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The Value of Expertise: Picasso’s Napkin Sketch
You’ve probably heard the apocryphal story of Picasso’s napkin sketch. It goes something like this:
Picasso is sitting outside a café when he is approached by a female fan. The woman says that she loves his work and would be honoured if he could do her a small sketch. Picasso obliges and, in a few moments, with a few deft flicks of his hand, draws a beautiful picture on his napkin.
The woman is blown away and asks to give him something in return.
“40,000 francs”, he asks. At this, the woman is incensed.
“How dare you ask for so much money for something that took you just a few moments.”
“Madame”, he responds, “it took me my whole life to sketch that in a few moments.”
Whether or not this actually happened, it is an excellent metaphor for the value of experience and expertise. It is a concept that the content production and entire creative services industry need to get their heads around, and fast. Far too much of the value that these businesses generate for their clients is overlooked or undervalued. This puts tens of thousands of jobs at risk and poses an existential threat to our sector. Let me explain...
Barriers to Entry and the Cost-Plus Model
For years, camera kits, lenses, and editing stations cost a small fortune. Hundreds of thousands of dollars/pounds and many years of experience to be able to use them effectively. This meant that if you wanted a film, you needed to go to someone who a) had the kit, b) could use it. This barrier to entry allowed those on the inside to charge substantial fees for their services.
The cost-plus model took shape. A camera operator costs x per day; the production company or agency charges their clients 1.5x, 2x, or more for finding and using them. This meant that ideas could be cheap. As an industry, we gave away ideas in pitches like confetti, safe in the knowledge that our clients would need to come to us to get them made. Production was complex enough that there were plenty of costs that needed to be covered, and so the additional fees compensated the businesses for their expertise.
Giving Away Our Greatest Asset
This always seemed weird to me. There are thousands of companies out there, many of which have very nice-looking work on their websites. Much of what differentiates each of them is the idea behind the work – understanding the audience and what will engage and move them – and yet, that is the part we gave away for free. We were always charging the clients for the wrong bit of our work.
This has to change. It is human nature to value what you pay for, and yet we have trained the market to believe that we are all alike, and that our ideas and insights are of little economic value. Then came further reductions in the barriers to entry.
Democratisation and Devaluation of Creative Tools
With the advent of camcorders, iPhones, and laptop-based non-linear editing, everyone could use the tools. The industry that had spent decades honing its ability to solve business challenges creatively further lost its capacity to monetise.
This is compounded by the fact that we sell a product that is intangible, misunderstood, and often looked down on by senior executives. Marketing and communications are core business functions, yet they are often treated as nice-to-haves, a luxury whose tap should be turned off at the first sign of economic trouble. This is despite research from Kantar and WARC that shows that the most creative and effective ads generate more than four times as much profit compared to low-quality creative.
75% of a campaign's effectiveness is due to the quality of the creative messaging - Google/YouTube & IPA
It is true that creativity is a difficult thing to define. That said, the output of high-quality creative is very tangible. As studies by Google, YouTube, and the IPA have shown, fully 75% of a campaign's effectiveness is due to the quality of the creative messaging. So creative sells, and yet we have trained the market that our abilities with it can be paid for by piggybacking on the fees of other services.
The Threat and Promise of Generative AI
This time-based charging model not only devalues the most important aspect of our work, but it also incentivises inefficiency. With GenAI, efficiency increases, and the elements that go into video production start to reduce. Slowly at first, but surely in a way that will accelerate. The cost-plus model no longer works. We must find a model that does.
Every day, I get a concerned message from one friend or another sharing some new advancement and asking what I think of it. The concern seems to rise by the day. A recent survey by SEMRush found that 67% of small businesses use AI tools for content marketing and SEO, and large organisations increasingly rely on AI throughout marketing and sales functions.
As I outlined last week, there is still a role for a production team when working with complex global businesses. For one, AI is great in many ways, it’s also extremely frustrating. It lacks the dexterity and consistency to work effectively within our clients' requirements. Brand consistency, brand safety, and the ability to incorporate feedback are all challenging.
Humans are Still Essential for Quality Work
There is also the fact that often, our clients need to be coached to establish the output they are looking to make. They come to us with a rough idea, but it takes an experienced producer to really tease the film out. AI is unlikely to do either of these things anytime soon.
So, how do we charge for them in a way that reflects our decades of experience, hundreds of clients, and tens of thousands of films, which enable us to make the films as fast and reliably as we do? I am not speaking for Casual here, but for the whole industry.
There are tens of thousands of people who will lose their jobs who don't need to. They have valuable skills but are working in a system where value delivered and the payment model have broken down.
Interested in how creative agencies can stay relevant - and solvent? Subscribe to the Beyond Casual newsletter for unique access to our forthcoming LinkedIn Live Discussion.
The Current Industry Crisis
Many of the companies operating today will be unable to make the shift they need to in the time available. This makes valuing companies in our sector extremely difficult. Potential deals are being mothballed. As a friend of mine who has done a huge amount of M&A in the creative services sector globally told me the other day, “this entire sector is currently uninvestable”. He had been looking at over $100m in acquisition targets until a couple of months ago. There is hope though...
Shifting Towards Value-Based Pricing
We have to move away from the cost-plus model and to genuinely own and solve our clients' problems. Video is the most powerful communications medium yet invented. Used effectively, it can accomplish an incredible range of business challenges. As an industry, we know how to do this implicitly - we've been doing it for years, but we lack the confidence and joined-up thinking and execution to really sell at that level.
How Does Value-Based Pricing Work?
Imagine a financial services firm needs a corporate film to improve employee retention. Historically, they might commission a video production company, paying based on how many shooting days, camera operators, and editors etc. are required.
Cost-Plus Model:
- 2 shoot days x $4,000/day = $8,000
- Editing & post-production = $6,000
- Total: $14,000
But let's say the real problem they have is costly employee turnover, resulting from the loss of 100 employees per year. Each leaver costs approximately $50,000 in lost productivity, recruitment, and training. If the film you produce results in just a 5% improvement in employee retention, saving the company $250,000 a year, it would be reasonable to price based on the value provided:
Value-Based Pricing:
- Savings for the company: $250,000
- Agency fee (10-20% of total savings): $25,000–$50,000
In this scenario, the film's true value is directly linked to solving a tangible business challenge - employee retention, not just production inputs. The company is paid for fixing the problem.
The Promise
If we get this shift right then, we get paid for doing our very best work. Creativity, appropriate quality, and effectiveness all go hand in hand. If our charging model reflects this, then we could be moving into a golden age of our industry. One where we have fabulously powerful tools and are incentivised to use them to the limits of our abilities.
It can be done. Look at how the software industry transitioned from licensing boxed software to subscription-based Software-as-a-Service (SaaS). Companies like Adobe shifted entirely from selling packaged products to subscription models based on the value and outcomes provided to customers. As a result, Adobe and businesses across their sector have not only thrived but significantly increased their market capitalisation.
That is something that we should all be excited about, from our production teams to our direct clients and even their CFOs and CEOs. AI will change our industry completely. If we're smart, we can make this change for the better.
This is a once-in-a-generation moment. We can keep selling time, tools, and cost-plus inputs. Or we can sell impact.
If we don’t, our industry won’t be disrupted. It will cease to exist.
Found this interesting? Let me know. Know someone who might find this interesting? Let them know.
Interested in learning more about value-based creative business transformation, I highly recommend following Caroline Johnson from The Business Model Company, and Aaron Hutchinson from The Hutch Consultancy.
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