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Fallout from the Publicis/Omnicom merger

July 29, 2013

Richard PinderBy Richard Pinder

When first hearing the Publicis and Omnicom merger rumours you could have been forgiven for thinking it to be some silly season gossip.

But as we know POG is not a passing fancy, it is for real. Hats off to Maurice Levy who has consistently shown his ability to be daring, decisive and dynamic just when people least expect it.

So what drove it? And who are the winners and losers? First, two sets of observations:

The announcement was made in Paris, not New York. The Group will be called the Publicis Omnicom Group, not the Omnicom Publicis Group. The revenues of Publicis Groupe are some way below those of Omnicom Group though their market caps are much closer, but it will be a merger 50/50 owned by the two companies shareholders.
After the dust has settled and the merger is done, the silly co-CEO thing is finished with and the company starts to operate normally, the CEO will be John Wren, from Omnicom, the CFO likely to be Randy Weisenberger from Omnicom, the ticker marker on the NYSE will be OMC and largest market for the combined entity will be the USA.

Once the incredulity subsides, you can see the attraction to Maurice and John. And as the above simple summary shows, you can see the game that is being played by both to get the other to agree to the deal. The former gets to show the French establishment what world class really means, a brilliant retirement gig as non executive Chairman of the world’s number one advertising group and without having to go through with the charade of making good his oft delivered promise to Jean-Yves Naouri to be his successor. The latter, within 30 months, gets to run something nearly double the size of OMC today, in seriously good shape in Digital and Emerging Markets, the number one ad agency of the number one spending client in the world – P&G who had only just taken most of their business from OMC – and all without the pain and risk of taking the long road there.

For Elisabeth Badinter it’s a fabulous end to her tenure as Chair of Publicis – seeing the company her father founded in 1926 become number one globally, as well as securing the very strong valuation on her holding that today’s Publicis stock price provides. For a number of senior managers there will likely be the triggering of various unvested options, stock grants and other goodies, not to mention the special dividends, that will mean good will all round. So, off on the August vacances with a spring in their step? Well not everyone…

For a start there is precious little in the announcement about WHY this is better for clients. We can see it’s better for doing deals with the big media partners, old and new. Scale counts there. But when the bulk of the enterprise’s activity is still about finding, creating and executing inspirational ideas to motivate the world’s population to choose one brand over another brand, there is a point beyond which scale can actually be a disadvantage – talent feels lost, ideas get killed by people who have no idea what the clients’ needs are and everything takes too long and costs too much. Well that’s what a large number of large clients have been telling me this past two years since I left Paris as COO of Publicis Worldwide.

There is also the small matter of the $500m savings mooted in the announcement. Publicis Groupe runs lean. Margins are already industry best. So the chances of finding much of the savings there seem slim. It will be interesting to see how the board of BBDO reacts to the likely loss of their top tier international travel rights, or the agencies of DDB cope with tough bonus rules that tie every unit in the company to the performance of those around them, as happens at Leo Burnett or Publicis today.

As a footnote on the winners and losers, spare a thought for those who fought, lost and thought they had won in the long-running soap opera called Maurice Levy’s succession. Just as the game looked like it would soon be over, the sport got changed and everything was different.

It will also be fascinating to see what WPP do about this. They have got used to being the world’s largest and Sir Martin is rarely quiet for long on any topic, let alone one so close to home. Bookies will surely be giving poor odds on a shotgun WPP/IPG or WPP/Havas union.

And me? Well as client choice reduces, the need for new global alternatives will continue to increase. It’s why we started The House Worldwide and it’s why we think it will  be increasingly relevant to clients who want to get back to a world where the client and the brand are more important than the agent promoting it, and where the money is better off going to the talent than to the accountants counting it.

Bigger and smaller, that’s the future of the ad network game.

Richard Pinder is co-founder and CEO of The House International. He was formerly the head of Publicis Worldwide.

 

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It’s the Age of Google and Sorrell has no time – or money – for Twitter

April 29, 2013

Martin SorrellThe most interesting thing about WPP Group’s first quarter financial results were not the numbers, but its chief executive’s obiter dicta.

The numbers themselves were a curate’s egg. They beat the revenue forecast, bizarrely enough they delighted in Britain, but they disappointed in the United States. Which is just about the only part of the world economy currently showing signs of dynamism.

The obiter dicta, on the other hand, were curiously memorable. WPP CEO Sir Martin Sorrell used the occasion (well, near enough: he was actually speaking at the FT Digital Media Conference the previous day) to highlight a singular phenomenon. So far as his company is concerned (and it  is, after all, the number one spender of advertising money in the world), Google will soon become a bigger destination for his clients’ money than the biggest traditional media owner in his stable, News Corporation. Google is currently in receipt of $2bn of WPP’s quarterly spend; while NewsCorp gets about $2.5bn. But, given the Google figure represents a 25% increase year on year, it can only be a short time – Sorrell assures us – before the search giant moves into pole position.

I say “search giant”, but that of course is history. Sorrell’s underlying point is that Google – after some initial fumbling – has made the transition from a techie company, peopled by nerds, into a multi-media corporation with global reach. He calls it  “a five-legged stool”: there’s search (of course); display advertising; social media (google+); mobile (via Android and AdMob); and video through YouTube.

Note well where Sorrell places his chips, however. From an advertising point of view, the Age of Google (as he calls it) is primarily defined by video. YouTube has made big inroads into what traditionally would have been television viewing. He’s bullish about mobile, too: Android is now the most popular smartphone platform and in some developing markets, like China, it accounts for two-thirds of all mobile sales.

But social media: Oh dear, what an advertiser’s no-no! Yahoo, though generally lacklustre these days, garners about $400m of WPP spend. Facebook, infinitely more successful with its audience figures, receives only $270m. And Twitter a lot, lot less. What’s the logic? Well, Yahoo “gets” the commercial need for a five-legged strategy (indeed, TechCrunch speculates it is about to buy Dailymotion, a smaller competitor to YouTube). Whereas Facebook and Twitter do not. Facebook, Sorrell reckons, is important for brands – but in a negative sense – absence of criticism, which has little to do with any advertising content. Twitter, on the other hand, is simply a PR medium with almost no value to advertisers.

“It’s very effective word of mouth,” Sorrell told Harvard Business Review last month. “We did analyses of the Twitter feeds every day, and it’s very, very potent…I think because it’s limited in terms of number of characters, it reduces communication to superficialities and lacks depth.”

Maurice Levy, CEO of Publicis, speaks during the Reuters Global Media Summit in ParisThat last may sound a little harsh. And is certainly not a universally accepted view among admen. Significantly, it is not shared by Sorrell’s deadliest rival, Maurice Lévy – chief executive of Publicis Groupe. Lévy has just announced a four-year pact with Twitter which will involve PG’s media planning and buying arm Starcom MediaVest Group committing up to $600m of client money to monetizing Twitter’s audience. Details, at this point, are sketchy.  It is clear, however, we are not just talking “pop-ups” here. Lévy makes specific reference to video links and “new formats” yet to be developed. He admits to there being “some risk” involved in the project, though whether this relates to his own reputation, clients’ money or both is not apparent.


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