Holding companies kept cutting agency costs for twenty years after the surplus from the old 15% commission era ran out in 2004 - cutting muscle, not fat.
WarningBrand Strategy
Holding companies kept cutting agency costs for twenty years after the surplus from the old 15% commission era ran out in 2004 - cutting muscle, not fat.
By 2004 the surplus agency resources inherited from the 15% commission era were gone, yet holding companies kept cutting for another twenty years. As Farmer told the holdco CEOs: up to 2004 you were cutting fat, today you are cutting muscle.
Source
The WARC Podcast - Who murdered Madison Avenue? (host David Tiltman, guest Michael Farmer) (2026)
Michael Farmer (author, Madison Avenue Manslaughter / Makeover / Revisited); David Tiltman (WARC)
17:30, Michael Farmer
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StatAgency fees halved while workloads doubled over 35 years, driving a 75% fall in the real price of agency services after inflation.WarningAgency pricing eroded by about -2% in fees and +2.3% in workload every year for 35 years - too small in any single year to trigger alarm.PrincipleThe Scope Metric Unit turns every deliverable, from a Facebook post to a TV ad, into one comparable unit of creative work.StatThe price per Scope Metric Unit at Ogilvy UK fell from $435,000 in 1992 to about $110,000 today, well below Farmer's $175,000 estimate of its true worth.StatA comparably staffed Ogilvy creative department went from producing 360 ads a year in 1992 to about 15,000 ads today.WarningAdaptations eat 40% of agency hours and fees - exactly the work AI can automate - yet automating half of it and cutting fees 20% would put the office out of business.Quote"It isn't a very good business strategy to accept a random fee for an unknown quantity of work and then to downsize to make a margin." - the mechanism behind three decades of agency decline.PrincipleFarmer blames four parties for agency decline: holding companies, procurement, CMOs, and agency CEOs.StatSince 2009, 40 of the top 60 advertisers have grown at about 2% a year - roughly half the nominal GDP growth rate of 4.7%.StatPrivate label has opened price gaps of 25-40% against big advertisers, whose own reported growth is mostly price increases, not volume.WarningThe CMO doom loop: stalled growth triggers a shift to cheap media and agencies, which locks in low growth until the CMO is replaced in about three years and the cycle repeats.PrincipleAgencies are briefed on scope of work and fee, never on the actual growth problem - and clients aren't taking that question to consultants either.