Even a Client as Big as PepsiCo Now Does Its Own Creative. Agencies, What Do You Make of That? | What Changed Advertising, Part 1

Track a trend fast, pin down the audience precisely, hold the brand's tone steady — the demands of digital marketing are pushing advertisers to look for possibilities outside the traditional advertising process.

Advertising has always worked one way: the client states a need, the agency makes the creative and buys the media, reaching as many of the right consumers as effectively as it can. That model is now under enormous strain.

People in the business have never been this confused, or this unsure of themselves, about consumer insight — the foundation and the core of the whole industry.

Mobile life changed everything. Consumers hop between screens and spend their time and attention as they please, and the marketer's old creed — the ad money goes where the consumers are — has lost its bullseye.

That the age of television advertising is over has become almost an industry consensus. But in the dizzying tangle of digital marketing, nobody yet has a clear answer to what actually works best.

The search began at least three years ago. Judging by what is happening now, and by our interviews, the anxiety has not gone away. What has changed, fundamentally, is every role in the chain.

Brands that always handed marketing content to the agencies are building their own teams and making it themselves. Agencies may have entered their most research-driven era yet, setting up data labs, incubating ventures, building data-integration platforms. Media companies that used to sell nothing but time and space are being pulled into creative work, because advertisers now want content that "fits the outlet's own tone and style." And Facebook, the standard-bearer of social media, suddenly finds itself lined up against Google…

That is why we are running this series. In four articles we will look at how each role along the advertising chain changed, and how each is rewriting the rules.

On July 30, the American professional skydiver Luke Aikins jumped from a plane more than 7,600 meters above the ground and landed in the Southern California desert — no parachute, no wingsuit. Fox carried the jump live in prime time, 8 p.m. Eastern. Aikins's bright green jumpsuit was hard to miss: across the back it said "Stride," a gum brand owned by Mondelez, the company behind Oreo. The whole event existed to promote Stride. Mondelez, though, was not there as a sponsor. It was a co-producer.

Two months earlier, PepsiCo had opened a creative studio in New York called Creators League. The plan is for the studio to make marketing content for PepsiCo's brands over the next few years — music albums, TV series, films, reality shows. It has already signed Robbie Brenner, producer of Dallas Buyers Club, for a music film. The studio's staff are on PepsiCo's payroll.

PepsiCo and Mondelez, like other fast-moving consumer goods companies, have long been lavish spenders on advertising. Their filings show PepsiCo spent $2.3 billion to $2.4 billion a year on advertising and marketing over the past three years, Mondelez $1.5 billion to $1.8 billion. That content was, until now, made almost entirely by creative agencies. Now the advertisers are making it themselves — or at least that is how it looks.

"I think they're placing a bet, a bet against the whole industry," says Rob Norman. He has spent 25 years in advertising and is now global chief digital officer at GroupM, part of WPP. To him, the move runs against the logic of the business and "is a very dangerous thing," he told QDaily.

"They are experts at making and distributing food, no question about that. But I don't know why they're confident they can produce marketing content that appeals to consumers." His doubt is not unreasonable. Brands are bad at telling stories about themselves, and behind that failing sits the consumer insight agencies never tire of claiming as their own.

Then Norman added: "But I understand why they're doing it. It's the situation big companies are in. Ours included."

A more exact word for that situation might be confusion. Or bewilderment.

Nobody questions the importance of digital marketing anymore, and brands keep shifting budget toward it. The research firm eMarketer now expects digital ad spending to pass television for the first time this year, reaching $72 billion, up 20.6% from 2015.

The trouble shows up in another number, from the research firm TNS: only about a third of marketers in China feel confident they can handle the points where consumers meet media. In other words, once consumers began hopping between screens and choosing their own media and content, marketers lost their footing.

What is the most effective way to market? Brands and creative agencies are both still looking for the answer.

And since the agencies may be no better at it right now than their clients, the clients are trying to make breakthrough content by breaking the traditional advertising chain.

Forbes.com was still explaining to ordinary readers what content marketing is as late as 2014, but the thing itself has existed since Michelin published its first guide in 1900. The reason no brand today wants to be left behind on it — the reason content marketing now sits so high on the agenda — is largely that social media changed how people respond to information. Marketers want reposts and shares. Dong Xin, marketing head of Mondelez's e-commerce arm, went as far as to call content a product at a recent digital marketing forum held by Carat, part of Dentsu Aegis.

A parachute-free jump from 7,600 meters is, by itself, the kind of thing that makes people curious. The music film Creators League is about to shoot follows the outlook of the hip-hop artist T.I. Harris, who went to prison on a weapons charge, kept writing there and even shot a music video inside — an unusual life that plenty of people will want to watch.

"I can understand a client wanting to create the thing that suits it best. The question is what the sustainability of it is," Norman says. Brands can dabble in entertainment, he allows, but history offers very few cases of a brand turning into a content producer and staying one. Coca-Cola hired three creative consultants back in 1995 to guide its in-house creative shop, Edge Creative; the team was disbanded in 2000.

Red Bull is one of the rare successes. Public figures show the energy-drink company spends at least 30% of its revenue on marketing every year. In 2004 it bought — bought, not sponsored — a Formula One team and built an extreme skydiving squad. In 2011 it put $2 million into the sports documentary "The Art of FLIGHT," then sold it on iTunes at $10 a view and converted it to 3D for a limited run in AMC theaters.

What Red Bull does well is manufacture an experience — the extreme — that belongs to the brand. But it is not, at bottom, the same thing as PepsiCo making a movie.

Creators League answers to PepsiCo's chief marketing officer. Red Bull set up a media company, Red Bull Media, back in 2007, and runs it separately from the drinks business. Which means Creators League probably ranks lower inside PepsiCo and can pull fewer resources.

Mondelez sits somewhere between the two.

Mondelez's Stride gum produced the parachute-free jump. Mondelez also signed a deal this year with the American publisher BuzzFeed to make original content together.

Mondelez says it hopes to sell the rights to that content later and earn money from it. "It's essentially adding a dimension to return on investment. We care about product sales and brand building, and we also care about whether content marketing can bring in revenue," Laura Henderson, Mondelez's newly appointed global head of content and media monetization, told The Drum. "By making content people want to watch, we can get a return on the marketing investment, offset our spending, improve the return and make media spending more sustainable."

"Getting a commercial return out of this kind of marketing content looks like a unicorn event," Jason Theodore, managing director of MediaCom Shanghai, wrote in an email to QDaily.

You can read that as the view of a competitor. Norman, though, does not think brands and agencies are competing here: "PepsiCo making a feature film, Mondelez co-producing a live broadcast with a TV network — none of that is traditional agency business."

PepsiCo's aim looks less like earning a return than saving money. "We need to find more cost-efficient ways to connect with consumers," Kristin Patrick, PepsiCo's senior vice president of global brand development, told reporters earlier.

Why that matters hardly needs explaining. In fiscal 2015, PepsiCo's advertising spending came to 43.6% of its net profit for the year, and with mass consumer goods companies posting weak results in recent years, marketing departments are being judged on their returns far more harshly.

Still, figures the content marketing firm Fractl drew from a US advertising salary guide show that an in-house creative team costs less than an outside agency only when the volume of content is high. When the volume is low, running your own team costs up to seven times as much as hiring an agency.

PepsiCo and Mondelez are not alone in challenging the old model. Last November, L'Oréal built a "content factory" in its Montreal office to make marketing material tuned to local consumers for its brands, including makeup tutorials on YouTube, all produced by a three-person team inside the company. Nike, as you may know, took its social media account in-house in 2013.

Marketing Week reported in 2015 that more than 27% of brands now say they work with no outside company at all in digital marketing and run their own teams instead — nearly double the share in 2014.

"The root cause is what social media did. An in-house content team is more sensitive to the brand and has more control over it. To move fast in the mobile internet era you have to strip out layers of people and cut the time it takes to make content," Theodore wrote. The hardest part, he added, is attracting good people: a brand has to be either big enough or able to offer an experience they cannot get elsewhere.

Matt Miller, president of the Association of Independent Commercial Producers, made a similar point to AdAge: brands can manage "short-term, one-off content," but he doubts they can keep it up, mostly because they struggle to attract the very best marketing talent.

"What really makes agency people competitive is that, by working across many accounts, they get to see what is happening in different industries — what cars people drive, what food they eat, what shows they go to, where they spend," Norman says. An in-house team rarely offers that, which makes it a harder place to recruit into.

Big companies are already trying to get around the problem. In 2015 the fragrance giant Coty acquired the content marketing agency Beamly, a deal that brought it 61 marketing people. Uniqlo hired Wieden + Kennedy's global creative director in August 2014 and its North American creative director that October. Apple said in 2013 that it would end its relationship of more than 30 years with TBWA/Media Arts Lab and hire 1,000 advertising staff to build a team of its own.

Norman and Theodore both hold back on the in-house model. "Brands still sell products in the end, and of all marketing tasks, launching a new one is usually the hardest. When a brand puts out a new SKU it has to communicate what that product actually does for you. Long-form content marketing usually does that badly," Theodore says.

And over the long run, more importantly, "very few brand companies can do this at scale, and without scale there is no point in doing it."

One trend, though, is unmistakable: big companies are going straight to media outlets to make content, borrowing their resources and their people.

Call it brands hunting for something that works in a crowded digital landscape, or call it a contest between advertisers and their agencies. Underneath both is one question — who can move faster on understanding the consumer?

"If you ask me what the most efficient form of marketing is, I'd say nothing beats shooting a 30-second ad and running it on a loop," Norman says. And that era is not coming back.

In the next article we will look at how agencies are feeling their way through the era that replaced it.

Cover image from Visual China Group