Why the $7B Media-Consolidation Windfall Isn't Good News for Small Shops

Mars, Reckitt, Visa, Intercontinental Put Huge Chunks of Business Up for Grabs, but Mainly Big Agencies Benefit

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NEW YORK (AdAge.com) -- While everyone gripes about procurement, another buzzword in marketers' lexicons is being overlooked: consolidation. Consider that in the past 12 to 18 months, a wave of blue-chip marketers including Mars-Wrigley, Intercontinental Hotels Group, Reckitt Benckiser and Visa have consolidated a total of $7 billion in media business at just a handful of shops.

That's fine for big agencies such as MediaVest, Mindshare, MPG, ZenithOptimedia and OMD, which are reaping the benefits of the consolidation trend. But because media-planning and -buying duties represent the biggest chunk of ad budgets for many marketers, the chance to work with some of the globe's biggest marketers is slipping out of reach for smaller, independent media shops.

Marketers consolidating agency rosters is hardly unprecedented, but it's a practice more common in times of economic crisis, industry experts say. And as the industry dove into the depths of recession, the practice of employing one agency to handle planning and buying in North America, another in South America and yet another in Europe or Asia for many marketers felt costly and complicated.

What has left some agencies fuming is the feeling that consolidation is marketers' way of bullying agency partners into cheaper contracts. "They use it as a way to leverage their weight as much as possible with agencies and obtain more favorable terms," said one global agency CEO who did not wish to be named. Asked what the benefits were for the agencies, the exec said: "On one side, there's no real benefit because we want to be paid properly. But on the other side, if the client is willing to give more volume, markets and a longer term contract, it can be advantageous."

Reason to worry
Dick Roth, president of search consultancy Roth Associates, helped oversee three global consolidation reviews in the past year. He pointed out that the trend is one of concern for smaller shops because marketers are less likely to consolidate media duties with a smaller player.

"Smaller shops may lose global businesses that are consolidated by virtue of the consolidation and not their capabilities, and that's sad," he said. "If you have a small piece of a Fortune 500 marketer's consolidation, [that's] something you need to be worried about."

A look at the reasoning marketers have given for many of these consolidation reviews seems to confirm that notion.

When Intercontinental Hotels Group last March cut the company's agencies from 12 roster shops to one, Chief Marketing Officer Tom Seddon had this to say: "As part of our wider supplier review we were looking for a global media agency that would deliver innovation [and] good value." Reckitt Benckiser in November consolidated its $1.3 billion global media account with Havas' MPG and ZenithOptimedia, saying "the consolidation will bring economies of scale and create more uniform media strategies and implementation across countries."

Indeed, as more of marketers' business is derived from a wide swath of global markets, the need for consistency in brand messaging is a bigger challenge. "They want best practices across all regions," Mr. Roth said. "And this is the way to do that, otherwise you have 80 best practices in 80 countries."

Phil Cowdell, North American CEO of WPP's Mindshare, has observed that consolidation is sometimes a way to avoid the problem of multiple competing agencies working on the same piece of business being unwilling to share their most-effective practices.

As more marketers look to media agencies with a global footprint to handle their media strategy, it could leave the smaller independent shops on the outside looking in. Steve Farella, chairman-CEO of independent TargetCast, said despite the uptick in consolidation reviews, he's not worried -- the agency booked its best year in history in 2009. "There's enough business to go around for everyone."

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