By: Sakthi Prasad --
15 May, 2014
With inputs from Karthikeyan Mahalingam, Angad Singh and Koustav Chatterjee
The much hyped $35 billion merger between advertising giants Publicis and Omnicom collapsed owing in large part to a clash of cultures and egos.
The deal would have created the world's biggest ad agency, leaving the current market leader WPP in second place.
The merger would have also created an umbrella brand which would have been better placed to compete with the likes of Google and Facebook in online ad sales.
However, clients were worried about potential conflict of interest as the merger would have brought the accounts of major competitors in a number of industries such as Apple and Samsung, or Coca-Cola and Pepsi, under one roof.
In April for example, telecommunications giant Vodafone Group switched its $1 billion global media account to WPP from Omnicom as a result of sustained efforts by WPP to win clients as well as talent from its two biggest rivals.
However, as widely reported by the media, the CEOs of Publicis and Omnicom had dismissed concerns they had lost clients because of months of distraction around the deal.
In fact, Beroe analysts had earlier highlighted that it would be tough for the merger to go through given the cultural clash and potential conflict of interests. (http://beroeinc.co/1qHQhyf)
Now that the deal has collapsed, what's in it for category managers who are looking to procure advertising and marketing services, which taken together is about a trillion-dollar industry worldwide, of which about $500 billion is in traditional advertising? (ref: http://beroeinc.co/1jPa0Yb)
The marketers or buyers could be bucketed into three segments:
To get a better picture, it would help to understand how the advertising industry is actually structured.
The ad world is dominated by big holding companies: WPP, Publicis, Omnicom and IPG.
Market leader WPP has business verticals or network agencies such asÂ J. Walter Thompson, Ogilvy & Mather; Publicis has Saatchi & Saatchi and Leo Burnett Worldwide; Omnicom has TBWA and DDB, to name a few.
For those players such as Coke and Unilever, who waited for the storm to blow out, the merger collapse could offer better negotiation opportunities and a chance to consolidate their business needs with one holding company as they don't have to worry about resultant conflict of interest.
And by looking to consolidate their media buying and marketing services with one holding company, the marketers can also try and derive favorable pricing terms.
The scene looks better for those who moved away from Publicis and Omnicom to other holding companies. Now that the deal has collapsed, other holding companies would be keen to hold on to their new clients who had migrated to them. And this creates a sweet spot for the buyers as they could press on with price negotiation as well as agency consolidation.
The situation becomes even more interesting for those marketers who were never part of Publicis or Omnicom.
Omnicom is very good at Customer Relationship Management (CRM), creative advertising and marketing communication. On the other hand, Publicis is the top player in Digital Marketing.
Now those marketers who were with other holding companies, and who perhaps were hesitating to farm out some of their business needs to these two firms, would now be mulling to leverage the competencies of both Publicis and Omnicom.
Of course, there is the question of what happens to those independent agencies such as M&C Saatchi and Wieden & Kennedy, who typically stay away from the networks of big holding companies.
There are about 10 independent, full-service agencies who can match up to the size and scope of the network agencies of the big holding companies.
It is tough for independent agencies to work on low margins as they don't enjoy high revenues as well as ample business opportunities as big holding companies.
And with the deal falling off, independent agencies can look to win key businesses in critical markets - or in other words, they can now play to their full strength, which otherwise would have been tough had the deal gone through.
Also, had the deal happened, Publicis and Omnicom together would have handled about $200 billion of overall media spend. This would obviously raise questions regarding rebate transparency, which is an all-time issue for any marketer.
Marketers would like to know if they are being ripped off or not and how their money is being spent. The big holding companies consolidate their media buying plan across the network agencies.
For example, Publicis would go and buy ad time en masse on CBS networks for a fee on behalf of all the subsidiaries. These holding companies, in turn, get price discounts as they are typically large buyers; and they are also seen as someone who provides steady business by media owners.
Usually such discounts or otherwise known as rebates are paid back to the buyers.
Marketers, in general, are worried about whether these big holding companies are passing along the right amount of rebates back to them. And small independent agencies can play up this card saying they are open to transparent audits, which could be a big factor in winning large deals.
Overall, the deal collapse is a big win for the marketers as it creates favorable business opportunities to deal with all big holding companies.