The Publicis-Omnicom merger creates a new superpower both internationally and in Australia. But to make it work will require a massive amount of integration. Who will run the combined media group? Will all the agencies be housed together in one mega-towers, and will the new market leader be able to bring its might to bear on prices?
It could be two years before an efficient back-end is up and running. In the meantime, media owners have tried to play down any effect on wholesale prices.
As a media group, Publicis Omnicom will have a combined Australian market share of 31.6% with billings of $2.8 billion, according to 2012 RECMA figures. Using the same data, GroupM has 27.7% and $2.48 billion billings; Dentsu Aegis has 19.1% share and $1.7 billion; while IPG billings stand at $1.14 billion and 12.8% market share.
That leaves four companies controlling 91% of the market.
Whether Publicis Omnicom can eventually leverage its new scale depends on how well its units can be integrated and organised. Who will head up a combined operation is another issue, but it would be stupid not to harness scale with media owners via a lead negotiator with a single point of contact. Will it be Leigh Terry, John Sintras or somebody else?
Will the power shift in the market whet the appetite for more
consolidation? Henry Tajer, executive chairman of IPG Mediabrands
Australia, said crystal-ball gazing was foolhardy but hinted that it
might. “Those two groups see value in coming together. That shows there
is scope [for consolidation] within advertising at a global level. Those
two are not the only ones with scope.”
Luke Littlefield, chief
executive of Aegis Media Pacific, said any further consolidation would
have to take into account the premium paid when large groups buy each
other. Locally, he said Publicis Omnicom had to articulate the benefits
of the merger to clients.
GroupM made the same point. Global
president Dominic Proctor stated that “neither Omnicom nor Publicis was
able to bring their investment teams together effectively as individual
companies, so it will be fun to see if they can now do it together”.
Scale, he said “counts for nothing if it continues to be disparate”.
Media owners agreed.
“[Publicis
and Omnicom] are both huge anyway,” said one senior media owner. “Their
ability to buy well depends on whether they can get well organised. The
rates at which agencies buy are not always reflective of size.”
He suggested that if the merger could bring efficiency to the process “it could make media owners lives easier”.
Other media owners stayed quiet. They need to see the detail.
So far, the information released from Publicis and Omnicom has been about shareholders and the rationale – savings and scale.
Some argue that consolidation and attempts by brands to screw down on costs from agencies necessitates consolidation by agencies in return. There is little information of comfort to brands issued so far by the parties behind the merger, suggested TrinityP3's Darren Woolley.
"There is not a lot in it for marketers. It is purely a business decision. It is not about better service or price ... The information released has been aimed at institutional investors and regulators. The $500 million savings are purely a rationale for the merger. It won't be passed on to clients.”
Woolley agreed that size isn't everything when it comes to negotiating rates. “There is a limited amount of media and price has a floor to it. GroupM has been negotiating hard for years. The belief of [Publicis Omnicom clients expecting significant scale discounts] will be sadly misplaced. It is more about saying 'we are big now'.”
While Sir Martin Sorrell “will be the person most pissed off about this and doing his best to undermine it”, the disruption to clients of both parties could be an opportunity for WPP, he suggested. “WPP will be sniffing around opportunities to pick up disenfranchised clients.”
Woolley said there would “definitely” be more mergers with the smallest global players the “easiest to snap up”. Havas Media might be one such network, he said. In terms of the creative agencies affected by the merger, notably Publicis Mojo, DDB, Leo Burnett, Clemenger BBDO, Saatchi & Saatchi and Whybin TBWA, Woolley said it would be business as usual.
So does that mean no possibility of being merged into one big building to centralise costs? “No! No! No!” said Robert Morgan, Clemenger Group executive chairman. “It doesn't affect us in any way. Clemenger will continue to run its own race and own a significant shareholding.”
He said that Clemenger had a “very strong culture of independence that it would continue to maintain”, including its own premises. “We have been here since before you were born and will likely be here long after you have retired.”
Most commentators were relaxed about client conflict issues, which could be shifted around the networks or new structures created for them. Whether there is room in the saturated local market for new agencies is a moot point.
In terms of competition issues, the ACCC issued a brief statement noting its responsibility to review M&As that substantially lessen competition in the market, but the truth is that regulators in Brussels and Washington will be making the tough calls for the next few months.
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