of advertising. The burgeoning Internet at the dawn of the twenty-first century became another inflection point.

As population and products mushroomed, advertising made it possible for consumers to discover things they needed, or thought they needed. Advertising seduced consumers and created familiar brands. Initially, the ads for those brands were informational, often dull and dutiful. Nineteenth-century newspapers were festooned with dense rows of classified ads, occupying the entire front page of many papers. Increasingly, ads began to flirt with consumers’ emotions. In the 1920s, Edward Bernays, nephew of Sigmund Freud, became the father of the public relations industry. A hundred years after Shelley declared poets the unacknowledged legislators of the world, Bernays announced in his 1928 book Propaganda—a word he used with none of the pejorative connotations it would later acquire—that now this was true of marketers: “The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.” As one might expect of one of Freud’s kin, Bernays’s mission was to discover the hidden motives for human behavior and learn how to tickle them. “Men are rarely aware of the real reasons which motivate their actions,” he wrote. “A man may believe that he buys a motor car because, after careful study of the technical features of all makes on the market, he has concluded that this is the best. He is almost certainly fooling himself.”

Today the definition of marketing extends from the damage control of public relations firms summoned when a company like Volkswagen is embroiled in scandal; to survey research before a new product is introduced; to the targeting that data companies like Oracle sell to agencies and brands; to designing corporate logos or rebranding companies, as was done when Time Warner Cable was renamed Spectrum; to corporate positioning advice McKinsey & Company offers CEOs; to direct mail, blogs, podcasts, coupons, sponsorships, naming rights, purchased shelf space, corporate Web sites, in-store promotions, membership rewards programs, exhibitions, and young influencers like the Betches, who are paid to extol products on sites like YouTube.

The tentacles of this industry reach wide and deep. It employs an estimated one million people worldwide. One hundred thousand are said to congregate in New York each September alone for the annual Advertising Week in the Times Square area. Then there are the one hundred seventy thousand or so who attend the Consumer Electronics Show, or CES, in Las Vegas in January, the hundred thousand who attend the Mobile World Congress in Barcelona in February, the armies who attend the Association of National Advertisers in different locales, the South by Southwest (SXSW) in Austin in March, the American Association of Advertising Agencies Transformation in Miami or Los Angeles in April, the Cannes Lions International Festival of Creativity in June, and the conferences that Advertising Week’s impresario Matt Scheckner has introduced to London, Tokyo, Mexico City, Shanghai, and Sydney.

It is an industry that has never lacked the capacity to take itself seriously. Jeremy Bullmore, the former J. Walter Thompson chairman, whose company was acquired by Martin Sorrell’s WPP in 1987, today sits in a small, cluttered office at WPP’s London headquarters on Farm Street, where Sorrell relies on him to write sparkling essays about the industry and to help produce a robust annual company report. “Of all the models for successful economies,” Bullmore says, looking out from under bushy white eyebrows that give him an almost cherubic appearance, “nothing yet has been able to compete with a liberal, open market. Which is not to say it’s without flaws. If you go back five hundred years to a village, there were people who have milk and carrots and there were other people in the village who want them.” Only some form of communication can close the distance between “those who want and those who have.” He thinks most of the gap is filled by advertising. “Edison didn’t actually say, ‘Who makes the best mousetrap, the world will beat a path to his door.’ If he had said it, it would have been absurd. If you build a better mousetrap and you’re in the woods, until somebody knows you’ve got the better mousetrap, there’s no point in building it.” He cites the former Soviet Union and its satellites: “Look at Communist countries. No advertising. None of the consumer goods companies thought it necessary or worthwhile to innovate because if you do something that’s quite interesting but you can’t tell anyone about it, and your competition are not doing it, why bother?”

As First Lady, Michelle Obama championed learning how to “use the power of advertising to our favor” by promoting exercise and eating healthy foods like fruits and vegetables. “We all know that advertising works, so we figured why shouldn’t fruits and vegetables get in on the action?” she said. Advertising also works in negative ways, witness the Camel ads that once successfully touted cigarettes as a health product, proclaiming, “More doctors smoke Camels than any other cigarette.” Or mentholated cigarettes were pitched as assuring improved health.

But neither advertising nor the industry that produces it works the way it once did. The industry is being disrupted by frenemies advancing from the north, south, east, and west. Martin Sorrell impersonates an alarmed Paul Revere, seeking to rally the traditional ad industry, summoning his WPP troops to meet the “continuous disruption threat” from various competitors. While pacing his all-white, bare-walled London townhouse office, he says, “You’ve got layers. You’ve got our direct competitors, like Omnicom. You’ve got the frenemies, let’s call them Facebook and Google principally. You’ve got the consulting companies, like Deloitte, McKinsey, et cetera. And then you’ve got the software companies, like Salesforce.com and Oracle and Infosys, and Indian software companies.” He combats new threats by aggressively investing in digital upstarts and jettisoning companies whose economic performance lags. “We’ve invested in Vice. We’ve invested in Fullscreen. We’ve invested in Refinery29,” each a digital company. And, he adds, “I’m prepared to eat our children, because if I don’t somebody else will!”

It does not please Sorrell that one clear beneficiary of this tumult and fear—and the client backlash triggered by Jon Mandel’s speech—is Michael Kassan’s MediaLink. Publically, Sorrell may mute his criticism of Kassan, but he dislikes third parties getting between his agencies and his clients. It annoys him that Kassan’s varied clients flock to MediaLink—not WPP—because they seek a reassuring neutral voice and are distressed by the speed and enormity of change. Sorrell has a broader range of knowledge and business acumen than Kassan—and most contemporaries, for that matter. But Kassan is comforting, providing for his clients what he describes as a cushion, a “membrane between” the cartilage and the bone. Martin Sorrell would never describe himself as a cushion.

Like a doctor with a good bedside manner, Kassan knows his clients have reason to be insecure, and he seeks to address their fears. His clients discuss the accelerated spread of mobile phones, whose approximately six billion global users have replaced the desktop and the television as the dominant platform. They marvel at its awesome power: today’s iPhone 8 has more computing power, says Rishad Tobaccowala of Publicis, than was used for the first space shuttle. They enthuse that a smartphone platform and its embedded GPS open opportunities to track and engage personally with users. They are awed by China’s Tencent, a corporate giant focused on mobile services that connect people, providing access to WeChat. In mid-2016, Tencent had almost 800 million users, 80 percent of whom spend more than an hour a day on one of its sites, especially WeChat, to communicate with family and friends and strangers. They use simple bar codes to partake in 500 million daily transactions, employing 300 million credit cards that link to 300,000 stores, all without switching to another app. If the client does not know, Kassan can explain that WeChat is a one-stop service that combines the varied functions of PayPal, Facebook, Uber, Amazon, Netflix, banks, Expedia, and countless apps. It is clear to Kassan: the mobile future is being shaped in China, not Silicon Valley.

But this frightens his clients, because they know China is a hard market to crack, and they know the U.S. companies that control mobile will drive hard bargains with agencies and advertisers. They also know the limitations of mobile. Ads on mobile phones soak up battery life, are constricted by small screens, and are so intrusive and irksome to consumers that about one quarter of Americans and one third of Western Europeans sign up for ad blockers to prevent the interruptions. How, clients anxiously want to know, do they reach the mass audience so essential to introducing new products and to building brand identity when ads on mobile phones are not as effective and consumers are dispersed among many new channel choices and social networks? And what the hell do they do to reach the next generation—including the digitally savvy millennials age twenty-one to thirty-four, and the even younger Generation Z born after 1997, who detest being hawked to? A reason people might be annoyed by ads is because, on average, citizens are bombarded daily by an astonishing five thousand marketing messages.

Kassan’s clients and agencies do marvel at new data mining tools that offer advertising and marketing companies more weapons to target consumers. But they’re also frightened by some of Kassan’s digital clients—Facebook and Google in particular—who cooperate with advertisers but also compete by collecting massive amounts of data, which they do not fully share. These digital frenemies use this data and the marketing services they’ve acquired—like Google’s DoubleClick and Facebook’s Atlas—to become agency and platform rivals. More and more of his clients are terrified of Amazon, for Amazon has even better data than Facebook or Google, because it tells when a consumer made an actual purchase decision, and like Facebook and Google it walls off its data. Particularly worrisome to brand clients, Amazon promotes its own products, as Google is accused by the European Union of using search to steer users to its own products. For example, if you ask Alexa, Amazon’s digital assistant, to choose a battery, it will choose an Amazon battery, the reason Amazon batteries dominate battery sales on Amazon.

Kassan’s clients and agencies also worry about something else: the data that will yield rich targeting information could trigger a backlash if citizens come to believe their privacy is violated and clamor for government protection. While more data fortifies agencies with better tools to target consumers, it also unnerves them because it arms clients with information about which of their ads sell and which don’t. And technology does something else: it democratizes information, giving citizens more choices, more ability to skip ads, to voice their opinions, to vote with their fingers and flee traditional media platforms.