Earned-first PR agencies have the opportunity to thrive in a new “Golden Age” for the sector, despite a series of structural challenges, according to new research from Communication and Public Relations Australia (CPRA).
Speaking exclusively to B&T, CPRA chair Shane Allison and Chris Savage, chair of the industry association’s Agency Leaders SIG, said that the changing demands of brands upon traditional creative agencies, as well as retainer accounts decreasing from prominence, presented PR agencies with tantalising prospects.
“We’re seeing a golden age of opportunity sitting in front of the PR industry. There is more opportunity across earned-first, corporate affairs, brand and reputation than there ever has been before,” said Allison.
His summation was based on the findings of the body’s Benchmark Research, with 37 Aussie PR agencies participating. However, despite talk of a potential golden age, there are a litany of structural challenges that the sector must address—or at least try to take advantage of.
In particular, the sector is facing a significant challenge with profitability margins. Two years ago, the average PR agency was operating with a 17 per cent margin. Last year, it dropped to 11 per cent. While that margin has remained constant into the financial year just ended, it is still below the margins “agencies need to thrive and invest in capabilities clients will need going forward,” according to Savage.
While revenues remained stable in the sector, costs grew five per cent. It was only because agencies slashed training and technology investments that the average profit margin remained at 11 per cent.
“The research really showed that in what was the toughest 12 months, certainly in my 40-year career in marketing comms across all sectors—if you put aside the first three months of COVID,” said Savage.
Alongside reduced marketing budgets and spend, there is a “structural” shift away from retained contracts.
“The industry needs to adapt. But it’s actually a good thing for the industry to adapt [to],” added Allison.
“It requires a much stronger commercial muscle to scope, deliver and make money off a $100,000 project than it does off a $1.2 million per year retainer. But there are much higher margins available from project work than retainers—if managed well. It’s just that the industry doesn’t do a great job of managing projects.
“Agencies aren’t in a bad place, they just need to work differently and in a more commercial manner to scope out a project and deliver on it,” Allison continued.
“We presented to the CPRA working group members that they need to be growing larger working capital buffers so that they can cope with the lumpy, uncertain nature of projects. That requires a much larger capital base and investment in the business.”
Allison and Savage did note, however, that it would be hard for agencies to grow that kind of working capital buffer at the current margins they’re working on.
“We’re not claiming victory. We held the line in tough circumstances with a business model that needs work,” said Savage.
“There’s definitely been a big push from clients asking for more from less. There’s been a lot of pressure from procurement coming into it, there’s a lot more pitching going on and the onerous nature of them. There are more agencies coming in for pitches. Everybody is facing that in our sector and it’s a long-term problem.
“We have to improve our business model, the way we price, success fees, value-based pricing, different models, they are all some of the ingredients to make our model more robust. But it starts with being super-relevant to clients and building share of spend. In that regard, the indicators are good.”
Allison and Savage believe that amongst those significant challenges, consumers are changing their expectations of brands. As audiences fragment and make traditional media less effective, the pair believe that earned media is in a prime position—whether the industry writ large is ready to accept it or not.
“Earned media frankly needs to be rebadged ‘engagement media’, because that is what the modern craft is. It’s all about engagement built around the interplay between earned, owned, paid and building credibility and building relevance,” said Savage.
“Earned-first agencies are much further advanced in the development of the full suite of capabilities to deliver ‘engagement media’ than other types of agencies.
“There are exceptions: Thinkerbell, Akcelo, Howatson+Company, Special. But as a sector, ‘PR’ and the traditional skills and mindsets of its specialists are perfectly suited for a new world of engagement media.
“As Rob Lowe of Poem said: ‘The future of effective brand communications is the grey area between advertising and PR- whatever that’s called'”.
There are plenty of examples of this new way of working and engaging with customers already. Savage and Allison pointed towards Nicole Taylor’s work at Lego, Josh Goldstine’s work at Warner Bros. and CommBank and Jo Boundy’s inspired work with Football Australia and the Matildas.
“Top marketers were universal in their endorsement of earned-first led campaigns at AANA RESET this year. To genuinely generate impact, marketers are skewing towards a focus on content and earned or owned creative that is so good that media platforms run it for free,” added Savage.
Now that really is getting more for less. And it’s being reflected in the industry already. Akcelo won the Grand Prix at this year’s B&T Awards. While perhaps best known for its experiential work, the agency delivers a whole-of-brand capabilities that marketers love. It connects their brand with consumers right the way though the funnel with creative, CX, activations and very PR-able ideas.
