Credit: Casey Horner via Unsplash
The final swallowing of IPG by Omnicom is the ultimate result of shrinking profitability in advertising agencies, according to analysts.
This biggest of agency consolidations and its impact is an example of how the industry is aligning around media and technology.
“The slow, reluctant agency evolution just exploded into the agency big bang,” said Forrester’s VP principal analyst Jay Pattisall.
“Shrinking margins from cost-cutting, competition from insourcing and consultancies, multiple client stakeholders, and tech-partner disintermediation pushed agencies to consolidate capabilities and include technology as part of their offerings.
“Agencies now race to keep up with the blistering pace of technology.”
Altogether, they’ve invested nearly $27 billion since 2015 to fuel this change.
The marriage of rivals brings together the third biggest advertising group, Omnicom, with the fourth, IPG, to form a company with 100,000 people and revenue of $25.6 billion (net revenue of $20 billion), with 57% of that in the US.
Along the way, the slow regulatory dance to the final takeover by Omnicom has seen jobs shed in their thousands and more to come.
Accounts posted for Omnicom's September quarter show an increase in operating expenses, including $US38.6 million in repositioning costs, primarily related to “severance actions”.
In the nine months to September, $127.4 million was spent on severance.
Notes to the accounts say these “severance actions” were within Omnicom's advertising group.
At IPG, another 800 jobs went in the September quarter, according to its filings to US regulators.
Total restructuring charges hit $US450.8 million over the nine months from the start of the year, $129.5 million of that in the three months to September.
The planned reduction in the IPG workforce is 3,200 employees, including those in executive, regional and account management functions as well as those in administrative, creative and media production.
And what this means for brands, the advertising dollar lifeblood of the industry, is a smaller pool of big global agencies.
The stand out is Publicis Groupe, which made earlier investments in data and AI, but many of the other players are trying to find a way out of negative growth.
The France-based company upgraded its full year outlook after posting better than expected organic growth of 5.7% in the September quarter with net revenue of Euro 3.259 billion.
Over at WPP, which recently lost its mantle as the world's biggest advertising company, has its new CEO Cindy Rose hiring consultants to review operations as she deals with sliding revenue and a falling pitch win record.
Rose described as “unacceptable“ WPP’s September quarter revenue falling 3.5% to £3.259 billion on a like-for-like basis.
M+C Saatchi has just downgraded its profit outlook again. The group now expects full year like-for-like net revenue to drop by about 7%, or about 1.5% excluding Australia which has been identified as a poor performer.
Martin Sorrell’s S4 Capital is heading for a full year revenue slide in the high “single digits” as clients remain “cautious”. The company reports tech platforms continuing to cut sales and marketing spend.
Dentsu, doing well in its home market of Japan, can’t seem to shake off the burden of a shrinking international business. It’s now looking at “partnerships”.
Japan, the largest region accounting for 42% of the group's net revenue, saw organic growth at better than 5% in the September quarter.
But all regions of the international business recorded negative organic growth rate for both the three months of the third quarter and the first nine months of the year.
That includes Australia, which continued to “face difficulties” and “continued to decline,” and is part of the APAC region which posted a 10.1% drop in growth.
“The big six global agencies are becoming the big three: Omnicom Group, Publicis Groupe, and a WPP variant,” said Pattisall at Forrester.
“And all operate as burning platforms for change. While agency options contract, remits expand. They no longer act solely as partners delivering client-centric services.
"They also operate as merchants reselling proprietary media and software, vendors executing projects, consultants implementing technology solutions, and affiliates contributing expertise to matrixed organisations.
“Put simply, your agency is no longer just an agency.”
Pattisall, on Omnicom’s acquisition of IPG, said media and technology scale now form the foundation of agency strategy.
“Omnicom’s acquisition of IPG exemplifies this shift. The merger combines Omnicom Media Group, IPG Mediabrands, Acxiom’s proprietary data and technology, and Omni — Omnicom’s marketing OS — to deliver media clout and content velocity,” he said.
Pattisall sees holding companies becoming the algorithm of record (AOR) rather than the ad agency of record.
“Marketers will no longer buy agency talent to produce concepts,” he said. “They will buy algorithms that agency talent customizes to create, activate, and scale marketing.
“A new kind of ‘AOR’ emerges from rapid capability expansion, software platforms, and consolidation. The agency of record becomes the algorithm of record, customising instructions for how, when, and where to execute on behalf of a brand.
“The algorithm of record integrates the agency’s marketing OS, proprietary data, and client IP. It synthesises objectives, audiences, and channel opportunities to produce a signature style of creativity unique to each brand.
“While agency consolidation — such as Omnicom’s acquisition of IPG or the rumoured sales of dentsu and WPP — dominates headlines, the real story is this upheaval.
“Can agencies expand without losing existing clients or new business opportunities?
“And can agencies — large and small — deliver services as a software and an algorithm-of-record proposition? The answers to these questions will determine marketers’ choices in 2026 and beyond.”
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