Shops Tap Production to Boost Revenue

The business of adapting and distributing ads, collateral and other marketing materials for clients in local markets may not be sexy, but it’s increasingly important to global agencies hungry for new revenue. Several, in fact, are moving to fortify and better leverage their entries in the space.

New McCann Worldgroup CEO Nick Brien this month named a new CEO for EXP, the group’s production services arm, shifting oversight of the function from San Francisco to McCann headquarters in New York. Former Worldgroup COO Eric Keshin assumed the top post and is charged with turning the year-old operation into a unit that can grow revenue from several million dollars this year to $100 million in three years, according to sources.

TBWA’s E-Graphics, meanwhile, is looking to merge with sister shop BBDO’s Hub+ to create a larger Omnicom Group player that can service clients from multiple agencies, said sources. Both units are global, but the four-year-old E-Graphics is run out of Los Angeles and Hub+, which also launched in 2006, is based in London. Such a combination could emerge this summer.

To date, unbundled production units at agencies and holding companies — Publicis Groupe, for instance, has Mundocom and Wam, and WPP Group has Hogarth — have focused primarily on the needs of existing clients. For example, roughly three-quarters of the estimated $14 million in revenue that The Ogilvy Group’s Red Works generated last year came from group clients, said sources. As such, the biggest challenge facing shops trying to grow their units is to forge new, direct client relationships.

“We need to continue to be ambitious for [Red Works’] growth potential, but even more importantly for the ability to show clients that we can work much, much more cost effectively and much, much faster in a continuous improvement context,” said John Seifert, North American chairman of The Ogilvy Group. The group expects Red Works’ revenue to grow to an estimated $20 million by the end of this year.

The rise of separately branded production arms, which compete with independent players such as T.A.G. and BrandMuscle, coincides with clients seeking to reduce the cost of adapting and distributing ads across multiple regions. In the past, individual offices of a global agency separately produced and distributed the ads in each region. That process proved time consuming and expensive, however, and client scrutiny of such costs resulted in the uncoupling of production services from creative development.

Another opportunity for growth among global production units is in the realm of specialty services, such as the retouching of print ads. Some agency offices lack that capability in their basic production departments and outsource the work. EXP, for one, hopes to capture such “lost” revenue, though to do so it must match the quality of the services now provided by smaller specialists.

“It has to be at least parity quality at a competitive price,” said a source. Keshin is “going to have a tough sell [in this area].”

Such global units typically rely on regional hubs to handle the bulk of their business. Accordingly, global agencies encourage their local offices to funnel local client distribution work through the hubs, which can result in offices losing revenue. So, unit CEOs like Keshin must strike a delicate balance between corporate mandates and local control.

“Every local office has to be able to deliver directly for its clients in the area of origination. The question is, when things need to be distributed, how do you then leverage what else we have built?” said Keshin. “Every office is going to have a different balance of that. So, you want to have oversight to manage that effectively.”