By Sam Balsara
The new entity will create value for shareholders more than advertisers, and it will be business as usual in India. However, to get the four media agencies under the group to operate as one, following the Group M model, would take some effort
It was a lazy Sunday morning and I had just finished glancing at the pile of papers, contemplating what lazy action to indulge in next. My eyes went to my Blackberry which I normally don’t touch on Sundays, but something made me pick it up and cursorily scan through the mails. The one that caught my eye was a mail from my nephew, Tushar Balsara, who works for Google in London, forwarding a report from BusinessInsider. com headlined “Publicis and Omnicom to merge. 8:00 am Press Conference in Paris, scheduled”.
Why the merger?
You can understand two companies coming together to build scale, but when one has revenues of $14 billion and another $9 billion and both have profits of around a billion each, and a market cap of $15-17 billion each, what scale can you add? Can you add scale to scale? And whilst it is understood that scale is a virtue in today’s world, because it helps you drive out cost, can going beyond scale become counter-productive?
Advertising men have always had an obsession with wanting to be the largest in billings, because in some way it denotes that if you are the largest, you must also be the best. And the argument that you are large enough to have all the benefits of scale, and none of the disadvantages of size, but are not the largest, doesn’t seem to appeal to advertising men, whose mental make-up is engineered to work ceaselessly towards becoming No. 1 in size. So, to my mind, this merger is driven by a very fundamental desire on the part of both parties to reach that number and a realization that reaching that unassailable position in Billings, in Revenue, in Profit and in Market Cap on one’s own is going to be difficult in the near future.
Serving Clients Better?
I have seen reports questioning how this merger will help clients of the two companies. Holding companies, I dare say, are more driven by the value they create for their shareholders, than the value they can create for their clients. Individual agencies within the holding companies are supposed to worry about lesser things like providing value to clients. And of course, the stock market that may not understand the advertising business, understands the value of being the largest company and generally rewards the largest in category with the highest valuation. So the merger could in the near term result in substantial accretive value for the shareholders of both the companies by virtue of both having become No. 1 overnight and as an offshoot, many clients now have the satisfaction of having their account serviced by an agency that belongs to the No. 1 holding company in the world.
There is safety in numbers. The whole world without exception now seems to believe that “Big is beautiful”; “Big is Insurance”. Perhaps there is some truth in the adage “Too Big to Fail”. And to think at one time, when I started Madison in 1988, I believed “Small is Beautiful”!
What are Agencies, if Not for Their Clients or Their People?
I have read reports in the Press fearing that the merged company may lose a few mega clients, because of potential conflicts having been created overnight. I, for one, don’t share this view. I think advertisers over the years have learnt not to get emotional on this subject and agencies have learnt to put systems and structures in place to reassure clients of strict confidentiality and at the same time offer some added benefits of scale.
When WPP bought MediaCom, whose single largest account was Procter & Gamble, it already had wide and deep relationships with Unilever, yet it did not lose Procter & Gamble, the world’s largest advertiser. Probably WPP succeeded in assuring Procter & Gamble of better quality of services and advice, than what the standalone MediaCom was able to offer.
Let’s come to people now. Yes, mergers of this kind do cause anxiety among people, especially at the top echelons in the global structure. But the two right at the top have had the wisdom to already lay down a pragmatic plan and I don’t think they will be in a hurry to disturb the topmost layers of large individual agencies like Leo Burnett and Publicis or Starcom and ZO to get their senior management unduly concerned in this people-oriented business. Anyway, those employees who cannot handle Volatility, Uncertainty, Complexity and Ambiguity in today’s VUCA world can’t be that precious for an organization.
Strength of India?
The merged company will obviously have varying degrees of strength across different nations. From a complementarity point of view, the merger gets low marks because both are strong in the US and both are weak in Asia-Pacific, including India. This is very unlike the Dentsu take-over of Aegis, where on this account, the merger got full marks, because one was dominant only in Japan, whereas the other was strong in Western markets. When it comes to India, the merger fails to achieve what it achieves at a global level and will achieve in many nations – the unassailable No. 1 position, because of the dominant position occupied by the WPP Group in India. Estimates of WPP revenue range from Rs 1,100 to Rs 1,800 crore in India, whereas the estimated revenues of the merged entity range from Rs 600 to Rs 1,000 crore as reported in the media. In any case, most estimates put WPP ahead by almost a third in revenues. In media terms, where billings are more readily available, the merged entity with four agencies - Starcom, ZenithOptimedia, OMD and DDB Mudra Max - can now boast of having reached the No. 2 position in billings, marginally ahead of the Madison-MediaCom combine, but is still less than 60% of Group M’s four agencies – Mindshare, Maxus, MEC and Motivator.
To get Publicis-Omnicom Groupe’s four agencies to operate as one, following the Group M model, would take some doing, also considering the fact that the merged entity does not yet own 100% of DDB Mudra Max. Maybe they should draft the services of Andre Nair!
Advertising men will be advertising men and their desire to be No. 1 will be further fuelled by this event. I am sure someday soon on another lazy Sunday morning I will receive a mail informing me of a press conference being called by my friend Sir Martin Sorrell to announce the takeover of IPG. And the game will go on …
(Sam Balsara is Chairman & MD, Madison World)
THE COMBINED STRENGTH
The newly formed Publicis Omnicom Group – a $35.1 billion behemoth - has beaten WPP to No. 1 position among holding companies globally. However, in India, it is only expected to beat IPG Mediabrands to No. 2 position, behind India No. 1 WPP. Industry estimates envisage the new entity garnering an approximate annual revenue of Rs 1,000 crore in India
LEADERSHIP PLAN
The global leadership succession plan has been spelt out clearly, but the India scenario is still a matter of conjecture. Globally, Maurice Lévy, head of the French Publicis Group, and John Wren, head of the American company Omnicom, will serve as joint chief executives for two-and-a-half years, after which Lévy will become non-executive chairman and Wren will be the boss. Who will be the India head? Will it be anyone out of the current pool of leaders or someone brought in from outside? For now, it’s just wait and watch.
CAUSE FOR CONFUSION
Constituent agencies of both Publicis Groupe and Omnicom in India are clueless about what will happen next as even heads of agencies were not kept in the loop about the merger. Besides, the terms of the merger will only be ratified in Q1 2014. “At this very early stage of the merger, we are not in a Publicis and Omnicom’s merger will allow us much deeper coverage of the fast-growing developing markets in Latin America, the Middle East, and Africa, as well as the Asia-Pacific region,” said a communiqué from Omnicom Group, in response to our query about how the merger will be implemented in India. Queries for a comprehensive list of agencies operating in India under the umbrella of the two holding companies met with answers like “We don’t know who our brothers and sisters are!” from a few prominent agencies!
WILL THERE BE CLIENT CONFLICT?
The Publicis Groupe handles Coca-Cola, while Omnicom handles Pepsi. “What goes on in holding companies doesn’t actually much affect clients on the ground. When WPP purchased Grey, there was a lot of fluttering in the chicken coop from the idea that Unilever and P&G would be in the same marketing services group. In reality, I don’t think it made an iota of difference. In my opinion, these issues seem to exercise senior managers who are more interested in the politics of the stock market than in developing great advertising,” says Simon Clift, former Global CMO of Unilever. In India too, experts do not foresee any client conflict. In fact they cite examples of Ogilvy & Mather and JWT – both WPP companies – handling big rival advertisers without any difficulty to predict peaceful co-existence.
LOOKING AT THE ROAD AHEAD
The new Publicis Omnicom Groupe will have to get anti-trust clearance from authorities of more than 40 countries. This is expected to take place by Q1 2014
Both Omnicom and Publicis don’t have scale in India. Merger will give them scale, but they will still not overtake market leader WPP
Recent digital acquisitions by the Publicis Groupe such as Indigo Consulting, Resultrix, iStrat and Convonix are slated to sharpen the new group’s digital capability; and this is one area in which it can beat WPP. Omnicom will provide scale
The merger will help cut costs, and combined media buying will enable Publicis Omnicom to negotiate a better rate for its clients
GALLERY OF BRANDS
Creative:
Publicis Capital
Red Lion
Publicis Ambience
Publicis Modem
Leo Burnett
Orchard Advertising
Black Pencil
Saatchi & Saatchi
BBH India
BBDO India
DDBMudra
R K Swamy BBDO
TBWA India
Media:
OMD
Zenith Optimedia
DDB MudraMax
Starcom MediaVest Group
Digital
Indigo Consulting
Digitas
Razorfish Neev
VivaKi
iStrat
Resultrix
LBi International
BBDO Digital Lab
BBDO Proximity
Magnon Group
PR
MSLGroup
FleishmanHillard
Ketchum-Sampark
Consulting
MarketGate
Convonix
OTHER SPECIALIST AGENCIES
Spark
SMG Multicultural
LiquidThread
SMG Performance Marketing
Performics
Newcast
Moxie
Ninah
Sponsorship Intelligence
Scoop
Publicis Life Brands
Watermelon (Healthcare
Advertising Agency)
DDB Remedy
RAPP
Tribal Worldwide
Gutenberg Networks India
Interbrand
TracyLocke
