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October 2017
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Commercials 30 2015 Back to Reports & survey Listing

Commercials producers are worried about plunging budgets as well as clients and agencies wanting ever more for ever less. They’re also concerned with the growth of the in-house production company but they’re diversifying beyond their traditional stamping grounds into the wider world of content


So how is life in the commercials production world? Some of the indicators are encouraging. In general most production companies say they’re busier than last year. 73% said they made more commercials in the last 12 months than the previous 12. Turnover is up too, the average from the respondents to this survey is now at £13.1m and that’s up from last year’s figure of £12.4m.

Budget is also up at an average of £201k for a 30-second ad but perhaps that’s skewed by a few big budget jobs as 41% say budgets are down this year with 38% saying they have stagnated.

The insiders
But by a long margin, the thing that is exorcising commercials production companies most is the emergence of agencies setting up their own in-house production outfits. “The previously nascent agency in-house production suddenly became a reality and began to carve out a large portion of content production for themselves,” says Rattling Stick.

It’s a trend that has been around for a little while now, but it’s one that has gathered pace over the last year and is now seen as a major threat to the production ecosystem.

One of the main complaints is that production companies now find themselves in competition with production businesses owned and run buy those handing out the work. Animation specialist Th1ng says it’s a concern and has “produced some strange pitches where one is pitching against agency in-house, which usually results in the obvious choice!”

It’s also concerning to be pitching against in-house producers particularly as that could mean “giving away ideas and techniques in treatments which would facilitate them making the commercial themselves,” says Picasso.

“The agency in-house production model is inherently anti-competitive and its overall approach and ambitions are still pretty murky,” says Rattling Stick. “We have absolutely no idea how we as an independent production company might be sold through to clients as an alternative (or not) to in-house production should we ever decide to pitch against them. Or indeed how an in-house production company presents itself, their financial structure and profit margins etc. So there needs to be far greater transparency between agencies and the production industry when it comes to the workings of the former’s in-house outfits for us to be able to compete effectively.”

Right now, those in-house production companies are not aiming at the high-end work that most of the production companies featured in these pages win awards for or put on the showreel. Instead they are “hoovering up the middle of the road production led work rather than the high end brand advertising,” says Rogue. “But the intention is clear – the goal is to circumnavigate the production houses entirely and recruit our talent direct.”

And, says Biscuit, they’ll come for the high-end stuff eventually too. “Agencies don’t yet have the acumen to produce great, high-end work yet, but they will. Smart people who try things get better at those things. Agencies are smart and they’re trying, so it’s just a matter of time.”

But even while the agencies are hoovering up at the low end, this is starting to eat away at the foundations of the production edifice. “We build a lot of our young directors reels through the small budget work, so not only is it taking potential revenue away from it, it its also affecting developing young talent,” says Caviar.

“Most production companies in London house at least one, if not more, new directors that they are supporting, building and by natural extension, investing in. This talent is the future life-blood of the industry and therefore it is integral that production companies maintain this practice,” says Rattling Stick. And in-house production outfits won’t suddenly start taking on this role.

Even leaving aside developing young talent, that lower end work is the bread and butter of the production sector. Few production outfits, however award winning, can survive without it.

If that means that many production companies fall by the wayside, the result will be a poorer one for agencies too, says Knucklehead. “The agency – production company relationship is symbiotic – it works for both parties because they need each other. If the balance of that is altered, with the low end volume work removed from the market as a revenue stream” that will lead to “a polarisation of the market into a smaller number of high end companies. At the moment the force of the market allows the client to purchase at an incredibly advantageous rate. Alter the market so that the creative talent is housed in a smaller number of companies and that buying power will be reduced.”

For many, the best defence against the encroachment of the in-house production company is talent. “The best directors with the most unique points of view on the world don’t want to work in-house for anyone. They want the freedom to work across advertising, film, TV, music, etc., and want to feel nurtured by experts in film craft,” says Rattling Stick.



In two minds
Indecision and changes of heart from clients and agencies are also causing problems for production companies. “2015 has been the year of the job being pulled by the client at the last minute!” says 2AM. And that’s led to “too many wasted big and expensive pitches up in smoke with no winner. This is not acceptable but it is getting worse, the APA/IPA have to do something about it, and soon.” Another Film Co similarly point to a market filled with “indecision and cancellation” and Nice Shirt report that there’s been an increase in “how often clients seem to be radically changing their minds even at very advanced stages of pre-production.”

More for less
It’ll come as no surprise that a continuing concern is that clients are demanding a lot more for their money, often unrealistically. “Champagne on lager budgets,” is how Rogue puts it. “It’s the same year after year,” says Caviar, “trying to produce over ambitious scripts with budgets that don’t match the production’s needs. We’ve been sent some very creative and exciting scripts this past year, but have struggled to produce them without eating into our mark up.”

And it’s a concern echoed across the board: “Agencies, pushed by their clients are increasingly look for more for less,” says The Sweetshop; “Agency expectations in comparison to client spend continues to widen,” says Somesuch. “Agencies want more for less money,” says Park Pictures; “Overly ambitious scripts without a budget to support the creative’s vision,” is Pulse’s concern.

Many producers feel that the ‘content’ is being used to justify smaller budgets as ‘content’ is seen as being somehow cheaper to produce, despite expectations rising all the time. “There is more and more content being produced with TV expectations and production values and much reduced budgets. It gets a bit tiring asking for favours the whole time,” says Fat Lemon.

Friend London echoes this view, complaining of “continued downwards pressure on budgets as more work is classified as content despite requiring the same production values and union crew as standard commercials.” And even traditional TV ads are expected to generate plenty of extra content for the same money, says Somesuch. “Producers are now expected to cover more and more content within the traditional TV only budget.”

For others though, this is simply the new reality. “The industry needs to learn to adapt to meet the ever changing media landscape in a more efficient way,” says Great Guns. “This will mean many having to unlearn past ways of doing things. This is a long overdue, positive shift in mentality.”

Procurement
While the production companies sell themselves on their talent and expertise, many are finding that more and more often, they are judged on cost alone. “The biggest challenge is one faced right across commercial production;  procurement,” says ITN Productions. And that’s echoed by Outsider “choosing to work with the cheapest option could be the most expensive decision a client makes, both in terms of poor quality of production and loss of brand equity.” But that message is often ignored by clients, even if they’re given it by their agency. “Clients are paying agencies lots of money for their advice, but listening to cost controllers instead,” says Smuggler. “Some of the suggestions I’ve heard from these people are so ludicrous it is verging on parody. Similar procurement processes led to horse meat in our food, so I’m guessing it will lead to something equally as unpalatable in our industry.”

Growing client power, and falling agency power, is a concern. “An agency recommendation isn’t worth all that much now,” says Bold. “We lost a job this year where we were the agency recommend and the client decided they liked the other guy’s reel and that was that. Might as well show the client the reels and say ‘pick one.’”

But with all these new threats to the traditional ways of working, production companies haven’t been sitting still. We’ve been asking for a few years now what work companies did outside of the traditional TV/cinema spot. Back then, the question often elicited nothing more than a question mark, but things have changed significantly. The average company now says that 25% of its output is not a TV or cinema spot and the range of other projects and revenue streams that companies are diving into grows each year.

“Tough is the new normal,” says Biscuit. “It’s no longer worth repeating. The honest answer is that new revenue streams need to be developed or companies simply won’t have a future. The top-tier production companies will be insulated from it for a few more years, but the reality is here.”


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