£1.7bn global ad review is creative solution to Johnson & Johnson’s money problem

July 25, 2012

It would be nice to think that Johnson & Johnson’s newly announced review of its £1.7bn annual advertising spend was driven by a need for greater creative consistency. But it isn’t.

Money’s the thing – saving it that is. J&J may be one of the world’s biggest brands, but it’s also a company in trouble. Since 2009 J&J has suffered numerous recalls in the US, mainly of its over-the-counter drugs like Tylenol and Benadryl; but the prescription and medical devices businesses have also been hard hit. All in all, it’s said to have lost $1bn in sales, partly through bad luck and mostly through sheer incompetence.

At first it was the staff – including the marketing department – who paid, by being made surplus to requirements. Now it is the spend that’s being trimmed. Judge for yourself from the officialspeak: “Johnson & Johnson is conducting a global agency review and consolidation to build greater value and deliver innovative and fully integrated solutions for our consumer brands.” Well, they wouldn’t want less innovative solutions would they? And they could hardly be less fully integrated than they are at the moment.

In truth, there’s an easy win here for the new kid on the block, Michael Sneed – who became J&J’s top marketing (and PR) officer at the beginning of this year. There could hardly be a less efficient way of running your global marketing services than the one that exists at the moment. Uncle Tom Cobbleigh and All are at the advertising trough. It would be simpler to name a global marcoms group that isn’t on the roster.

WPP has business through JWT and AKQA; Publicis Groupe through Razorfish; Interpublic through Deutsch, Lowe, The Martin Agency and R/GA; Omnicom through DDB and BBDO; and Havas through Euro RSCG. That leaves, er, Dentsu and MDC off the list.

Sneed is a company lifer who, at various stages of his J&J career, has shown considerable sensitivity towards advertising creativity. It will be interesting to see whether this natural instinct gets overridden by the all-powerful imperative of saving the company money. Don’t expect a self-aggrandising Ewanick moment – Sneed seems too modest for that. Do expect a financial deal, of the “Team WPP” or more likely “Commonwealth” variety, that dresses up financial expediency as a coherent creative solution.

The most interesting thing about this review may be the losers. If Interpublic is among them, perhaps group CEO Michael Roth will at last seek to do a deal with Publicis Groupe. The air is certainly thick with rumours to that effect at the moment.

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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.


Publicis’ sweetheart ad deal with Google turns sour after kickback allegations

November 25, 2010

When is an agency kickback not a kickback? When it’s a strategic partnership with Google – according to Kurt Unkel, senior vice-president at Publicis Groupe digital arm VivaKi.

Google and Vivaki have found themselves in the eye of a hurricane, thanks to an exposé published by the respected online journal TechCrunch. It sheds disturbing light on the highly incestuous relationship between the internet giant and agency group, with particular reference to their collaborative display advertising operations.

The technicalities are complex, jargon-ridden and difficult for outsiders to understand, involving as they do the secretive workings of so-called agency “trading desks” and “demand side platforms” (DSPs). But at heart the issue is simple. It’s exactly the same one aired in one of my recent posts on a historic kickback scandal at Grey Advertising. It’s about playing the agency client for a mug, possibly because the client in question is indifferent, but more likely because he or she hasn’t the first idea about what is going on. Or, as one anonymous Publicis employee quoted in the TechCrunch piece bluntly puts it: “Our clients are so clueless it is a joke.”

So how does the scam, if that’s what it is, actually work? Google is desperate to prove that it is not a one-trick pony, relying pretty exclusively on search advertising revenue. It has made considerable inroads into display, which now accounts for $2.5bn a year revenue according to the company itself. Some of this comes from its own sites, which include YouTube, but quite a lot is also generated via special units, the DSPs mentioned above, which are attached to all the big agency network groups – Omnicom, WPP and Interpublic as much as Publicis. According to one source quoted by TechCrunch, these DSPs already handle 10% of online ad spending but, such is their power, they could handle up to half in a few years’ time.

The issue is not whether money changes hands between Google and Publicis to boost Google’s market share. An explicit bribe would be illegal, not least because the financial inducement would not have been remitted to the ultimate paymaster, the advertising client. Rather, what seems to be going on are a series of non-monetary inducements offered by Google to improve agency performance. These, according to TechCrunch, include investment in the agency trading platform, co-marketing and training.

Google does not deny this is what is happening with Publicis. That in itself is serious enough, because it hints at abuse of market power, which could in time attract the attention of the competition regulator. In a nutshell, is Google using profit gained from its search operation to distort the display market?

But the implications are even more serious for Publicis, which depends on digital advertising revenue to sustain its industry-beating profit margins, of which we have been hearing so much from Groupe chief Maurice Lévy of late. According to a Publicis secret squirrel quoted in the piece, Publicis will run $1bn of advertising through Google this year, most search but about $200m display. To put this figure in context, digital was nearly 30% of Publicis’  Q3 €1.3bn revenues. And the rate at which digital revenues are growing – 28% in North America, which is the hub of global activity – is much higher than the industry average of 17%. Just to round off the point, there is an incestuous relationship between Google and VivaKi’s DSP technology: the technology is effectively licensed from Google.

If that’s the case, the not unreasonable question arises: are media planners at VivaKi acting in the best interests of clients when they allocate client funds, or the best interests of their employer?

I should point out at this stage that VivaKi does do business with display ad exchanges other than Google’s DoubleClick; for instance Yahoo’s Right Media. It also has a sweetheart display advertising deal with Microsoft, struck as a clinching quid pro quo during the Razorfish acquisition last year.

Nor does Google have an exclusive partnership with Publicis. It has a relationship with all the major advertising holding companies and a similarly structured deal to the Publicis one with Omnicom.

Whichever way you look at it, however, this exposé is a wake-up call for clients. Advertisers really need to pay a lot more attention to how their money is being spent.

POSTSCRIPT: Troubles, they say, always come in threes. To add to Publicis’ Google woes, there is a still-breaking corruption scandal in its China media buying operation, plus fresh news that Matthew Freud’s high profile PR subsidiary is plotting defection. For more information on this last, see what my old chum Stephen Foster has to say over at More About Advertising.


Why Dentsu is taking a more aggressive global stance

October 1, 2010

Stephen Fry and Jeremy Paxman know who they are. The Great Polymath and the Grand Inquisitor both gave the Dentsu name a big leg-up last week by publicising some rather innovative animation involving an iPad and the London office – one on Twitter, the other on Newsnight.

Paxo: He's heard the Dentsu name

But do clients know who they are – those, at least, based outside Japan? That, in a nutshell, has always been the defining strategic problem of the world’s fifth largest marketing services holding company. Its dominance in one market – even now the world’s third largest – is crushing, thanks in part to the lack of conflict culture in Japan. But it has signally failed to replicate elsewhere the success it enjoys in its home market. Until three years ago, only 8% of its revenue came from the rest of the world.

“Wakon Yosai” – Western technique, Japanese spirit – may have been the underlying principle of Japan’s international industrial success, but it simply doesn’t work in a people business like advertising. Dentsu has been slow, not so much to recognise this as to deal with it. It has tried numerous strategic alliances with Western agencies over the years, none of which have borne it much fruit. The current one is Publicis Groupe, in which it is an 11% stakeholder (with 15% voting rights). It has also tried haphazard direct acquisition – most notoriously an already decrepit Collett Dickenson Pearce, for which it paid far too much money back in 1990. CDP withered on the vine; today its legatee, Dentsu London, is little more than a service shop for established Japanese clients like Canon.

But, make no mistake, change is in the air. There is an aggressive, some would say desperate, determination to do things differently before it is too late.

Take as a starting point Dentsu’s announcement this week that it is is pooling all of its North American, Latin American and European businesses (excluding Russia) into one giant operating company, Dentsu Network West.  One of the novel features of the new set-up is that it is completely captained by Westerners. Its group chief executive is Tim Andree, also ceo of Dentsu North America; its head of Europe is Jim Kelly – formerly a senior executive at WPP; its Latin American ceo, Renato Lóes – newly headhunted from Leo Burnett; and its finance director is Nicholas Rey, another new appointee.

This certainly marks a break with Dentsu tradition, which has always stressed tight Japanese direction out of Tokyo HQ. The key is Dentsu’s all-American pin-up boy Andree. The hulking  former National Basketball player (he’s 6ft 11in tall) and ex-Toyota-cum-Canon client has a special place in Dentsu history: in 2008 he became the first non-Japanese to be appointed executive director of the holding company, Dentsu Inc – a position just below the main board. It was a mark of the esteem in which he is held by Dentsu president and ceo Tatsuyoshi Takashima, who himself has a pronounced “internationalist” outlook. Mindful that Japan’s is a stagnant ad economy that has recently slipped behind China’s, could he sensibly be anything else?

But let’s return to Andree. During four years of frenetic activity as head of North America he has bought, on Dentsu’s behalf, Attik, 360i and McGarry Bowen. The last of these has, for the first time, enabled Dentsu to break into blue-chip clients such as Kraft, Verizon and Pfizer in their main market. DNW is Andree’s dividend – the roll-out of his North American model to Europe and Latin America.

The promotion of Andree is not the only indicator of strategic change at Dentsu. It has been unusually vigorous in trying to buy up the few independent digital assets still remaining. A $600m pre-emptive bid for AKQA, flagged up in an earlier post, is currently capturing the headlines. But let’s not forget the bitter contest over Razorfish, in which Dentsu put $700m on the table, only to lose out to its “strategic partner” Publicis – even though it came in with a lower bid.

There has been internal scepticism of the Publicis/Dentsu deal – as a strategic asset rather than an investment – right from its inception in 2002; the Razorfish fiasco seems to have brought that to a head. Dentsu has already begun to pull out of Publicis; total disengagement by 2012, when the agreement comes up for renewal, would be no surprise.

In short, Dentsu has belatedly realised it has no choice but to aggressively go it alone if it is to be anything more than a powerful regional player. Such behaviour is contrary to everything in its tradition, which is internationally passive while also very controlling. The small-print in the DNW initiative hints at much greater devolution from Tokyo – especially in the matter of strategic acquisitions. That remains to be seen.


Dentsu launches $600m bid for AKQA

September 16, 2010

Word reaches me that Dentsu, Japan’s largest advertising network, has launched a pre-emptive $600m bid for digital independent AKQA.

No discourtesy to AKQA – which is well-respected  – but that sounds an awful lot of money  – even for an agency that is renowned for setting an impossible price on its independence. And it is: twice as much as it is worth gauged by conventional financial metrics. But then, Dentsu is desperate to buy digital presence in the West – and the USA in particular – at almost any price. And AKQA, which boasts an enviable blue-chip client list including McDonald’s, Coca-Cola, Unilever, Nike, Visa and Fiat, is one of a fast-shrinking number of desirable targets.

Readers of this blog will recall Dentsu’s bitter duel with its supposed ally Publicis Groupe to acquire Razorfish last year. Publicis eventually trumped Dentsu, which had offered an extraordinary $700m, with a lower bid of $530m; but then Publicis had an inside track with the owner, Microsoft, involving a favourable ad deal.

Dentsu eventually scored when its US unit acquired Innovation Interactive, the parent of digital ad shop 360i, at the beginning of the year. It also had its sights on search and social media specialist iCrossing, but that was snapped up at the beginning of the summer by the Hearst Corporation.

AKQA – founded in 1995 by Ajaz Ahmed, who remains its chairman – is a much bigger prize. Headquartered in San Francisco, it has outposts in London, New York, Washington DC, Shanghai, Berlin and Amsterdam; and employs over 800 people.

I’m told that Ahmed and chief executive Tom Bedecarré are against selling out to Dentsu. But the inconvenient truth is that their company has been majority-owned by private equity group General Atlantic for the past three years. GA calls the shots, and cannot ignore such a salivating offer…

I’ll keep you posted.

UPDATE, September 23rd: WPP bidding for AKQA, eh? Not at that price it won’t be. The rumour was described by sources close to WPP as “rubbish”. To prove the point, Campaign and Media Week – which gave credence to the story – have withdrawn it.


Cheil confirms Barbarian deal

December 3, 2009

So Rick (Webb, COO Barbarian Group), no truth in the speculation that Cheil Worldwide is buying your company? Funny, I could have sworn the acquisition of a majority stake has just been officially announced. How quickly things can change 180 degrees from an “absolute untruth” to a done deal. It must be that memorandum of understanding you had signed with Cheil that gave you enough wriggle room to be economical with the truth.

An MoE is not strictly speaking a deal, it’s just expresses the intention to sign one. And, of course, the MoE could have expired in less than a month’s time with no deal being struck. I bet no one’s going to come clean about the price tag being $10m for the whole lot though, which is also to be found in the MoE. Note that Cheil could acquire only 49% of Beattie McGuinness Bungay, a UK agency apparently in robust good health. The majority stake – 51% or above – eventually prised out of Barbarian suggests financial weakness on the acquired company’s part.

The deal’s an odd but interesting one, tieing together as it does a maverick US digital agency group, which has all but run out of money, with a highly conventional Korean network, which has plenty but lacks the cultural savvy to get into the digital game. All rather reminiscent of Dentsu’s attempt, unsuccessful as it turned out, to lay hands on Razorfish.

I’ll leave you with the reflections of Seth Alpert, managing director of AdMedia Partners, which advised Cheil on the deal:

“For years large US and European agency holding companies have been adding capabilities in Asia to serve multinational clients in all markets. We believe that Cheil’s transaction with Barbarian demonstrates that Asian advertising holding companies are now executing the same strategy – adding strong US capabilities through acquisition. Another example of this trend is the reported aggressive pursuit by Dentsu, Japan’s largest advertising agency, of interactive agency Razorfish, a company ultimately acquired from Microsoft by Publicis earlier this year.”

Quite.


Louis Vuitton prepares global digital assault

September 30, 2009

Catherine DeneuveStand by for some crowing. Not from me, from WPP. It looks as if one of its agencies, OgilvyOne, has won a colossal piece of digital business from luxury goods company Louis Vuitton.

Reasons to be cheerful? Part One: this is a global account and, according to some, the largest digital budget awarded this year. Part Two: the LV pitch was held in Paris (as it would be, since LV is French-owned) and prominent on the shortlist were two agencies we are now intensely familiar with, Digitas and Razorfish (hint: they are now both owned by Publicis Groupe). WPP, you may recall, was the runner-up in the auction to buy Razorfish. So there’s a special piquancy in winning such a prestigious piece of business from right under the nose of Publicis group ceo Maurice Levy on his home ground.

More interesting perhaps is the question: why is this such a big account? After all luxury goods brands, however exclusive, are not generally known for the size of their budgets. A bit of decorous advertising in some upmarket magazines usually defines the limits of their imagination.

Not so LV – the luggage to watches to shoes and handbags operation owned by one of France’s most powerful businessmen, Bernard Arnault. Arnault departed from tradition a year back with the company’s first commercial, a two-and-a-half minute epic (originally) featuring Polish model Monica Krol and meditating on the theme Where Will Life Take You? More familiar perhaps will be the employment of uber celebrities such as Mikhail Gorbachev and Catherine Deneuve in the press ads.

Now Arnault seems to have found digital in a big way. In a study just out from New York University’s Stern School of Business, Louis Vuitton, Porsche and Tiffany have emerged as some of the very few luxury brands that “get” online. Among those that don’t are Trump, Bulova, Fabergé and Graff. The study surveyed 109 brands in all, and discovered that where only 33% were selling online a year ago, 66% are doing so now. Digitally savvy, or just desperate as a result of the recession?

Arnault himself take the internet very seriously indeed. He has involved LV in a titanic trademark dispute with Google, over the introduction of its AdWords service which – according to Arnault – recklessly encourages counterfeiting. The score so far? One all. Arnault won his case in the French courts but the finding was recently quashed by the EU’s highest court, which ruled that Google did not have a case to answer. We’ll see. Arnault is nothing if not tenacious.


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