The advertising event that shook the marketing industry

If you work for an Omnicom- or Publicis-owned company, the announcement that they would be merging is certain to “shake your windows and rattled your walls” (Dylan).

The world of marketing and advertising will be forever changed. Not to mention that the door is now flung wide open for a new round of consolidation and deal-making unlike anything we've seen. Speculation is rife that a tempting offer will be made to Interpublic (the holding company for McCann Erickson, Draft FCB and Lowe) by former global market leader WPP (which owns O&M, JWT, Grey and more than 300 other firms) or by Japanese giant Dentsu.

For better, or for worse?

When I hear of mergers like this, I can’t help but think of the financial services sector, where mega-mergers didn’t necessarily work out for the better. In our own industry, being bigger does not necessarily make for higher quality creative or increasing your competitiveness. It doesn’t lead to companies being more committed to their clients, nor to better integration of advertising and marketing disciplines.

Nothing is as important in our business as our clients, our people, and our culture. They make up the core strengths of our business. Ad agencies should be all about our clients' success. After all, if they’re successful, we’ll be successful.

Sorry boys, size does matter

On May 13, Jim Edwards wrote an article in the Business Insider titled “The 37 Richest People in Advertising, Ranked By Income."

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On the list of 37 people in the advertising agency business, only one came from the creative side— Jacques Séguéla of Havas. The rest were dominated by CEOs and CFOs, financial, legal, and management types – otherwise known as “Bean Counters”.

Quite different from advertising’s earlier years, the 60s and 70s, when the business was in the hands of creative people: Bill Bernbach, David Ogilvy, Rosser Reeves, Leo Burnett, and George Lois. They were the creative superstars, (today’s icons) who founded or co-founded their own ad agencies and through their creative genius, helped to skyrocket their companies to fame, and riches.Most would tell you they couldn't read a Balance Sheet. But they sure knew how to advertise.

During the 1960’s, DDB and others which followed the “creative” path in advertising, were often criticised for “excess” and “frivolity”. But the era gave rise to some of the greatest ad campaigns of all time. It also gave rise to the widespread introduction of self-expression in advertising. Ads were not intrusions like they are today, but welcomed diversions. Many commercials on TV were more entertaining than the regular programming. Advertising looked every bit like a new art form.

By the 1980s and 1990s the business started to change, and go the direction of the financial conglomerates. Agency owners got a little greedy and took their agencies public in order to get even bigger paydays. this was followed by large agency holding companies from the UK and Europe. They started buying up the creative-driven agencies that were willing to sell.

During the 1980s profitability of ad agencies was not keeping pace with other industries. They had a hard time keeping up with rising costs. The 15% commission that agencies charged their clients was not enough to compensate for these rising costs—client budgets were stagnant.

To survive, the agencies had to grow bigger—merge, buy, provide more services, get that critical-mass. Everyone’s greed of the ‘80s turned into the disaster of the ‘90s. The bottom line became more important than the work.

Worst of all, advertising was no longer spawning visionaries. No more Bernbachs. No more Burnetts. No more Ogilvys.  Advertising’s new mega-weights were now at the mercy of the shareholders and the banks. At best, their passion for advertising was second rate passion because they became to busy building their own fortunes.

The bean counters have taken over the asylum

My old friend Andy Lish, a Creative Director of exceptional talent, once noted:  “The lunatics had left the agency and the Bean Counters have taken over the asylum.” Agencies with great long track records have dissolved into being run by the financial guys. The Bean Counters are now in total control of the ad agency business. The advertising business, formerly run by advertising people, is now run by groups whose concern is share price over output. Nobody makes stock market gains if you do good ads. But if you make some great numbers you do. As an example, to remain competitive, agencies have cut their commissions to earn new business – driving profits steadily downhill ever since.

The Bean Counters make decisions based on making money, not on making great advertising. Instead of thrilling their clients with great ad campaigns, they focus on enriching their top executives and board members with big bonuses.Like Wall Street and the rest of the financial community, the big agency groups must placate their shareholders by increasing profitability — and leaving creativity in the dust. When agencies focus on their bottom lines as opposed to enhancing their creative capabilities to win more business, creativity is always the unavoidable victim.

Who’s making what?

Ad agency people love to know who makes what. So here’s a list of some of the Group heads of state and what they are reported to be making today:

• WPP pays Martin Sorrell, $27 million a year
• Publicis Group pays Maurice Levy $24.4 million
• Omnicom pays John Wren $14.8 million
• WPP’s Financial Director Paul Richardson earns $12.4 million,
• Interpublic Group pays CEO Michael Roth $9.7 million.
• MDC Partners CEO gets $9.3 million in compensation.
• Saatchi & Saatchi’s CEO Kevin Roberts makes $4.5 million.
• Havas Media Global’s CEO Alfonso Rodés Castañe $4.2 million.
• Havas Worldwide’s CEO David Jones makes $4 million.
• Havas Worldwide Chief Creative Officer Jacques Séguéla makes $1.2 million.

The question is really about the value creation aspect of this Omnicom / Publicis merger. How will this create value for the clients? Or for the holding companies themselves? Will it give clients better service? We’ll have to wait and see.

Some people in our industry think the merger is less about creating a bigger agency Group in the face of increased competition from its traditional competitors, but more to address the growth of the new media world dominated by Google and Facebook which have changed the landscape of marketing in today’s digital global economy. It remains unclear what the real benefits will be apart from scale. The only beneficiaries seem to be the shareholders.

Will the top dog cut jobs?

We are told the new merger will save $500 million. This can’t happen without a restructuring of both agency brands, and losing some of their good people in the process.  In their press release, the two companies said they expect to get $500 million in "efficiences." Given that 60-70% of company operating costs are salaries, that means job cuts. 50% of those efficiencies will be duplicate jobs — about 1,000 - 1,500 layoffs.

Omnicom’s John Wren said "there's no planned job cuts." We’ve all heard that before. We’ll believe that when we see it. Already one of the industries richest men, Mr. Wren will get richer from this merger. He currently owns more than 1 million shares worth about $70 million.

No conflicts?

The merger of the two super groups finds itself serving several rival clients. So, a key question is, how many clients will leave the two merged networks. Neither Mr. Wren or Mr. Levy gave any detail on how many client conflicts the combined company will have by the deal. There is about $6.5 billion in overlapping revenue on shared clients. I see a door opened for Sir Martin Sorrell and WPP to swoop in and steal away some big brand names. There’s a few other doors opening for Havas, MDC, Dentsu, and Interpublic to do the same.

One example of these conflicts are rivals Coke and Pepsi. Will Coca-Cola not feel vulnerable revealing its marketing plans to Leo Burnett (Publicis), while Pepsi takes its advertising advice from TBWA (Omnicom)? Can these two giants live with the conflict?

While much is being made about the potential conflicts of interest, all the group holding companies have case studies to prove that rival brands can be handled without problems by different agencies owned and operated by the same entity.In the case of Coke and Pepsi, I just don’t see this working out. Time will tell.

Some culture problems may arise too, given that Omnicom is an all American holding company while Publicis feels the need to wear their French patriotism on their sleeve. They both have different cultures of working and leadership, which may not necessarily be the most synergetic for their businesses and their clients. Will the merger of the two behemoths add to their innovation? Can they now claim to having better talent and a greater range of disciplines? We’ll have to wait and see.

Good for the Independents

No doubt, the strength of independents will grow post this deal. I think this merger will make the independents value their independence more than ever. I believe this type of deal creates real opportunities for smaller agencies and groups. If you value being able to respond and react faster to client and staff needs, the ability to make decision and do it quickly without somebody else pulling the strings makes the independent story more compelling.

Onion’s opinion

The Onion is an American entertainment newspaper and website featuring satirical articles reporting on international, national, and local news. Their articles comment on current events, both real and fictional, and parodies traditional newspapers with humorous stories and editorials. This is what it had to say on the merger of Omnicom and Publicis:

NEW YORK—”The merger brings together thousands of employees and billions of dollars of assets between them”, market analyst Mark Goodnough said of the planned $35 billion merger,. “The consolidation of Omnicom and Publicis will create an intimidating workforce of 135,000. Not a single person involved in the merger has ever made anything with his hands, knows anything about information technology, or is capable of doing quality writing or research”. At press time, over $500 billion was spent on advertising last year.

Mike Fromowitz is President and Chief Brand Officer of Mantra Partners, a full-service advertising and branding agency. The company works for clients in Asia, South America, USA and Canada.