Advertising agencies evolving into one-stop shops

Vice is an unusual media owner. The cocky, iconoclastic style magazine runs a pub near its east London headquarters, has its own clothing and record labels, runs an online TV site called VBS featuring films from the likes of Spike Jonze, and makes TV programmes for satellite stations in Mexico and Brazil. Its strangest move, however, came last week when the magazine launched 15 years ago by Montreal slackers opened its own in-house advertising agency – Virtue – and announced it would be handling the global full-service account of Pernod-Ricard's vodka brand Wyborowa.

"We're offering all agency services," says Andrew Creighton, MD of Vice Europe and chief executive of Virtue. "We'll make the ad, offering planning and account handling, do TV spots and everything apart from media buying, but we think our experience as a media owner has taught us that if you can create quality content for a client – mags, videos, documentaries and so forth – that people want, you have them coming to you rather than you pushing ads out on an unwilling public as was the old model."

Cheap and simple

Vice's global network of writers, photographers, designers and artists will be available to clients. "Technology makes huge changes possible," Creighton points out. "Cheap desk-top publishing software allowed us to launch the mag in the 90s, the internet allowed us to stream live TV to millions around the world. Essentially, when something becomes cheap and simple enough for idiots like us to use, that's when the barriers to entry disappear. We were helping brands with projects almost since we launched – this is really just formalising that sort of relationship."

Jean-Baptiste Mouton, international sales and marketing director at Wyborowa, says he picked Virtue in part because it pitched ideas outside his comfort zone. "Wyborowa is the ninth largest vodka brand by volume but our big rivals can spend more in a single country than we can worldwide," he explains. "Digital is going to be core to us, and when we were seeing all the other agencies on the pitch, their digital plans made perfect sense to me. That's not right – I need someone who understands the digital world in ways I couldn't even begin to."

Creighton insists the lines between advertising and editorial will be strictly observed: "Clients can't tell us what to write or film. It's a very rigid wall between agency and mag/website, even though many of the same people will be working on both." The old-school lines between client, agency and media owner have proved elastic as the recession and new media combine to squeeze the commercial media industry. The ad agency Bartle Bogle Hegarty, for instance, recently launched Zag, a product development subsidiary headed by Neil Munn, a former BBH client at Unilever. BBH hopes Zag will provide a quarter of its revenue within two years.

"We develop brands with partners that we sell and then look to exit over time," Munn says. "It's a balance sheet business, not a loss leader or research tool. We've looked for consumer demand where brands aren't responding. We've produced Pick Me, a line of vegetarian meals in Tesco, Ila Dusk, a personal security alarm, and Mrs O, a website and book based around Michelle Obama's dress sense."

And BBH is not alone. Euro RSCG, a division of the French advertising group Havas, acquired the music label The:Hours in 2008 as part of a standalone profit centre. Havas also bought Cake, a London event-planning agency. Ogilvy & Mather has launched a green consultancy, OgilvyEarth; the US ad agency Brooklyn Brothers makes Fat Pig chocolate and is developing a furniture line; while the "new model" agency Anomaly has created a TV series with a New York restaurant's head chef, a production company with British make-up Lauren Luke, a fashion joint venture with iTunes, a line of beauty products and a mobile commerce platform – advertising now accounts for less than half its revenue.

Brands have been plundering all aspects of popular culture in a bid to tackle the much-feared youth switch-off. When Sony and BMG merged in 2005, the joint venture set up a futures division to work with brands on paying video costs in return for product placement. Last year the US hip-hop label Decon founded a creative agency, and McDonald's recently announced it would pay hip-hop artists $5 each time they mentioned a Big Mac.

Time to create

"Regardless of the current recession, ad agencies are right to explore other sources of revenue," argues Tim Williams of the Ignition Consulting Group. "Agencies have traditionally done 'work for hire', assigning all the intellectual property rights to their clients. Contrast this with photographers, musicians, actors, writers, and virtually everyone else in the creative services industry who license the use of their IP instead of selling it outright. It's time for agencies to create – and benefit from – IP of their own."

There are dangers in this desire for all content to be treated equally. This year's MediaGuardian Edinburgh International TV festival had a session, New Best Friends: Brands and Documentaries, in which Jess Search, chief executive of Channel 4's Britdoc foundation, and Quentin Clark, central buyer for Waitrose, discussed how documentaries are "increasingly attractive to sophisticated consumer brands looking for new ways to engage their fans, customers and audiences".

The session highlighted Waitrose funding for The End of the Line, a documentary about over-fishing, Puma's support at Cannes for the BBC film The Day After Peace, and Coca-Cola commissioning a surfing documentary, The Power of Three, to promote their Relentless brand.

Could this blurring end by looking like the final scene in Orwell's Animal Farm – as our eyes flick from online to movie, to brand-funded documentary, to fizzy drink presence in TV drama, to products on shelves created by the agency that brokered the product placement deal for its joint venture with a cable channel … Well then, "The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which." (Merchandise from that scene now available at stephenarmstrongpigman.net.)