Publicis and Omnicom unveiled plans for a $35bn merger on Sunday that appears set to transform the face of the advertising industry. That is, of course, assuming the deal does go ahead. According to KPMG, 83 percent of mergers fail. The regulators are one potential hurdle, but there will also be some potentially troublesome client conflicts to sort out – for example, Omnicom counts PepsiCo as a client, while Publicis works with Coca-Cola (fun fact: the combined workforces of Publicis and Omnicom will total 180,000 people, which – according to the American Heart Association – is exactly the same number of deaths linked to sugary beverages each year worldwide).
But let’s put the stumbling blocks aside for a moment and look at how the industry and the press responded to the deal. This post will be updated throughout the day:
The FT focused on the practicalities of the co-CEO arrangement (Maurice Levy and John Wren will serve as co-CEOs for the first two and a half years of the deal, after which Levy will become non-executive chairman and Wren will continue as CEO), with some Mourinho-esque jibes from competitors:
Rivals reacted with surprise and scepticism. Sir Martin Sorrell, WPP’s chief executive called it “an extremely brave, bold and surprising deal” which could generate organic growth opportunities for WPP. He hinted that Publicis had gained the upper hand, calling it “a great deal for Publicis” and added: “Time will tell if the cultures will click … co-CEOs is not an easy structure.”
David Jones, chief executive of Havas, predicted fallout among clients and staff, a culture clash between the “hands-on” Publicis and “hands-off” Omnicom, “and then there’s the French/USA thing.”
Love is in the Air
In an piece titled ‘Omnicom-Publicis Bromance Born in Davos Gets Real’, Bloomberg looks back to the origins of the deal at Davos, with a quote from Maurice Levy that demands to be read – or perhaps sung – in a French accent:
There, at the World Economic Forum’s annual conference in January, Levy initially proposed the merger that will create the world’s largest advertising agency, according to a person familiar with the situation. A casual conversation both men dismissed as fanciful gradually grew more serious over months of top-secret talks, Levy said.
“It was not calculated, it was just an encounter we do socially from time to time” at first, Levy said. “We had another encounter, and in the meantime started to think ‘What was this stupid idea?’ And looking at things, it wasn’t that stupid.”
Here’s a video of the happy couple sealing the deal:
Beyond Buying Power
One of the best pieces of analysis came from Forbes contributor Avi Dan, who looked at both the historical context and the role of the holding groups in a time when the advertising industry is moving towards technology. He concludes:
“The answer is not mergers. The answer for the advertising industry is to change its model and the way it prices its product. Agencies give away their highest value product – their strategic thinking – for free and try to make a profit off implementation work. However, implementation is often a commodity. It reduces the client-agency relationship to a mere transactional level, of buyer and vendor. And, as time marches on and agency margins drop, the cost of doing business for the agency goes up, putting further strain on the relationship. That can be directly traced to the willingness of agencies, unique among service providers, to give their product away for free.
That is no way to run a railroad or bake a baguette.”
1.52pm – When Did Scale Go Out of Fashion?
“As regards the coverage the one thing I have seen time and time is the discussion on scale and how many commentators comment ‘ advertisers will not benefit from this increased scale.’ I find this fascinating for a couple of reasons. The first is that advertisers, media auditors, pitch consultants and every agency pitch document starts with how big they are, at least if you are in the top 10. It has always been so and will be for some time but all of a sudden we have everyone saying scale does not matter. I just don’t buy it and most advertisers don’t either. Scale as I have written in a previous post is not just about buying, it is about resource, depth of pockets, it can be many things, but lets stick with media buying, it will count. Anyone saying otherwise has an angle.
Connected to this is the fact I have grown up by an industry telling me about Group M scale. Media owners, my own agencies in other markets, middle men, pitch consultants – ‘Group M scale counts and is a big deal’ year after year this has been the message, so I am intrigued that suddenly I read that this is not the case and there will be little to gain from this merger in that sense. You can’t have it both ways – either it does count or it does not, because that is not the message we have been giving or receiving for the last 20 years.”
2.10pm – Reaction from the Video Advertising CEOs
Brightroll CEO Tod Sacerodoti wrote a comprehensive piece on LinkedIn that looked at the winners and losers from the deal. Sacerodoti thinks that WPP could benefit from the reduction in the number of buyers competing for inventory. The losers, he says, will be traditional media:
“The big losers are big traditional publishers (FOX, NBC, Disney, New York Times) with the heaviest losses happening in TV. We in the digital space always think of digital first, the reality is the real spend (and the real savings) are to be had in the television world. On the digital side, the players who have the most to lose are the largest aggregated sellers (Google and Facebook) but they are unlikely to be impacted heavily as their positioning is simply too strong. Other smaller, but still large, digital sellers (AOL, Microsoft and Yahoo!) are more vulnerable but it is hard to imagine Publicis Omnicom Group spending much time optimizing their spend here in the near term because it is simply not big enough to move the needle.”
Merging two of the same doesn't make it new nor different. Technology will continue to eat advertising spend and switch spend.
— Sorosh Tavakoli (@soroshtavakoli) July 29, 2013
ISBA says Merger Will Be ‘Restrictive’ for Advertisers
The ISBA – which represents the interests of British advertisers, says the merger will restrict the options available to brands
“Advertisers will approach this news with open eyes’ said Bob Wootton. ‘ISBA has been aware for some time that the next big competition issue would probably be a mega agency merger. Now we indeed know that the new Group would be big.’
‘We have a long standing concern about the effects of excessive concentration on business. We hope that this news does not signal greater concentration that would raise greater concern amongst advertisers.”