Ad Agencies in Crisis: Brands demand 25% fee cuts as AI wipes out timelines and costs

Artificial intelligence has detonated a pricing debate that is reshaping the relationship between brands and agencies. What began as a tool to accelerate production has now triggered an intense commercial recalibration, with brands increasingly demanding more output for the same, if not lower, fees.

The old retainer structure, long protected by billing for hours, is being challenged by AI-driven efficiency and outcome-based expectations.

For Abhik Santara, CEO & Director of ^a t o m network, AI has not yet dragged down agency commercial value. “The integration of AI into asset creation has unquestionably elevated our efficiency and streamlined production costs. However, it has not diminished agency fees or retainers,” he said.

Savings from reduced production, he argued, are being reinvested to expand campaign scope rather than reduce retainers.

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At a t o m, Santara says AI operates within a dedicated strategic unit rather than as a free add-on. “Our proprietary AI platform, Aura, goes far beyond image or video generation. It is engineered to build sophisticated, end-to-end purchase funnels that drive measurable business outcomes,” he explained, adding that agencies built on craft and strategic value will benefit rather than suffer. “For agencies focused on craft, intelligence, and true creative impact, this evolution isn’t a threat—it’s an accelerant.”

But on the client side, pressure is mounting.

“We are definitely rethinking compensation models across our agencies,” said Petal Gangurde, Chief of Brand & Culture at XYXX Apparels, confirming a hard pivot in expectations. “We are asking them to provide more assets or pass on production savings. As we push agencies toward AI-enabled efficiency, we certainly expect it to reflect in pricing.”

Gangurde believes traditional production, especially outdoor shoots and 3D modelling, has already been replaced by AI workflows.

“This has to be done collaboratively without fundamentally undervaluing creative thinking,” she stressed.

However, she acknowledged that industry revenues have been hit. “The fact that there is a hiring freeze across advertising means everyone is cutting fixed costs and recalibrating success metrics. Revenues have taken a massive hit in the past year.”

The logic, she said, is straightforward: “If AI cuts design creation or media management time by 25%, the expectation that fees drop by 25% is neither unrealistic nor unfair.”

Lean, AI-first agencies rising

Smaller agencies appear to see the disruption as an advantage. Sushant Sadamate, COO & Co-founder of Buzzlab, described AI’s arrival as transformative. “AI has walked into the marketing world like that overachieving intern who does everyone’s work before lunch.” Negotiations have tightened, he confirmed, and agencies are increasingly asked to justify retainers with measurable outcomes.

“For smaller shops, the opportunity is massive,” Sadamate said. “Imagine turning a full creative team into a five-person strike squad armed with supercomputers.” But the balance remains critical: “AI can generate a hundred variations in seconds, but it still can’t sense a cultural moment or craft emotional tension.”

Brands push back, agencies defend value

Chandan Sharma, GM- Digital Media, Adani Group, admitted fee pressure has intensified. “There are instances where agencies have been pushed to sign for a lower fee,” he said.

Brands argue that reduced manual effort should reflect in reduced billing, while agencies counter that strategy and judgment, not production, carry real value.

“Brands now expect faster turnarounds and higher volume at the same or lower cost,” Sharma noted. As a result, he said, agencies are restructuring retainers based on expertise rather than delivery count, with outcome-based pricing gaining traction. “Brands want to pay for impact, not effort.”

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Jaspreet Bindra, Co-founder of AI&Beyond, reinforced that sentiment: “Speed does not replace strategy. Mature marketers understand that creativity, judgement and brand stewardship don’t become cheaper — they become more intelligent.”

A more collaborative future or a commoditised one?

Some marketers reject fee-cutting altogether. “We don’t view AI as a tool to drive down retainers, but to elevate output,” said Anup Nair, President – Strategic Business, CP PLUS. “It’s not about paying less; it’s about getting more impactful work for the same investment.”

Annkita Karrva of BenQ India believes the shift should focus on innovation and outcomes rather than discounts: “AI brings the opportunity to do more meaningful work. The focus must be on measurable impact and long-term value creation, not transactional cost-cutting.”

Looking ahead, Kalyan Ram Challapalli, Founder of WolfzHowl, warned that the real disruption is yet to come. “AI adoption will soon impact brand storytelling and ideation. Clients are already using AI internally. This will snowball,” he said. And when production becomes universally fast and cheap?

“The world will be flooded with good content. Then, good will not be good enough.”

AI is not reducing the value of agencies, but it is redefining it.

Retainers are shifting from billing hours and deliverables to billing intelligence and outcomes.

And the battle now is not about cheaper work, but proving why the human layer is worth paying for.

The future agency equation may ultimately read: AI for efficiency + human creativity for meaning = commercial survival.