'Not Willing to Take a Flat Market, Looking for Deflation'

Q&A: PHD's Scott Hagedorn on Upfront Talks, PHD Reboot

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NEW YORK (AdAge.com) -- Scott Hagedorn said he's still hopeful about the upfront market this year but finds himself using words such as "standoff" and "hostage exchange" when talking about it. "I don't want to be overly grim," he said. "We're not going to budge on the flexibility, because we know through our own proprietary research that the economy hasn't come back yet and people are as nervous as ever."

Scott Hagedorn
Scott Hagedorn
Aside from the upfront, Mr. Hagedorn has had his hands full since being named U.S. CEO of Omnicom Group's PHD in December. He was previously managing director of the Eastern region for PHD sister shop OMD. Not only did he step into a role that had been vacant for six months, but PHD's biggest client, Chrysler, which was teetering on the edge of bankruptcy, finally fell.

Mr. Hagedorn has worked to develop an agency culture that he said hasn't spread as fast as he would have liked to PHD's offices outside the East Coast. "I'm going to address that soon and will live out in California for the month of August," he said.

The agency recently lost the $100 million-plus Charles Schwab account, but Mr. Hagedorn said the PHD has won more than $430 million in new business, including Vonage, Soy Joy, Glidden and Hyatt, in the past six months. And while he said the agency is heading in the right direction, he knows there is still a lot of work left to done.

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Mr. Hagedorn spoke with Ad Age this week about what the networks are lacking in the battle between themselves and marketers, the changes he has made at PHD, and why PHD will be sticking around.

Ad Age: Has this upfront-market stalemate caused you to approach things differently or alter the agency's approach?

Mr. Hagedorn: A little bit. The new news to me was getting the data on how strong the scatter market had been in previous years and knowing that, in the networks' mind, they're not willing to budge assuming that there will be, in essence, a repeat of last year and potentially a strong scatter market. So we have had to consider that. But at the same time, we have developed some alternatives to doing stuff with the networks that we have as defaults. So it's almost like an arms race or escalation, potentially, where they're assuming they need to write down because scatter is going to be strong, and the agencies are now developing different channel-mix recommendations or other options that have in their back pockets that the networks don't know about yet.

Ad Age: What's the biggest hurdle in your eyes to getting something done?

Mr. Hagedorn: It's fascinating because I thought the economy would be in a different spot right now. There are a lot of differences of opinion on issues relative to the state of the economy and what people should be paying. There is a lack of great supply, meaning that a lot of the networks haven't upped the ante on their content. That's making cable the place to be if you can weave together the right type of brand experience that makes sense for the clients. The networks, to me, are frozen on that point [because] they don't have the quality to compete with cable from a programming perspective.

Ad Age: Do you think we'll see that play out through the upfront market?

Mr. Hagedorn: We'll see a big shift to cable, and you could also see a potential channel-mix change, with some dollars shifting to local, given how soft that market is right now, and digital as well, obviously.

Ad Age: Do the networks still have a long way to go before they and marketers are at some type of middle ground?

Mr. Hagedorn: They have a ways to go. Their default position is: "Hell, we had a good year last year in scatter, so why don't we just wait it out?" And some of them could be surprised at what the answer is, which is: "OK, you want to play that game? Fine, I'm going to put that money into other channels and different options." We're not going to budge on the flexibility, because we know through our own proprietary research that the economy hasn't come back yet and people are as nervous as ever. We have seen some strong gains lately in the market, but unemployment still goes up. I was personally expecting that things would be better than they are right now, and they're just not.

Ad Age: Are you seeing any media sellers doing anything innovative?

Mr. Hagedorn: This could be due to a lack of exposure because I have been working on other stuff as well, but I personally haven't seen a lot come back yet that are what I would consider fully integrated. We did do some brand briefing with some of our clients to see what would come back and if it would be brand-relevant or not, but I haven't seen anything really innovative yet.

Ad Age: What are your clients saying to you?

Mr. Hagedorn: We're advising flexibility and to stick to their guns, and right now they are not willing to take a flat market. They want to see some deflation.

Ad Age: What surprises and challenges have you encountered in your first seven months running PHD?

Mr. Hagedorn: I knew we were heading into a recession, so having to reorganize resources and make a leap forward in trying economic times has been the trick. How do you maintain a culture and DNA of what we're about at PHD in the light that we have to try to be extremely efficient and save as much money as possible on commoditized services at the Omnicom Media Group level? Trying to strike that balance has been the biggest challenge of the last seven months.

And being on the new-business treadmill that we've been on, it's hard to get to know all the people in all the different offices. I spend most of my time in New York, and frankly that's been a bit of a disservice to the employees that are doing a great job on the West Coast that I need to spend more time with. I'm going to address that soon and will live out in California for the month of August, because the flying in and flying out is BS. You don't get to know anybody. Everybody's on their best behavior, and they're not talking honest to you if you're not doing any type of quality time.

Ad Age: What changes have you made in process, structure and people?

Mr. Hagedorn: A ton. If Alan [Cohen, U.S. CEO of OMD] is competing on ideas in the Ignition factory, then where we are going to compete is on consumer insights. We created a media-analytics department that didn't exist before. I put some brand planners that weren't being fully utilized into the insights team with the analytics group and created a new process for melding quantitative media data with qualitative motivational research and using the two together.

We created an activation group, which is a blend of entertainment and digital, focused on platform development and creating 360 platforms. Media agencies can play a unique role in creating platforms and experiences that potentially live outside of the creative agencies. We're not starting a creative department, but you can go and negotiate with a portal to build out an entertainment experience.

Ad Age: Do you feel media agencies, in this economic climate, are becoming commoditized?

Mr. Hagedorn: When you look at our heritage of buying, there's a natural drift toward commoditization and an upward pressure coming from exchanges, which seek to technologically enable what is increasingly a commoditized function. Our struggle overall for identity is: How do you morph from what has been historically media buying into marketing? That's what keeps me up at night.

Frankly, some of the stuff can be commoditized, like ad networks and exchanges. Our nuance needs to come in the understanding of behavior and the currency of ideas we can generate through the activation group. What I have learned through dealing with some of the procurement folks is that they think our practice is supposed to be a lot more automated. And it probably could be. There's a lot of theater built around how we deal with the marketplace. But essentially, if the media agencies were able to provide a technological interface into the inventory management systems of networks, would the upfront even happen?

Ad Age: Do you still have a lot to do to get the agency where you want it to be?

Mr. Hagedorn: Absolutely. We have come a long way on the East Coast, where I have been spending most of my time, but I don't think the culture we have [here] has been disseminated through the rest of our offices just yet. In the arc of where I really want to get us, I don't know where the end point is. We have morphed significantly in the last seven months, and the level of change won't stop. Maybe the end point is in two years, but in seven months we'll look different than we do now.

Ad Age: How big a part of your day has handling and worrying about Chrysler become?

Mr. Hagedorn: Chrysler is pretty isolated. What I have been most focused on is making sure that the logistics from a network perspective are not slowing down. In terms of thinking about it, it's managed somewhat separately through BBDO, through an integrated agency model. What I have to deal with is that there are a lot of shared resources, especially in the local group, that touch Chrysler and other things, so when significant shifts happen in Chrysler, that's where I really come into play thinking through what the overall organizational impacts are going to be.

Ad Age: What's your reaction to those who wonder what's left at PHD after it recently lost the Charles Schwab account and the Chrysler situation being what it is?

Mr. Hagedorn: That discussion of "What should we do with PHD? Should we fold into OMD? Should we strive to have our own identity? What happens if Chrysler leaves?" happened seven months ago. The agency hadn't had anyone running it since June 2008. [Omnicom] took a successful managing director out of something that was working and put me in charge of PHD, because no matter what, we need a second network to portfolio-manage it and be formidable against a Group M. We are doing better work than we have ever done. The work for HBO is outstanding. Retaining the Discovery Channel and growing that business is a huge shot of confidence. Outside of Schwab and not having a CEO for six months, I feel blessed that we only lost one account. I was expecting a worse hit.

Since taking over we have won $430 million worth of new business in six months. I feel like the agency has turned around, and we have forecasted that the Chrysler scenario could play out and made it so that the agency wouldn't feel the blow if it were to leave.

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