Brands Are Planning a Big Shake-Up to How Media Agencies Are Paid

Only 27% of global advertisers believe their current pay structure with their media agencies is fit for the future, and 75% say they'll amend how they pay within the next three years. The World Federation of Advertisers (WFA) and advisory firm MediaSense surveyed 80 marketing, media, and finance leaders from multinational brands representing more than $60 billion in global ad spend. Additionally, the companies interviewed senior agency leaders to reflect on the findings, which revealed a broad appetite for change around agency remuneration. Several levers are driving advertisers' desire for change, including a perceived lack of commercial transparency from agencies, and artificial intelligence upending traditional media buying processes. ADWEEK crunched the numbers to unpack what they mean. Hybrid models are popular, for now Most advertisers use a mix of compensation models. 62% said they used a labor-based fee model, while 65% pay fees on commissions. 22% pay a fixed fee. 52% reward agencies based on performance, and 9% pay on deliverables. Only 6% of advertisers pay agencies using software as a service (SaSS) licensing fees. Three in four leaders said they plan on shaking up their media agency remuneration model in the next 36 months, either with a new agency or an existing one. For most marketers, rethinking remuneration isn't about cost-cutting Clients were asked their top three reasons for switching up models. Just 15% cited cost-cutting. 61% said they expected to pay agencies more within the next three years. Future of Agency Remuneration Study 74% said the main reason for the change was to align compensation with business performance. Improved access to talent was the second largest driver at 42%, and 41% noted a desire to drive greater transparency. AI is a double-edged sword for agencies Just 18% of brands expect to pay their media agencies less in the next three years. When it comes to AI and generative AI, 58% of brands foresee handing over less dollars when the tech is deployed. AI promises to analyze vast amounts of data and generate media plans in minutes. In total, 26% of agencies want to shake up their models to acknowledge the increasing role auotmation and machine learning plays in media planning and buying. On the flip side, 54% said they would pay more for access to generative AI talent, so what the tech takes from agencies with one hand it has the potential to give back with another. Commercial transparency is a major pain point As a move towards performance-based models takes hold before 2028, brands anticipate several challenges in evolving their current process. 87% said resistance from agencies to be more commercially transparent is a roadblock. 84% cited a lack of data and measurement to align media with KPIs, or goals. Future of Agency Remuneration Study Many advertisers believe there's insufficient clarity over their agency's commercial model. 75% care how agencies make money, but only 28% believe they have transparency around it. Non-disclosure revenue streams, such as pooled agency volume deals, or AVBs, and opaque programmatic supply chains were cited by marketers as pain points. The agency take... A number of CEOs from the biggest agency holding companies and independent media agencies were interviewed by the WFA for their reaction to the study. The qualitative data showed a positive reaction to the need for change, tempered by concerns around the different objectives of clients and their procurement teams and the impact of client-imposed payment terms on transparency. "We're keen to move to an output-based model, but it comes down to procurement teams and their comfort in buying services in this way. They are not there yet," said one anonymous leader cited in the research. Tom Ashby, global lead of media services at WFA, said: “The media landscape is evolving at an unprecedented rate, as new channels proliferate and AI reshapes the industry, bringing new complexities and even redefining the roles of advertisers, agencies and media owners." "The agency business model and with it, the remuneration structure agreed with advertisers, must continue to adapt," he added.

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Brands Are Planning to Shake Up How They Pay Media Agencies

Ad buyers are vexed by opacity and buoyed by AI, finds WFA

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