Why agencies will make more of their money from IP in the future
May 25, 2012 | Author: Tim Williams
One view of the future of our business is that increasingly agencies will make the majority of their revenues from the intellectual property they create instead of the hours they work. The “work for hire” model that has persisted for the last half-century is becoming a less and less profitable way to make a living.
What’s wrong with “work for hire”
Look at an agency contract and you’ll likely find language like this: “All rights, title, and interest in the Work Product (“work made for hire”) is hereby assigned by Agency to Client.” In other words, everything the agency creates the client owns. While this kind of approach might make sense for some other professional services – accounting and law, for example – it actually makes little sense for a creative services business that creates valuable, long-lasting intellectual property.
Consider that most of the creative services that agencies themselves hire – actors, musicians, voice talent, illustrators, photographers, etc. – are paid based on usage, and most retain actual ownership of their work. There’s no reason why agencies can be paid in a similar way.
IP in many forms
Agencies like Anomaly, BBH, Mother, Taxi and others have found ways to capture ongoing revenues from the creation and ownership of IP.
Intellectual property development and ownership can take several different forms:
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IP created specifically for a brand
For example, Anomaly helped create the EOS cosmetic line (as well as the marketing) which is a completely custom effort exclusive to the EOS brand wherein Anomaly has an ownership stake.
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IP created for the category and licensed exclusively by a brand
Southern California’s Ignite Health, via their Incendia Health Studios unit, creates their own infotainment properties, such as a video game to help kids with juvenile diabetes learn how to use their insulin pump. The agency owns the IP and licenses it to their pharma clients.
-
IP created and sold by the agency, unrelated to a client’s brand
One example among many is a product developed by the agency Media Logic called Zeitgeist & Coffee, a real-time social media management platform designed to help agencies collaborate with their clients on social media programs and initiatives.
BBH’s unit Zag is largely devoted to the development of proprietary, agency-owned products and services, such as Playground Session, a software application designed to help people of all ages learn to play music.
Chicago’s Coudal Partners takes the concept of IP ownership so seriously this agency literally got rid of its clients to focus on its own entrepreneurial ventures instead, which include a line of highly-designed memo books called Field Notes and an online ad network for web and creative types called The Deck.
How to get started in IP ownership
The best way for agencies to wrap their heads around the concept of intellectual property ownership is to first separate the concepts of ideation, execution and usage. These are three different things. Currently agencies derive most of their revenues from execution, followed by ideation (although most agencies undervalue and undercharge for this). Most firms don’t even consider usage as a potential revenue source, even though this is how most of our creative partners make most of their money.
For example, the Advertising Photographers of America (APA) espouses a set of principles that establishes the day rate as just a minimal part of a photographer’s income (really just to cover basic expenses) and instead has its members charge for the usage of the photo, in which the client pays:
- More if you use a photograph more than once (several printings of a brochure)
- More if you use it in more than one way (in a brochure and as part of a print ad)
- More if you use it over a period of time (a series of ads throughout the year)
- Much more if you want to buy the original photograph
Agencies can price their work and services in a similar way by thinking in terms like these:
|
|
|
Compensation Options |
|---|---|---|
|
Ideation |
Developing the idea |
Modest concept fee, or no concept fee |
|
Execution |
Executing the idea |
Outside production costs only, or agency pays production costs |
|
Usage |
Using the idea |
Per use fee |
In this way, good ideas earn more than bad ideas, and good agencies earn more than bad ones.
As long as agencies stay on the increasingly commoditized work-for-hire treadmill, their earnings and profitability will stay on the downward course that started almost 40 years ago. There are better ways for talented marketing problem solvers to be compensated, and getting out of the work-for-hire mentality is the first step.
