Putting the right value on creativity

You need to have money to make money. So goes the old saying. And with all the conversation about the disadvantages of capitalism right now (debate about Piketty’s mathematics notwithstanding!) this has never felt more true – the fruits of economic activity benefit the owners of capital disproportionately. The rich get richer, the poor get poorer.

At the same time you can’t open a paper without someone lauding the importance of creativity.  It is dead hard though to make money from creativity. And it’s getting harder as digital networking lays waste to the old formats that middle class creative people have used to monetise their skills – things like books and records. As a society we need new ways to recognise the value of creativity and new business models and economic mechanisms to profit from the value creativity creates. And not allow 100% of that value to flow upwards to the owners of capital, platforms or siren servers.

“Technologists repeatedly apply the extreme efficiencies of digital networks in some area of endeavor in such a way that the sources of value, whatever they may be, are left more off-the-books than they used to be, but we end up in control of the server that runs the scheme. It happened to music and other media early on, but the pattern is being repeated everywhere.”

Jaron Lanier. Who Owns the Future.

The advertising industry also needs to find better ways of profiting from creativity too as was recognised by both clients (Martin Riley, Pernod Ricard CMO) and agency leaders alike (Debbie Klein, The Engine Group) at this week’s IPA event on agency remuneration. Let’s face it, our industry’s way of monetising IP and brand value added is hopeless.  Despite the huge value that creativity can generate we get paid by the hour regardless of any value created. It is high time we developed new business models and disrupted our own industry paradigms, before it is too late.

Creative agencies are filled with creative people who think they make a product –  a brand strategy, a design, an idea or an manifestation of that idea in a piece of communications, .product or digital service.  And those ideas often have the potential to generate huge value for our clients brands.

However we don’t get paid for making a product, or whether that product generates value (I am sure there are plenty of great performance related schemes out there but mostly the upside is minimal and not anything to do with the true incremental sale/revenue increases). We monetize our work with a service business model.  Agencies have been coming up with great ideas for years, contributing to reliable sustainable growth for clients and their brands, but since the death of the commission model we have been paid like lawyers or accountants.   The clue is in the name – we are our client’s agents. But with less perceived skill and thus worse hourly rates, and fewer recovered billable hours.

This is of course a decades old set up.  It made sense for agencies to cast themselves as agents back in the day when clients only had one agent, and could use that agent to help them make decisions about what strategies to pursue and where to spend their money.  But now that has changed. Media fragmentation has led to agencies specialising and so their role as agents is much further downstream.  Creative agencies like to think that their most important contribution is the big idea.  But clients are increasingly taking ownership of the big idea and all they want from their agencies is to have that idea executed or specific deliverables produced.

“One CMO, who requested anonymity so as to avoid disparaging the shops currently working on his account, said he thinks that in five years agency networks like BBDO , McCann , Y&R and Saatchi & Saatchi will matter less. “The agency model is really dead. I don’t need all these different agencies working for me. I don’t want it to be about [agency brands]. I just need less overhead and more efficiency.” ”   Ad Age.

The implication is we are less and less valued agents, and becoming a commodity, interchangeable makers of deliverables.  If the industry shrivels and dies it won’t be because the 30″ commercial is no longer relevant.   It will be because the service business model failed to support an industry that continued to fragment, specialise and slip down the value chain despite the continued value of its core product – creativity.

“For years agencies weren’t accountable. Now they are and the model is crumbling. Advertising that doesn’t drive business will lead to a quick end to the ad budget and perhaps the agency as well.” Anonymous CMO

Part of the reason we find ourselves here is that the service business model pays pretty well and CMOs can still justify agency fees when a slightly better/newer marketing campaign generates a positive ROI or percentage point sales increase.   The other part of the reason is that the industry has  been distracted by a macro argument about how the media and marketing landscape is changing and what it means for clients and agencies, and has assumed that the same business model would apply to a new world order.  Even digital creative agency business models are largely the same as their traditional forebears, despite the measurable nature of the media in which they operate.

So there are two questions we need to answer to put better value on creativity:

Firstly, the age old question of how do we better demonstrate the value we create?  How might we make the impact of creativity more measurable? How might we put more skin in the game and not expect to get paid when things don’t work out, but feel confident in sharing in the upside when things do? How do we change the conversation with procurement teams away from simply about getting to a lower number for a specific line item and get to a place where a true partnership can emerge.

And secondly, the new question of how do we change the business model that underpins the value that we create?  How might we apply our creative skills to new ventures and spheres where the outcome is completely unknown but the potential is enormous? (see Taleb on optionality/convex payoffs)

What is exciting is that it used to be that you needed vast capital and resources to scale. In a mere few years Instagram built a $1billion dollar company with 13 people and a great idea and largely the same skills as is present in many creative agencies.

So time for us to get on and find new ways to monetize what we create.  Sure it isn’t easy, and I speak as someone who’s current day job is 99% tied into the old way of doing business in the creative industry.  But we’ve got to find the time in the day to try new things out, have tough conversations with existing clients, and find new and often smaller ones who want to do things differently.