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Record WPP financial results fuel confidence in sustainable recovery

March 1, 2012

Chief executive Sir Martin Sorrell was in feisty form as he reported the best set of financial performance figures in years at the world’s largest marketing services company by revenue.

The WPP growth engine is, apparently, firing on all six cylinders: billings, revenue, earnings per share, pre-tax profit, organic growth (or like-for-like as it is often known) and operating margins all showed evidence of substantial improvement. Perhaps the key highlights were pre-tax profit, up 19%, at over £1bn for the first time; and strong evidence of Quarter 4 growth, indicating the spurt is not some first-half fluke that will fade in the current year.

Doubtless WPP euphoria will subside once media focus moves on to the inevitable corollary of record financial performance – an equally record performance bonus handed to its chief executive. But, hey, that’s for then.

For now WPP’s results form a welcome bookend to a series of exceptionally good annual numbers from all the global marketing services giants – Interpublic’s particularly so – suggesting an ad recovery is on the way.

But is it sustainable? Sorrell  – revered as something of an economic sage these days – has indicated that WPP January figures are strong – even in the UK, on which he has been bearish for some time. And he has wheeled out his favourite prop on these occasions, the so-called Quadrennial Effect, to underline his contention that growth will be sustained throughout the year. Put into simple English, that means macro-events which occur every four years – such as the Olympics, the UEFA football championship and the US presidential elections – will stimulate global growth by at least 1%.

Nor was he pessimistic about what, to most of us, might seem a blot on the economic landscape. A number of the world’s biggest brand owners, among them Procter & Gamble, Coca-Cola and PepsiCo, have recently announced cuts to their workforce. Sorrell chooses to take comfort from the fact that all of these companies have guaranteed existing or even increased levels of marketing expenditure.

The Sage of Farm Street is less optimistic about 2013, though – foreseeing gridlock on Capitol Hill, with a re-elected Obama beleaguered by hostile Republicans in Congress. We’ll see.

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“Not for sale” StrawberryFrog sold – to PR agency APCO

February 16, 2012

StrawberryFrog – the maverick advertising micro network – up for sale? Come again?

When, late last year, I had the temerity to claim that was indeed the case, SF founder, chairman, chief executive and great panjandrum Scott Goodson took venomous issue with my impudent suggestion.

Yet, less than 3 months later he has done just that – sold out. More specifically, APCO, a PR agency specialising in crisis management, has acquired a controlling interest in the financially troubled New York agency. (It is not yet clear how the sale will affect SFNY’s freewheeling Amsterdam counterpart.) The sale comes hot on the heels of news that Goodson has also parted company with the only profitable part of his organisation, StrawberryFrogPeralta, in which he held a 30% stake.

The spin on the APCO deal is that it is an inevitable sign of the times. As digital becomes the key communications channel between marketers and consumers, the traditional lines between PR and advertising are being extinguished. If anything, PR is culturally more sensitive to the “conversational” requirements of social media than advertising, but often lacks the technical expertise to be found in advertising agencies. Consequently, many PR firms have taken to hiring Madison Avenue creative executives over the past few years.

StrawberryFrog is indeed an accomplished expert in digital creativity. Goodson and his co-founder and fellow Canadian Brian Elliott (once best friends, who set up the company on Valentine’s Day, 1999, but later spectacularly fell out) early realised that strong creative ideas combined with digital know-how was a winning way of undercutting the big agencies, tied as they were to the bureaucratic “account team” legacy of traditional advertising.

And for a time, they were spectacularly successful. Even today, nearly 4 years after Elliott broke away, StrawberryFrog can boast a client list that includes Procter & Gamble (Pampers), Emirate Airlines and bourbon-maker Beam Inc.

But it is also a troubled agency, headed on a downward financial spiral and suffering from an unenviable reputation as a place to work (not least because of Goodson’s mercurial temperament).

Last year, I reported that agency staff had been cut from 76 to 40 in New York, while revenues had plummeted from $17m in 2010 to an estimated $12m in 2011. In the event, that last figure has proved a bit conservative – The Wall Street Journal cites $10m revenue. So, while Goodson may be quite right in asserting that the APCO deal will “give us the ability to work with clients in more markets around the world” (APCO has about 30 offices), it’s also true to say Goodson had to sell – or else suffer financial disaster.

APCO will be wise to treat its new acquisition with kid gloves. As one source familiar with StrawberryFrog put it to me: “Placing a value on this agency will not have been easy. What’s the IP value? How are they going to deal with the reputation issue? And has outstanding litigation with former staff been settled prior to the deal being signed?”

One thing APCO won’t have to worry about in the short-term, however, is dealing with StrawberryFrog’s prickly CEO. I understand he’s rather busy at the moment promoting his first book: “Uprising: How to build a brand and change the world by sparking cultural movements”. Perhaps some unintended irony in that title, the way things have turned out.


StrawberryFrog is up for sale, but will anyone want to buy it?

November 3, 2011

Word reaches me that StrawberryFrog, the maverick international advertising network, has hoisted a discreet “For Sale” sign. Whether it will succeed in its objective is open to doubt, as will be seen below.

First a little background. StrawberryFrog – curiously named after a colourful, nippy and spectacularly poisonous Latin American amphibian – was founded in 1999 by Canadian entrepreneur Scott Goodson as an agile alternative to the big, cumbersome, advertising holding companies. Goodson, who remains to this day head honcho, likes to see himself, and his company, as an avatar of what is called Movement Marketing, a concept first dreamt up by sociologist Neil Smelser. Stripped of jargon, this means “avantgarde” or “revolutionary”. In practice, Goodson was one of the first to spot that small, manoeuverable agencies with strong creative ideas that travelled well could use digital leverage to undercut the legacy giants – with their expensive but increasingly quaint bureaucratic structures wedded to traditional advertising.

For a time things went extraordinarily well. With only 2 offices, one in Amsterdam and one in New York – which deployed a staff of no more than 70 “Frogs” (but rather a lot of freelancers) – Goodson and his co-founder in Amsterdam, Brian Elliott, pulled in some extraordinary global business. We’re talking Sony Ericsson (when that was still a name to conjure with), Mitsubishi Motors Europe, Pfizer, RIM’s Blackberry, Ikea, Heineken, Morgan Stanley, PepsiCo, Emirates – to name but a few.

In 2009, the agency reached its apogee when – against all odds –  it seized the prized global digital account of Procter & Gamble’s biggest brand, Pampers, from under the nose of Publicis Groupe’s Digitas and WPP’s Bridge Worldwide. It was not even a P&G roster agency. Pampers remains StrawberryFrog’s most prestigious account.

But that was then. From thereon in, it seems to have been downhill.

Already, the cracks had begun showing when in 2008 Elliott broke away, rechristening the StrawberryFrog Amsterdam business Amsterdam World.

True, Goodson (left) patched up the network. He set up a new Amsterdam office, and had already opened a successful Brazilian boutique in Sao Paolo, a shop in Mumbai and disclosed his intention to set up an office in London (project later aborted). But he signally failed to control his New York hub, which has gone into freefall.

Not a week seems to go by these days without news of redundancies, stories emerging of Goodson’s increasingly tyrannical behaviour and acrimonious exits by senior staff. Two of his former top team are, I’m told, suing. One, ex-chief strategy officer Ilana Bryant, wants $2m for alleged breach of contract (I should add in fairness that StrawberryFrog is counter-suing her for $50,000).

All of which, as can be imagined, does little to impress clients, who have become still more alarmed by rumours that StrawberryFrog’s NY office is increasingly reluctant to pay its suppliers’ bills.

By way of illumination, some interesting “numbers” recently came into my hands – from what appears to be an unimpeachable source. They are as follows:

NY office: Dire. Revenue has declined from $17m (2010) to  about $12m (2011). A loss of $600,000 is expected this year. NY has about 40 employees, down from 76 a year ago.

Amsterdam and Brazil have different ownership structures to New York: Amsterdam is smaller by revenues, and expected to generate a $200-300,000 loss this year; Brazil has about 80 employees with $8-9m revenue – it is profitable.

Back in 2007, StrawberryFrog came quite close to sealing a deal with Publicis Groupe (it failed at the due diligence stage). This time a sale is more urgent. But I wonder whether Goodson will be able to find a buyer.


The agency kickback scandal you couldn’t make up if you tried

November 10, 2010

One staple theme yet to make its appearance in our favourite TV soap, Mad Men, is the celebrated agency kickback. No doubt it will in time.

But why wait for the soap when you can have the real thing, authentically reproduced in verbatim court transcripts?

I refer here to a protracted States-side legal case which Grey Advertising Group has just lost after attempting to suppress the evidence for a decade.

And what a very unedifying picture that evidence paints. Internal memos and personal transcripts reveal an agency whose senior executives were steeped to the gills in a conspiracy to deny major clients Procter & Gamble, Mars, British American Tobacco (BAT) and SmithKline Beecham (now GlaxoSmithKline (GSK)) about £4m that was rightfully theirs.

Before going any further, you’ll appreciate that I have to flag up a legal health warning. All these events took place a long, long time ago – up to 20 years ago in some cases. Almost all the protagonists have now quit the business. And at that time WPP, which now owns Grey, was no more than an expletive uttered by Grey supremo Ed Meyer – who then held the agency lock, stock and barrel – every time he lost an account to JWT or Ogilvy.

Also, I’d like to point out that what follows is a very much abbreviated version of a story recently broken by my fellow blogger Jim Edwards, whose detailed account can be found here.

Now back to the script. The scene is Grey’s London office, then at the top of Great Portland Street, circa 1998. New American ceo, Steve Blamer (left), has just arrived to take over from long-serving managing director Roger Edwards. An increasingly incredulous Blamer is updating himself on the agency’s financial position, with the help of chief financial officer Roy Wilson:

Blamer: P&G is that much?

Wilson: Yep.

Blamer: Jesus… I’m telling you, the reality is you as the financial officer and me as the ceo and now Roger (presumably Edwards) could be sued. I mean, we’re cheating and stealing from our clients. That is the truth.

And later…

Blamer: I believe we should return these discounts. I’m not going to, I can’t make that decision unilaterally…If those guys (senior management, in New York) say that we’re not going to do it, and we can keep the discounts… then I say, fuck it that’s crazy, send me a note, I want a ‘Get out of jail free’ card.

Of course, handing back the discounts – mostly from print contracts – would open a whole new can of worms; as Edwards was quick to explain, citing one client in particular.

Edwards: Mars is such a vitriolic client, that if they did catch you doing that they would probably punish you very severely. They would take you back years, take a brand off you or something like that.

Not surprisingly, everyone decided to stay mum. But they did change the terms of business, so that future discounts would be rebated to the client.

You might ask yourself why clients were not better informed about what was going on. After all, it was their money. The answer seems to be Three Wise Monkeys syndrome. Indeed, even those party to what was going on within the agency were baffled by clients’ seeming ignorance, or indifference.

Blamer: Have they [clients] ever discovered that in an audit?

Wilson: No.

Blamer: And why is that?

Wilson: …I mean to be honest one has to be a bit surprised that none of them have ever specifically, eyeball to eyeball… and then asked the question, since it’s a clause in every one of our contracts, but…

In view of this circle of deceit and self-deception, it might seem surprising that anything ever came to light. The weak link, indirectly, was Wilson, who rightly feared he might be made a scapegoat and had the conversations taped and transcribed as an insurance policy should he ever get fired. Which he later was.

The case of Grey is, of course, no isolated instance, merely a well documented one. Currently, there is a still-breaking media-buying scandal in China – involving broker kickbacks – which has already claimed the scalps of Vivaki Exchange’s two top China operators. Earlier this year, Aegis Media finally put the so-called Aleksander Ruzicka affair to bed, when it settled €30m on Danone in lieu of unpaid TV advertising rebates. And going back a few years, readers may remember Interpublic’s belatedly generous settlement on clients of media volume discounts, whose non-payment had come to light as a byproduct of the accounting scandal that engulfed the group at the beginning of this decade.


I-Level default sends tremors through the industry

May 6, 2010

For those in marcoms, the descent of digital agency I-Level into administration has some alarming echoes of the sovereign debt crisis being played out in Greece.

Just a few short months ago, no one would have seriously contemplated the possibility of either event. Now, we’re beginning to worry that this portends the second leg of financial meltdown, and that a domino effect will ensue.

I don’t want to push the parallel too far, of course. I-Level’s management was always infinitely more competent than that of the Greek economy. Nonetheless, for those who had eyes to see it, this was a calamity waiting to happen. The detonator clock started ticking in February when I-Level, in alliance with Starcom MediaVest, lost out to WPP’s GroupM in a pitch for the COI’s £250m consolidated media planning/buying account. Up to that point, government digital media business accounted for £40m of I-Level’s billings, or about 40% of its revenue. Replacing a slug of income that big was never going to be easy, but the difficulty was exacerbated by I-Level’s financing mechanism. Private equity investors ECI bought a 60% chunk of the group in April 2008, as a precursor to its international expansion. The deal valued I-Level at about £46.5m, but had the effect of burdening it with debt of £32m – much of it redeemed at an unsustainable interest rate of 12%pa. Put another way, that meant the group had to earn pre-tax profits of at least £3m a year merely to cover its interest payments. Guess what? The punitive interest payments kicked in just as I-Level was beginning to lose business. And that was before the coup de grâce delivered by the COI.

Even so, its disappearance is a shock. Set up in 1999 by Andrew Walmsley and Charlie Dobres, I-Level had near-iconic status as one of the few first-wave digital agencies that surfed the dotcom bust and managed to retain its independence. Among its blue chip clients are Procter & Gamble, The Sun, Orange, Sky, Renault, Comet and Samsung. Its top brass, who are now all out of a job, include respected industry figures such as Walmsley himself, chief executive Steve Rust and chairman David Pattison. Up to 100 people are expected to be made redundant. I-Level’s demise is a warning, not merely to those who would sell out to private equity investors, but of the fragility of fortunes, even in the relatively buoyant digital sector.

UPDATE: RIP I-Level. The administrator, Zolfo Cooper, has liquidated I-Level. Media owners such as Microsoft, Yahoo and Google will be faced with multi-million pound losses. It’s the biggest and most spectacular implosion of a high-profile agency since Yellowhammer went bust in 1990. The only part of I-Level to survive is the fast-growing social media operation, Jam, which was sold to Engine yesterday. That means about 20 staff out of a total of 120 have been reprieved.

ELSEWHERE IN ADLAND, I note the champagne corks are popping – and for good reason. DDB London learned this week that it had scooped the £75m Virgin Media account, previously with RKC&R/Y&R.

Woodford: Walking tall

Its understandably chipper chief executive Stephen Woodford tells me that the agency’s proposed integrated strategy was key to winning the business. Whatever, it’s not every day an agency wins an account that instantly boosts its income by 10%. And it gets better. DDB is heavily dependent upon international business, such as VW. Virgin is almost entirely domestic. It thus provides the London office with some valuable “shop window” advertising that should in time attract other local buyers.


Pre-election COI campaigns get the third degree

March 26, 2010

Call it coincidence, but events are conspiring to make COI spend – pre-election – a hotter topic than it should be.

First there was the unfortunate reminder that public information advertising expenditure has soared to pole position in the past year, comfortably ahead of Procter & Gamble’s. COI increased its spend by 13%, while P&G has cut its own by an identical percentage, according to Nielsen. All in the public, as opposed to the Labour Party’s, interest no doubt: but scarcely proof positive that HMG is cutting back in these straitened times, unlike the rest of us.

Then there was the news that the Advertising Standards Authority has had to admonish a department of state for the second time in a few days. On this occasion, it was Honest Al at the Home Office who had transgressed.

Hallo, Hallo

Apparently, he has been putting it about that neighbourhood bobbies will be spending “80%” of their time on the beat (especially in marginal constituencies). Not so, says the ASA, which banned the broadcast ad on three counts – observing in passing that it “does not make clear the commitment would not necessarily be delivered” – ie, the claim is pure propaganda.

The ban comes hot on the heels of another ASA reprimand, this time to Ed Miliband’s department of energy and climate change (DECC), which had been caught sensationalising climate change. A related broadcast ad, highlighting the apocalyptic effects of excessive CO2 emissions, is currently being investigated by Ofcom on the grounds that it looks suspiciously like a politically motivated campaign being aired just before a general election.

As if…


There’s only one solution to doctors’ health messages: ban them

January 22, 2010

Better for your daily health requirements

Not long ago, if you bit into a Kraft Oreo, munched some McDonald’s fries or tucked into a Kentucky Fried Chicken leg, the chances were you would be ingesting a nasty, toxic substance called trans fatty acid. Consume enough of it and it won’t do your health any good at all. It’s known to cause heart problems, by promoting “bad” cholesterol at the expense of “good”; and it’s also a suspect in other disorders, such as Alzheimer’s, cancer, diabetes and infertility.

In small, probably harmless, doses, trans fatty acid is found in nature – especially in dairy products. The reason intake of the stuff reached epidemic proportions was because it can be synthesised easily and makes a cheap and superficially attractive alternative to butter-based saturated fats and lard. As such, it provides a useful shortening agent in baked products and can also be counted upon to extend shelf-life well beyond its natural span.

It is not a new discovery. The processed food industry has been using it, in increasing concentrations, for most of the past 100 years. The bio-chemical formula was first adopted by a UK company which later became a part of Unilever. In the same year, 1909, Procter & Gamble acquired the US rights and promptly launched Crisco, a shortening product that was based on hydrogenated cotton-seed oil (it still exists, but under different ownership, and in a different formulation). At the time, nothing was known of the lethal side effects of trans fatty acids. Indeed, the delusion continued to exist well into the sixties that trans fatty acids, found in various margarine products, were not only cheaper, but actually better for you.

What was the medical profession doing all this time? For most of the past century, it was being about as ineffectual in exposing the ill-effects of these fats as it was in combatting the well-known health-hazards of tobacco and alcohol. This was not because of a total absence of pathological evidence. On the contrary, indications of a possible connection with cancer began to emerge as early as the 1940s. There was reasonable doubt; it’s just that no one seemed to want to voice it in public.

I mention all this because doctors  have now adopted a high moral tone in calling for the banning of these man-made fats. The fact is, the horse has already bolted. Although Britain hasn’t – unlike Denmark, New York, California, Australia, Switzerland and Austria – actually prohibited the stuff, a quiet self-denying ordinance has already been put in place by UK food manufacturers and retailers. The latter made a pledge back in 2006 to eliminate it from all their own-label brands, which they have now fulfilled and Big Food is beating a hasty retreat. For this we have a public health campaign, BanTransFats.com, and the so-called Project Tiburon, to thank. It originated in 2003 with a court case against Kraft in California which then snowballed. I don’t recall the British medical profession being particularly vocal at the time. We had to wait until July 29, 2006 for an editorial in the British Medical Journal promoting “better labelling,” which seems to have stopped well short of calling for trans fats to be banned.

There’s nothing quite like jumping on a bandwagon, however, once someone else has got it rolling for you. A similar “bannist” tendency may be seen in the medical profession’s approach to alcohol advertising. No finer example of the genre exists than Professor Gerard Hastings’ recent polemical article in the BMJ.

His proposals for tightening up advertising regulation (to include among other things a 9pm watershed, digital and sponsorship restrictions) bear an uncanny resemblance to the recommendations just published by the Commons health select committee. Indeed, if I did not know better, I would have thought he had single-handedly masterminded them. So I don’t underestimate his influence as a lobbyist.

And yet, closely argued though the paper is, it somehow misses the point. Whatever impact marketing communications may have on increasing consumption of alcohol, it is scarcely the principal villain behind our lamentable ‘binge culture’. A better place to look for major remedial correction would be our unhinged drinking hours, below-cost supermarket offers (which most brands abhor) and a decline in social standards (not all of which can be blamed on the advertising industry). Hastings, however, is not notably interested in any of this. The true nature of his agenda is revealed in the last paragraph of his article, where he cites former advertising luminary David Abbott’s views on tobacco advertising. The only really satisfactory solution to alcohol advertising is to ban it, it seems.


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