Many offline businesses and jobs have been eliminated by the technologies of the computer age. Telephone receptionists were amongst the first, and shortly thereafter the film-separation and typesetting industries within the advertising community collapsed. With film separations now being one click of a software program, agencies and clients no longer pay hundreds of dollars to have each color photograph separated into Cyan, Magenta, Yellow & Black (CMYK) negatives or plates.
And headlines once costing hundreds of dollars for typesetting can now be produced on even the most basic computers that use the Windows or Macintosh operating systems, with thousands of fonts available for free online. Even controls once used only by typesetters and not available on typewriters, like kerning and leading, are now simple checkboxes or form fields accessible and usable effectively by even those only slightly trained in the software.
But not only did that drop production costs for ad agency clients, it also dropped the earnings of most agencies along with it, since those fees, along with all others incurred in ad agency services, were marked up 17.65% (15% of total budget spending) by the agency involved. And so it goes with each production expense reduction, like outsourcing to areas with lower fixed or labor costs - as the production expense drops, so does the agency's profit on the job.
Still, ad agencies could survive on their creative fees - the 15% of overall spending on the client's media buy. Newspapers, magazines, radio stations and television stations all billed agencies at a higher 'National Advertising' rate with enough built in to the price to rebate the agency their share of the profits. Fast forward to today, and traditional media are in desperate times. Readership, listenership and viewership are all dropping dramatically, with no bottom yet in site.
With media advertising rates based on audience and reach, what does that do to revenue? Either the media have to charge less, or the lessened response they offer means fewer clients. Either way, revenue is shrinking and has to be made up for somehow. Notice how TV shows have 13 new episodes instead of 26, with a lot more reruns? Or the rise of 'reality' shows with no highly paid actors, writers or pricey sets? You can be sure high-ticket shows like Miami Vice or multi-starred sitcoms like Friends are soon, if not already, dinosaurs of a previous age.
With a radio or TV station a week going under in North America already, and newspapers flopping around looking for solutions, they need to find every possible way to cut budgets and increase revenues. One way is through offering free creative and production to clients who would previously have used an agency in order to retain that business. So agencies are seeing reduced income from the media buys, and now the media is getting more aggressive with them in going to the clients directly.
And the final stroke in the death knell? From small businesses to the largest international corporations, business owners, managers and marketers are starting to realize that the best return on investment for their advertising spend is online - and those on the cutting edge are starting to see that the big, flashy, expensive sites designed by traditional offline ad agencies seem to be losing out to independent Internet marketing professionals not spending 1/100 their budget. Can it be long before they realize that one or two well-trained employees might just bring them better results than the biggest ad agencies are capable of?
And with these new online marketing tactics being so much cheaper as to not leave a margin for agencies or other middlemen, can the traditional advertising agency avoid the tar pits much longer?