It’s the big mistake of our industry," Maurice Lévy says passionately. "The earlier that we get out of this system, the better. It’s wrong for the advertisers and it’s wrong for us. It’s not giving us headroom to invest."
The subject that has provoked this outburst is the thorny issue of how agencies get paid. In particular, the existing model of creative agencies being paid for their time rather than ideas.
Publicis Groupe’s chief executive was speaking with Campaign after the release of the company’s full-year results, which show that revenues in the UK fell by 4.4 per cent.
It is a result Lévy claims is actually "better than expected" and the consequence of a restructure at Razorfish and much-needed management changes at Publicis Worldwide’s UK arm.
It is no secret that the market has been tough for both clients and agencies in the past few years, with clients under pressure to cut costs and agencies feeling the squeeze. The latest IPA Bellwether report showed that the proportion of marketing directors who were planning to increase their budgets had slowed to a three-year low at the end of 2015.
Changes at the world’s two biggest advertisers are indicative of the wider problem. Procter & Gamble has embarked on a drive to cut up to $500 million from its marketing budget and reduce the number of agencies with which it works. Unilever has become the latest to adopt "zero-based budgeting" – an approach that requires all expenses to be justified for each new period and, if poorly applied, could be harmful for agencies and their long-term relationships with clients.
Cost-cutting was also a factor behind last summer’s "Mediapalooza", in which $30 billion of media money from clients including Coca-Cola, Fox and Visa went up for review.
"I have never seen a war on price like the one we have seen during the Mediapalooza," Lévy admits. "It’s just incredible. Clearly, we have reached a peak."
Ratcheting up the pressure on agencies is the Association of National Advertisers’ investigation into media rebates and transparency issues in the US.
Lévy believes the investigation is something to be approached with caution but adds: "As far as we are concerned, we feel extremely comfortable. We don’t consider that we have any issue based on the rules that we have. We are transparent on everything including on programmatic."
In such a cloudy climate, how can agencies avoid a race to the bottom?
One of the most damaging restraints for creative agencies is being paid by hours spent rather than value created. Lévy argues that accepting this payment system was "the big mistake of our industry" because it means agencies are not properly rewarded for their contribution. It also leads to difficult fee negotiations where clients can quibble over the number of hours they need and how much agency employees are paid.
"It’s the wrong approach because you are considering that the value of what we bring is limited to the number of hours that we spend," he points out. "The idea and the value we bring to a brand is something that cannot be measured by hours."
Lévy argues that advertising is an industry where people’s creativity should be nurtured – people should be given the possibility to spend time in museums, cinema, theatres. Adland also needs to invest in the development of younger talent.
"On top of the hourly fees, we are asked to limit our corporate costs – for example, the cost of head office. We are doing a lot," he insists. "The advertisers are doing a disservice to our industry. They are not helping us to help them in the future.
"It’s a very wrong approach. I was always against it but I had to follow the leaders – I have no choice. It’s one of my biggest frustrations."
Of course, charging for output rather than input is a better business model for agencies, but it is not so easy putting that into practice.
But Lévy believes a change will benefit both clients and agencies.
The first thing is to end the US investigation positively: "Then we have a clean slate and can start all over again with a relationship based on trust and confidence."
Lévy thinks advertisers and agencies should sit down together and come to an agreement that is good for the industry as a whole – one where agencies are compensated fairly on flat fees and clients pay a licence to use an agency’s ideas. In return, clients will get the most from their "trusted partners" to help them build their brands and fuel growth.
"We need to invest in our businesses. That is fundamentally in the interest of advertisers. The way some advertisers are behaving is just a big mistake. They will suffer from the backlash of this in a few years’ time," Lévy says. "It’s better to sit down now, revisit how we are operating and build a new type of relationship."
Surely even Lévy’s rivals would not disagree with that.
"I think politically and from a European dream, it will be a waste to see the UK leaving Europe. I do sincerely hope we will still be cousins and we will not need to shut down the Channel."
A possible acquisition of Cheil
"We have a policy – it is a cliché – that we don’t comment on rumour or speculation. We have conversations with Samsung about what avenues we can explore to have a service that is more integrated between Cheil and ourselves. This is something that has been discussed for many years. Clearly, there are some interesting avenues to look at."
(This article first appeared on CampaignLive.co.uk)
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