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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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Richard Pinder launches global network with Maserati as a client

March 26, 2013

Richard PinderAfter years of being a jet-setting senior suit in someone else’s service, Richard Pinder has decided to go global on his own account with the ambitious launch of international network The House Worldwide.

Pinder, it will be recalled, was head of Publicis Worldwide for five years until group succession politics (the imposition of Jean-Yves Naouri as executive chairman) made further tenure of his position unrealistic.

That was two years ago. Since then, Pinder has been pondering how to cash in on his experience with global clients (he’s worked for over 25 years in Asia, Europe and the USA; for Leo Burnett, Ogilvy & Mather and Grey, as well as Publicis) by building a new-model worldwide agency network.

No mean cliché, the cynic will object. We’ve heard the rhetoric before. What’s the reality?

It’s true that the agency world has long been struggling with a “post-analogue” structural solution to the increasingly financially unviable traditional creative agency network, with its army of regional bureaucracies. Some have proffered a solution in the form of the fleeter-footed international micro-network (step forward BBH, Wieden & Kennedy and – in its heyday – StrawberryFrog.

Pinder, however, has gone a step further in presenting a top-down managerial solution – or perhaps that should be management consultancy solution – in place of the piecemeal creative one. His starting point is that the traditional global advertising business – unlike professional counterparts such as lawyers and accountants – loses most of its senior talent to the management of regional geographic fiefdoms, which are there primarily because of historical legacy. What this talent should be doing is servicing the client’s agenda rather than their own corporate one. The exception, where the client really can insist on top-level personal service, is a vanishingly small number of mega-clients, such as Ford and Procter & Gamble, which have specially structured teams to pander to their requirements.

Pinder’s idea is to provide this level of service for global, or at least international, clients further down the budgetary league table. Each client should be serviced by no less than three senior people at any one time. To do this, he has joined forces with a core team of like-minded senior executives: initially, Peter Rawlings, former chief operating officer DDB Asia, Chris Chard, former chief strategy officer of Lowe Worldwide in New York and Ben Stobart, former senior vice-president (chief suit) of Burnett Chicago. These will deal directly with top clients on a day-to-day basis; the specialist skills base, on the other hand, is to be provided by a network of over a dozen associated network companies, of which the best known is Naked Communications (see AdWeek for a full list).

Note the absence of an overall chief creative officer. This is deliberate: Pinder does not believe a single individual can adequately address the creative needs of all client types.

Why is Pinder convinced this model can operate from a single fixed geographical location (well, actually two in THW’s case – London and Singapore)?  Because of consolidation on the brand management side. More and more marketing power is being concentrated into the hands of Chief marketing officers and indeed chief executives; less and less being delegated to regional and country power bases.

But, the acid test is: has Pinder got any clients? Yes he has. He has been collaborating with two over the past year in honing the organisational structure of THW, during what he calls “beta mode” (how digitally au courant).

And they are? Maserati and an upmarket specialist haircare brand, GHD (stands for “Good Hair Day”). Both, he tells me, are poised at an interesting fulcrum of development, from the brand and new product point of view.

Maserati, an ultra luxury sports car marque lodged in the Chrysler/Fiat stable, has been given a €1.6bn injection to broaden its model range and take on Porsche.

GHD – which produces premium-priced hair stylers – is also cash-rich after being bought for £300m by Lion Capital. Lion is investing in npd, with a view to bringing GHD out of the salon and onto the international stage. Inevitably, that is going to involve careful brand positioning as GHD moves into a broader market segment.

However, Pinder is coy on the subject of who, apart from Maserati and GHD, is bankrolling all of this. It seems likely that both principal founders (Pinder and Rawlings) have skin in the game. But a project of this scope is financially beyond most individual investors, even if they are relatively wealthy admen. Private equity seems to the answer. Among the list of network associates is, rather intriguingly, a UK-based hedge fund called Toscafund, whose chairman is former RBS bigwig Sir George Mathewson. Pinder claims Toscafund is very handy on the “analytics” side. No doubt. But my guess is it’s providing a lot more resource than that.


Avis drops classic ‘We try harder’ tagline – and a clanger with new ad campaign

August 28, 2012

Remember when Sir Richard Branson stole the national flag for his own airline after British Airways said it didn’t want it any more? Well, there’s a similar golden opportunity beckoning for any cheeky entrepreneur working in the car-hire sector.

After 50 years, Avis has decided to discard one of the most famous taglines in advertising: “We Try Harder.”

Apparently, no one thinks they do any more. Avis has slipped down the global batting order from second, behind Hertz, to third, behind Entreprise Holdings, which owns the Alamo, Enterprise and National brands.

Desperate times call for desperate measures. And these measures really are desperate, as will be seen.

It will not have escaped readers’ attention that things have changed a tad in the car-hire business over the past five decades. The main catalyst has been budget airlines, which have successfully turned the holiday hire-car proposition into a commodity. Where once you bought, or thought you were buying, a superior service, you now buy a much stripped-down rental price. Of course, this base price is a bit of illusion, because once you have added on sat-nav, baby-seats, ski-racks and extortionate premium and super-premium insurance cover (so you don’t have to pay a £700 excess on a scraped wing or £200 for a new tyre) – Hey Presto! –  it has doubled. But that’s the way it is today – if you don’t want to pay upfront, you don’t have to. Which means the car-hire companies have had to look elsewhere to fatten their profits.

And where better than expense-accounted businessmen turning a hard morning at the presentation lectern into a pleasant afternoon at the golf club?

That, at least, seems to be the thinking of new broom Avis chief marketing officer Jeannine Haas, who has fired McCann Erickson and brought in Leo Burnett to deliver her new baby.

And what a mewler and a puker it is.

Out this week, the new campaign – called “It’s Your Space” – tries to communicate in a “lighthearted way” how the space inside a rental vehicle can be a productive environment where business travellers can “recharge their batteries”. Health and safety executives might have something to say about the way they do it but, that aside, judge for yourselves the quality of the ads:

What a pity you can’t say they are so bad they make you laugh. But they aren’t: they’re just bland beyond belief. It’s Your Space might be more appropriately titled “A Waste of Space.” Which is all the more unfortunate given the brand’s legacy.

The line “We Try Harder” was introduced by DDB in 1962 after Avis CEO Robert Townsend turned in desperation to the agency after many profitless years. Bill Bernbach himself is supposed to have cracked the problem by asking a number of Avis employees what it was about their service that distinguished it. But it was copywriter Paula Green who actually came up with the line.

There are not many occasions when you can unequivocally point the finger at advertising as the agent of success, but this was one of them. Within a year, Avis had turned a profit for the first time in over a decade.

I can’t, somehow, see similar spectacular results arising from the present campaign.

So, arise Sir Stelios and steal this opportunity while you may.


Dentsu delivers the coup de grâce to its strategic alliance with Publicis Groupe

February 17, 2012

The only surprise about the dissolution of the Publicis Groupe/Dentsu strategic alliance is the speed with which it has happened. Less than two weeks ago, PG chief executive Maurice Lévy was telling shareholders he couldn’t pay them a better dividend because he had to hoard every last euro in case the Japanese wanted their money back.

In point of fact, the decision to terminate must already have been made, even though the strategic alliance of 10 years still had some months to run. This morning, Dentsu announced it had sold almost all its remaining 11% shareholding (and 15% voting rights) back to Publicis for €644m (£535m). Dentsu retains a 2% stake for the time being, but it’s of little consequence.

Dentsu made a profit of £17m on its investment. Small recompense – it must be said – for a strategic alliance which, from the Japanese point of view, has been largely a sham.

Right from the beginning, Dentsu found itself wrong-footed. It originally founded the alliance with BCom3, a combination of Leo Burnett and MacManus Group, only to find that Publicis had crashed the party by acquiring BCom3. Where previously it might have expected to play a more preponderant role, the addition of Publicis fundamentally changed the balance of power. And reduced Dentsu to an (even more) passive role as a minority shareholder in PG, albeit with some powerful voting rights.

Stripped to essentials, the alliance was supposed to bolster PG’s then-weak position in the Far East, and supercharge Dentsu’s underperformance in North America and Europe.

In practice, it was very much more favourable to Publicis, which had in any case benefited from a massive injection of cash to bankroll acquisitions.

Most mortifying of all, Dentsu eventually found itself not only in direct competition with its ally for scarce North American digital assets – but coming off worse. Notably in the case of the Razorfish acquisition, where Dentsu put a heady $700m on the table, but was swiftly outplayed by Publicis – which enjoyed an inside track with the then-owner of the digital agency, Microsoft, and irritatingly managed to buy the agency for a lower price.

Dentsu soon signalled its growing disenchantment by forcing a sale of 4% of Publicis stock for €218m. Not long thereafter, it showed new and uncharacteristically aggressive intent in Western markets with the unveiling of Dentsu Network West – captained by US Dentsu chief Tim Andree. Where, for years previously, Dentsu had got things spectacularly wrong in the USA, Andree has got at least one big thing spectacularly right. Had he done no more than acquire McGarryBowen – feted by both AdAge and AdWeek as their current agency of the year after a string of high-profile business wins – Tokyo would have good reason to be hugely grateful to him.

In short, Dentsu has outgrown its foreign markets inferiority complex, which gave birth to the alliance in the first place. While Publicis now has an urgent reason to dispose of the corpse as soon as possible. Whoever eventually takes over the hot-seat from Maurice Lévy would have little thanked him for bequeathing them an embittered major shareholder.


WPP hurls BRICbats at Publicis Groupe’s performance figures

February 11, 2012

An arcane row has broken out between agency behemoths WPP and Publicis Groupe over the latter’s claimed financial performance.

First, some necessary background to the dispute.

These days, only two things really matter for global agency holding companies presenting themselves in the annual financial beauty parade. Two things, that is, beyond a clean set of figures showing decent organic growth, enhanced operating margins and a handsome improvement in earnings per share (EPS).

They are: how much revenue is digital (as opposed to derived from ‘traditional’ advertising). And: how much comes from emerging economies.

The annual figures merely tell us how well the company has been stewarded in the recent past. But the other two criteria are much more exciting because they are predictive. Get them right and you tantalise shareholders with the thought of future gain, garner positive headlines in the financial media, boost the share price and – if you are one of the company’s most senior executives – make yourself still richer in the process.

By these standards, Publicis Groupe has just produced a corker. Never mind revenue growth of 5.7% to €5.8bn in near economic-blizzard conditions, or operating margins of 16%, or EPS up 14%. What really mattered to The Financial Times was a sound-bite: Publicis’ US digital revenues are set to overtake those of traditional media.

And to be fair, it is a pretty singular statistic considering that, as recently as 2006, digital was only 7% of PG’s revenue globally; now by comparison that global figure is nearly 31%.

“Digital” is of course shorthand for: our share of the pie in the only bit of the advertising economy still growing in developed economies, such as the USA and Europe.

Of no less importance as a corporate virility symbol is “emerging markets”, the geographical counterpart of “digital’s” sectoral dominance. Maximum bragging rights are accorded to those who can establish leadership in the most significant of these markets, the BRICs (Brazil, Russia, India and China).

PG chief Maurice Lévy’s claim that 75% of group revenues will in the “pretty near future” be derived from a combination of digital and emerging markets such as “Brazil and China” is therefore music to the investment community’s ears.

Better still for investor returns, Lévy claims he will reach this milestone ahead of his rivals Omnicom and WPP.

Not surprisingly, these rivals are livid at the suggestion. So incensed in fact that WPP, for one, is challenging the factual evidence on which Lévy has built his ambitious projections.

It has dissected PG’s webcast financial presentation and done a slide-by-slide demolition of PG’s BRIC performance. I won’t bore you with all the details. But here’s the gist:

Slide 32, Brazil. Lévy mentioned last year that Brazil was PG’s 4th largest market. Now he’s saying it’s the 6th. What happened?

Slide 33, China. WPP takes issue with PG’s assertion that it will double its size in this all-important market by 2013, from a $200m 2010 revenue baseline. It says the ‘3 creative network leaders’ claim is a myth. R3 sourced figures actually put WPP and Omnicom agencies ahead of PG’s. Cannes performance also suggests WPP outguns Publicis. PG claims to be top in media buying: this is flatly disputed by WPP, which says RECMA figures prove it is overall leader in Greater China. The key argument, avers WPP, is over organic growth. Here, PG is achieving about 8.5% while WPP appears to be nearing 16% a year.

Slide 36, Russia. PG claims leadership in this market both in media (Vivaki) and creative (Leo Burnett and Publicis Worldwide). WPP asserts that there are no reliable creative rankings in Russia and where media is concerned it is emphatically on top with 28% share versus PG’s 23.2%, according to RECMA figures.

Slide 37, India. PG claims to be number one in new media business (Vivaki) and no 2 in creative (Leo Burnett), quoting R3 as the source. But R3 does not do a new business table for India, says WPP. PG claims strong positions in digital, healthcare and PR, but with no source attached. PG’s digital presence is “tiny” (says WPP), and it has made no recent acquisitions. As for media, according to RECMA, WPP’s GroupM has 42.7% share while Vivaki is 3rd with 9.4% share. Creatively, the latest Economic Times 2011 Brand Equity rankings for agencies (the only authoritative source on this subject) puts two WPP agencies Ogilvy and JWT first and second, while Burnett is 6th and Saatchi & Saatchi 17th.

It’s no surprise, of course, to find these two deadly rivals engaged in another slanging match, albeit disguised in high-falutin’ finance speak. What will be interesting is if Publicis has a riposte.

POSTSCRIPT. I note that, despite a strong set of figures and robust balance sheet, PG has maintained rather than increased its dividend. As Lévy explained, that’s because PG needs to hold on to all the cash it can in case it has to buy back up to €900m of Dentsu shares later this year. In view of recent developments, this seems highly likely.


McDonald’s – the brand the world loves to hate

January 9, 2012

Just lovin’ it? You may be, but you can bet they aren’t. No matter how hard it tries, the world’s biggest restaurant chain by revenue simply can’t strike the appropriate note in its advertising campaigns. In place of plaudits, it invariably earns brickbats.

Now why is that I wonder? Well it’s not the calibre of its marketing people that is the problem. Compared with most global corporations, and certainly most international retailers, McDonald’s puts great store by talent. It attracts people like Jill McDonald, UK CEO and a shoo-in Marketer of the Year in most annual polls. Again against the grain, McDonald’s believes in advertising creativity. Can you remember who does Wal-Mart’s advertising? Neither can I. But I do recall that McDonald’s has retained, in turn, Leo Burnett and DDB.

Here’s DDB’s latest US offering. It’s an apparently inoffensive slice of life campaign, featuring farmers who supply McDonald’s with their beef, potatoes and lettuces. It won’t win any creative prizes, but it’s professionally produced and does a job in stressing an increasingly important element in consumer decision-making: the integrity of provenance.

Pulse and respiration still normal? I’m surprised. Because these ads have created near apoplexy in the USA. Apparently, it’s not what they say (which appears to be accurate enough) but what they leave out that should shock us to the marrow. By means of soft, bucolic imagery, McDonald’s has fooled us into believing it is part of a “farm to fork” movement transporting wholesome vegetables and prime beef cuts directly to our local fast-food outlet. Whilst – wouldn’t you just know it – skilfully omitting all mention of the wicked middle-man who, by perverted alchemy, buys up all this wholesome produce and slices and dices it into the fatty fries and bloating burgers that we more naturally associate with McDonald’s. A case not so much of Golden Arches as Arch Hypocrite.

Far be it from me to defend the fast-food industry, but isn’t this criticism a little harsh? Not, it seems, when the ad campaign emanates from The Great Satan – seducer of little children, agent of obesity and chief representative of all that is most reprehensible about international capitalism.

Given such an unsavoury reputation, you might think McDonald’s on safer ground with this lightly amusing piece of comparative advertising, which pokes fun at its rival Burger King. Small boy in a playground despairs of ever tasting his beloved McD Fries because they always end up being filched by his bigger brethren. Then he hits upon a novel and successful stratagem: hide them behind a BK bag, and nobody will ever want to eat them –

The ad – not unreasonably – won a bronze in the recent Epica Awards. But maybe because it was produced in Germany, it also created a major sense of humour loss, which resulted in humiliating retraction:

“McDonald’s has broken the rules of comparative advertising by degrading the Burger King brand in the TV commercial ‘Packaging.’ McDonald’s and Burger King have agreed that [the spot’s] distribution and broadcast … will be stopped,” said a statement from Burger King.

Apparently, the agencies responsible for the ad, Tribal DDB and Heye & Partners, had put it out on the web without seeking permission from their client. It has since attracted hundreds of thousands of viewers on YouTube.

At least McDonald’s is popular with someone.


Neogama founder and creative chief upsets the BBH applecart by trying to sell his stake

December 19, 2011

There’s an interesting ownership conundrum facing BBH and its 49% sponsor Publicis Groupe. Here is what I have learned.

It concerns Neogama BBH, the global micro-network’s Sao Paulo agency. Its founder, president and chief creative officer Alexandre Gama wants to cash up the majority stake he owns.

Neogama, set up in 1999, is one of Brazil’s top ten agencies and quite a feather in BBH’s cap. It is creatively highly regarded and was the first Brazilian agency to win at Cannes. In fact, if my recollection is correct, it now has at least 18 Lions to its name.

The agency’s biggest single client is burgeoning Brazilian bank Bradesco, but it also plays an important role in servicing BBH global clients such as Unilever and Diageo.

Here’s an example of Neogama’s latest work for Diageo’s Johnnie Walker, which may well be a Cannes prizewinner next year. It was devised by Gama himself:

As you can see, a slick, confident peaen to Brazil, the awakening economic colossus.

BBH, seeking to increase its profile in up-and-coming Latin America, came about its minority Neogama stake in a convoluted way. Back in 2002, Neogama was 40%-owned by Chicago-based holding company BCom3 – the 3 referring to an alliance between Leo Burnett, DMB&B (now deceased) and Dentsu. BCom3 passed on a part of that stake to BBH, in which it by then held a 49%  share through Burnett. Still there? Because it gets even more complicated. Earlier that year along comes Publicis Groupe, which swallows the lot, including Dentsu’s 20% strategic stake, in a $3bn takeover deal, making it the then fourth-largest marketing services group in the world. The important point to note is that PG ended up holding a direct 49% stake in BBH, but only an indirect one through BBH in Neogama. Publicis Groupe CEO Maurice Lévy and Gama are not thought to be best buddies.

Although the subsequent BBH relationship has been mutually beneficial, Gama is known to have been hawking his stake at other agency group doors. Why now? Nine years is a long time to wait for your investment to mature, but some go further in speculating that he is worried about his agency’s dependence on Bradesco as a client.

The sense is that Gama is engaged in an act of brinksmanship with Lévy, which involves using rival groups as a stalking horse. He well knows his own worth: Neogama is far and away PG’s best agency in Brazil (and one of its best in Latin America).

However, buying him out may not prove that easy. If BBH could stump up the cash on its own, that would be the simplest and most elegant solution; but  the likelihood is it cannot. So why doesn’t the parent group just step in and sort it out? Well, PG is not a bank – it will want something in return. Such as buying a majority stake in BBH. The trouble is – PG is also Procter & Gamble’s biggest agency group. BBH is of course a Unilever agency, but the 51% majority stake held by the partners keeps the relationship at arm’s length. Even in this enlightened era of agency conflict management, full ownership of BBH might not go down at all well with the good folk in Cincinnati.

As I say, it’s an interesting dilemma. Let’s see how Gama, Lévy and BBH group chairman Nigel Bogle sort it out.


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