With the traditional advertising remuneration model of commission on media spend largely abandoned in favour of the fixed fee and hourly rate models, ad agencies are revisiting a previously tried model of taking an equity stake in the project or the client’s business.
The model has been tried several times in recent years but largely failed to take off especially after agencies were burned when their dot-com investments went bust, The Wall Street Journal reported.
However, major agencies are revisiting the idea with Crispin Porter + Bogusky taking a minor equity stake in Haggar Clothing and BBDO negotiating to gain a share of revenue from a campaign for Snicker bars featuring the pop group Black Eyed Peas. The campaign is unusual in that it incorporates a merchandizing model for music and clothing.
The revenue-share model helps answer the question posed by agencies increasingly positioning themselves as idea companies, namely how to fairly share in the long-term revenue generated by their ideas.
“BBDO's effort -- which the agency views as an experiment, people familiar with the situation say -- is the latest attempt among big advertising companies to capture more revenue from the ideas they create for their clients. Many ad creations, such as General Mills' Pillsbury Doughboy, generate extra revenue from licensing. But it is usually the advertiser that benefits from the extra revenue,” the newspaper reported.
However, the model does raise the question about the traditional role played by and related skill sets employed by an ad agency: taking an equity stake involves long-term involvement at a management level broader than just marketing.