Media consolidation: Why the agencies will keep getting bigger and bigger
CONSOLIDATION at the top of the media business is nothing new. Publicis and Omnicom’s ongoing $35bn (£21bn) merger, subject to repeated delays by regulators, follows in the footsteps of the former’s acquisition of Saatchi & Saatchi in 2000. Sir Martin Sorrell, meanwhile, has continued busily adding to WPP’s bulging portfolio of companies built throughout the 1980s and 1990s. And with digital technology blurring the lines between traditional corporate categories – media agencies now face challenges from Google and Facebook, even management consultancies – this trend shows no sign of letting up.
“Take media buying,” says Kate Robertson, Havas Worldwide’s co-global president. “There is massive value for clients in agencies being able to drive down prices.” This is the traditional logic of agency size – greater clout brings cheaper deals for brands, meaning yet more pitch wins, leading to increased revenue for further acquisitions. But the digital age is reshaping the media landscape, giving this logic a twist.
“You need to have greater size and scale in a world of Google,” says Mark Howley, group managing director at ZenithOptimedia UK. Fears that the tech giants would cut out the agency “middle man” altogether have proved unfounded so far. But as Omnicom’s chief executive John Wren observed last year, “there are new competitors coming in every single day.” Technology consultancies like Accenture and IBM now offer platforms for executing digital ad campaigns alongside their strategy consultancy businesses. And some consider them to be a greater threat to agency revenues than the tech giants.
Only the larger agencies, offering a suite of services, are able to bundle together the buying, planning, technological and creative sides of their businesses to give clients a better deal, meeting the demands of an increasingly competitive landscape. Sorrell stresses the importance of these “horizontals” at WPP – “it’s about getting our people to work together for the benefit of clients,” he says. Paul Rowlinson, chief operating officer at WPP agency Mindshare, agrees. “Horizontal integration is the growing form of consolidation.” He points out that agencies in the WPP Group are able to draw together networks of data, technologies and creative partners within the group, providing a more “holistic” offer for clients. Add to this the fact that brands increasingly look for firms that can deliver international campaigns, and the benefits of scale are clear.
Of course, issues can arise when managing such large and diverse organisations. Many analysts talk of the “diseconomies of scale” in the creative businesses of media agencies – smaller, boutique ad agencies, unencumbered by top-down management structures, can often produce the best work. But the logic of “horizontality” remains compelling.
So if more consolidation is the future, in which areas should we expect merger and acquisition activity in coming years? Both IPG and Dentsu have repeatedly been linked with Havas, although most see this as pure speculation at this stage. Instead, the continued buying of smaller firms in fast-growing emerging markets by the likes of WPP is regarded as the most likely scenario. And niche, technology-focused companies are also appealing. Stewart Easterbrook, Starcom MediaVest’s executive director of performance and digital development, also sees further consolidation in mobile. “If ever I’ve seen a market ripe for consolidation, it’s mobile advertising.”
Liam Ward-Proud is business features writer at City A.M.