Why the agency consolidation trend won't end anytime soon
Commenting on Procter & Gamble agency roster consolidation three years ago, the company’s Chief Brand Officer Marc Pritchard said the marketer was seeking “greater end-to-end” solutions. That, he said, had been made increasingly difficult as holding companies continually snapped up disparate agencies, creating what he called “a whole long tail” of shops. And then came the kicker: “Frankly, your complexity should not be our problem,” said Pritchard. “We want you to make that complexity invisible.”
WPP, it seems, made that complexity visible when it merged AKQA and Grey. Reports that the Grey name would be retired as a result riled P&G, who was reassured by the holding company that the name would live on in certain markets for certain clients. Whether or not P&G’s concern was actually with the name or the potential of losing the talent that lives at Grey is debatable.
But this much is clear: The merge-and-purge mentality at holding companies is now a well-established trend that’s only likely to accelerate. “The marketing and procurement worlds, now more than ever, are looking for greater efficiencies from their agency partners and are trying to do more with fewer agencies,” says R3 Co-founder and Principal Greg Paull. “This process is only going to gain traction in a post-COVID world as complexities need to be smoothed over.”
AKQA Group is only the latest example just within WPP, which has already mashed up VML and Y&R, Wunderman and J. Walter Thompson and Burson Marsteller with Cohn & Wolfe. It is also in the process of folding Geometry into VMLY&R.
Publicis Groupe, meanwhile, has put its Marcel artificial intelligence system to work for its “Power of One” model that brings together the resources of its entire agency network for clients, and binds them together in a single P&L. The holding company breaks down its agencies into four categories: Publicis Communications, Publicis Media, Publicis Sapient, and Publicis Health. Publicis Communications houses its creative agencies: Leo Burnett, Saatchi & Saatchi, Publicis Worldwide, BBH, Marcel, Fallon, MSL and Prodigious.
In a similar vein, Dentsu is decreasing its international agency brands from 160 to just six as it continues on its path to become “One Dentsu.” That strategy saw the creation of three lines of businesses last year: creative, customer relationship management and media. Within creative is now Dentsu Mcgarrybowen and Isobar; within CRM is Merkle and 360i; and within media is Carat and iProspect.
Sentimentality aside, these massive combinations appear to be working. In its most recent third-quarter earnings, WPP called out all three merged companies as its “strongest performing.” VMLY&R was cited as its “best-performing global agency,” with revenue down "only slightly year-on-year,” a decent result given pandemic adversities. WPP overall reported a 9.8% decline in third-quarter revenue and its global integrated agencies saw a 6.7% decline in like-for-like revenue less pass-through costs, which was a big improvement from the 15.7% decrease posted in the second quarter.
VMLY&R, moreover, ranked first among creative agencies in consultancy R3 Worldwide’s “new business league” report for September. The report is based on revenue figures from new business, and it found that VMLY&R generated approximately $69.8 million, year-to-date, from wins like the YMCA of the USA and projects with Adidas and Tesco. This year, the agency reeled in 122 wins, according to the report.
Isobar, now part of DentsuMcgarrybowen, came in at second in R3’s new business league report, bringing in $65.7 million in new business revenue year-to-date and notching 243 wins including a project with Panasonic and digital duties for Danone India.
MDC Partners has taken a slightly different approach by forming agency collectives rather than merging shops. It’s created clusters like Constellation, comprised of creative shops 72andSunny and Crispin Porter Bogusky; digital brand and experience agency Instrument; strategy and design firm Redscout; and production company Hecho Studios in a push to combine various capabilities to create more seamless experiences for clients while still preserving its brands. On a higher level, however, Mark Penn, president and managing partner of The Stagwell Group and chairman and CEO of MDC, is in the midst of merging those two holding companies.
Two executives close to the matter speculate that Interpublic Group of Cos.’ incoming CEO, Philippe Krakowsky—who was the driver of the holding company’s Open Architecture model, which offers clients integrated solutions across creative, data, design, digital, marketing, media, production, public relations and strategy—may move to bundle some agency brands together in the same fashion as MDC.
To that, an IPG spokesperson said: “We already did the necessary consolidations based on strategy and market demand, like merging Draft and FCB in 2006 and merging Mullen and Lowe in 2015.”
The major holding company holdout appears to be Omnicom Group. The company has maintained the independence of its creative shops, which include BBDO, DDB and TBWA\Chiat\Day. In 2012, Omnicom did buy and merge Adam & Eve with DDB and, in 1995—which may feel to some and very well be for others, a lifetime ago—it bought Chiat/Day and merged it with TBWA. This year, Omnicom also merged all of its direct marketing agencies into one entity, Rapp Worldwide, which absorbed shops like Proximity.
Still, Omnicom has steered clear of dismantling its legacy creative brands, which Avi Dan, founder and CEO of Avidan Strategies, comments “seems a more logical way to go because it’s not as disruptive.”
CEO John Wren declined to be interviewed for this story. However, on a recent earnings call, he explained Omnicom’s positioning as such: “While we have undertaken numerous organizational changes, our philosophy—to support strong brands and cultures so they can be vital incubators for creativity and innovation as well as magnets for the best talent—has not changed. We believe our approach is a significant competitive advantage in retaining and hiring the best people and in serving our clients.”
The first Omnicom creative agency ranked on R3’s new business league report is GSD&M, coming in at No. 9, just under Grey Group at No. 8, with $50 million in new business revenue, year to date.
“There are advantages and disadvantages to either approach,” Jay Pattisall, principal analyst at Forrester, says. “For this moment in time, I think there is an advantage of a more single model because of the ability to tap into shared resources; things are particularly tight during the COVID period. But the pendulum swings and you can make an argument that having strong agency brands could be an asset in different market conditions.”
Betting on brands
It’s a bit ironic that an industry whose mission is building brands is increasingly culling their own. But observers say the world has changed since the days when a shop was defined by a David Ogilvy or a Leo Burnett. Though independent, The Richards Group is its own cautionary tale, showing how being too allied to a founder can bring down an entire agency.
“The agency brand is morphing and changing and becoming less meaningful,” says Patisall, noting how agencies do not revolve around their colorful founders anymore. While there may still be sentimental attachment for employees to a name like Grey or D’Arcy, clients, the argument goes, are more interested in access to top talent who can execute effective work at a procurement-friendly price.
“It doesn’t surprise me that holding companies are consolidating agencies,” says Barry Lowenthal, CEO of MDC’s Media Kitchen. “It’s happening at every holding company. Everyone is looking to streamline structures, provide more nimble services and create mechanisms to deliver clients more services. It’s smart and makes sense. It’s what clients want and it also makes Wall Street happy.”
Except, of course, if the talent leaves as a result. A former WPP executive, who spent time at Grey New York, says it’s really the creativity that suffers when “agencies get diluted and their legacies erased.” The exec says subsequently all the power falls in the hands of holding companies, “which are essentially financial conglomerates.”
“Suddenly, the conversation shifts from creativity and ideas to subjects like ‘synergy’ and ‘optimization,’” the person says. “Not the best way to retain creative talent.”
A people business
Avidan Strategies’ Dan says typically with these mergers, clients are more concerned with what will happen to the people working on their businesses, and the political issues that will arise from bringing two different agency management teams together. It’s not necessarily the brand itself clients are concerned with, but how eliminating the brand will affect talent.
“You have to believe that these people will start being laid off,” Dan says. “From a client perspective, that really is the risk.”
While holding companies say that their decisions to consolidate are driven by clients and their needs, Dan argues the move is not all that client-centric. "The holding companies went from 30 years of spending a lot of money, finding out they have hundreds of agencies and then finding out that clients are spending less money and can’t support all these agencies," he says.
Dan says it’s more of an “artificial solution” to a problem, versus being proactive on behalf of clients, and every merger carries the potential for “a tremendous cultural clash.”
“Clients ask for less complexity in their agencies but never come out and say ‘I want you to put two agencies together,’” Dan adds. “That’s not going to cause less complexity. It causes more complexity.”
There will always be difficulties retaining talent through mergers and acquisitions, argues Pattisall, “and that extends outside of the agencies and to consultancies, too.” He says “the people who joined Droga5 joined Droga5, not Accenture.” Yet, that combination appears to be working. The R3 new business league report for September placed Droga5 at No. 5 with $56.5 million in revenue from wins this year. The shop has been on somewhat of a win streak lately, picking up accounts including Petco, Maserati and Allstate.
There could be a silver lining for consolidating holding companies born out of the pandemic, Pattisall says.
“This cultural issue has always been there when there’s a merger or acquisition or something of the like,” he says. “In the last six months, remote work has changed that a bit. The brand is not as meaningful as it used to be, when it was born out of a founder and very distinct cultures were reared around [that founder]. Those walls have fallen down a little bit in the ways the agencies are integrated.”
But the downside might be fewer opportunities for agency talent, like this former Dentsu exec who is now seeking job opportunities on the client side. “I don’t see the agency side growing,” she says. “They all keep consolidating, consolidating, consolidating.”