4A's chairman rues 'multiple assaults'

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[laguna niguel, calif.] A prolonged economic slump, relentless consolidation, devaluation of advertising by marketers and the rise of integrated marketing have converged to reshape the agency world-not necessarily for the better.

"Multiple assaults are being launched upon our business-by the economy, ugly compensation realities, the mixed blessing of technological convergence, the commoditization of our product and, frankly, our fear that things can only get worse," Ken Kaess, CEO of Omnicom Group's DDB Worldwide and new chairman of the American Association of Advertising Agencies, said at the group's annual management conference here last week.

Some 300 attendees listened as a speakers outlined the transformation of the business and the weakened role of agencies in the marketing process, and served up tentative solutions.

The effects of consolidation and marketers' demands for integrated programs that cross multiple disciplines have had significant influence. Interpublic Group of Cos.' Chairman-CEO John Dooner said the four largest agency holding companies control 55% of global ad billings and a stunning 82% of U.S. billings. In the past year, he said, agencies owned by those companies-Interpublic, Omnicom, WPP Group and the soon-to-be-merged Publicis Groupe and Bcom3 Group-won 95 out of 100 reviews tracked by Interpublic.

Mr. Dooner's remarks left little hope for small, independent shops or second-tier holding companies. "It's going to be tough sledding for anyone else to enter this game," he said.

figuring it all out

The challenge now is for the holding companies to figure out how to leverage the operations they have acquired across marketing platforms to benefit clients. Only five years ago, Mr. Dooner said, over 90% of the revenues of the major holding companies derived from advertising and media services. Five years from now, less than 40% of the top four holding companies' revenues will come from those areas, he said, with the remaining 60% split among marketing communications and other marketing services.

That change is being encouraged by marketers who are trying to reach consumers through a wide variety of communications channels. "At Kraft, we spend almost as much in other forms of marketing as we do on advertising," said Mary Kay Haben, group VP-Kraft Foods North America. "The goal is to simplify the development of integrated ideas." She said agencies capable of providing integrated campaigns in a cost-efficient, time-efficient manner "have an opportunity for a big win."

Getting the right price and value for their work was another theme of the conference. Brendan Ryan, CEO, Interpublic's Foote, Cone & Belding Worldwide, decried agencies' long-standing practice of giving away ownership of their ideas to marketers during new-business pitches in exchange for a nominal fee to cover the costs of the pitch. "Does Davis & Gilbert do this? Does PricewaterhouseCoopers do it? How will clients respect us if the best ideas are signed away for a few thousand dollars?"

Mr. Dooner recommended agencies operate by what he called the 80/20 rule: "If the agency is doing good work, it is fair to expect that 80 cents of every revenue dollar should be reinvested to better serve clients and 20 cents should go into your own business and additional services ... as well as to your shareholders."

The ad business' woes are taking an especially heavy toll on the West Coast, long known for its creative reputation and entrepreneurial spirit, said Chuck McBride, creative director, North America, Omnicom's TBWA/Chiat/ Day. "It's not an exciting future if you look at what our immediate prospects are."

Despite significant hurdles, most speakers and attendees insisted the long-term prospects are bright. "Our day is coming," said Mr. Ryan. "The pendulum is going to swing back to where clients recognize the value of what we provide."

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