It may be instructive to think of the Publicis-Omnicom merger as a fantastically complex Rube Goldberg device that was triggered by Sunday’s signing ceremony. The convoluted machinations that will be set off by each successive activation (the hopping of regulatory hurdles, the alignment of cultures, the streamlining of clients) will lead to a relatively simple result—a near-exponential increase in the amount of leverage the new entity will bring to bear in its dealings with media owners.
Because a latency period will elapse before the two companies are integrated, the impact of the merger isn’t likely to be felt until mid-2016 at the very earliest. But while the resulting superstructure would seem to pose a threat to media holding companies, most of the people who actually touch the money say that the significance of the merger is overblown.
If precedent is anything to go by, television ad sales execs in particular aren’t likely to see much upside to the creation of Publicis Omnicom Group. The formation of WPP’s GroupM in 2003 consolidated one-fifth of all TV ad budgets under one umbrella, which in turn gave the agency a tremendous amount of clout at the upfront table. (It’s no accident that it’s late July and two of the major broadcast networks have yet to finish their 2013-14 upfront deals.)
Most ad sales bosses said that it was far too early to get a read on the POG scenario although one cable network executive said that the GroupM model isn’t the only option. “The Magna Global agencies all act independently of one another, so they’re not positioned to use [scale] as a means of driving down prices,” the exec said. “At the time IPG formed Magna (2001), there was a lot of talk about ‘leverage’ and bulking up to sort of provide a counterbalance to all the consolidation in the TV business. But their agencies continue to negotiate separately to this day.”
Pivotal Research Group analyst (and Magna alum) Brian Wieser said he believes POG will adopt Magna’s top-down approach to buying media—largely thanks to the outsized influence of the bean counters.
“Marketer procurement teams are driving changes that will make the GroupM model more common, and POG will be well positioned to emulate that over time,” Wieser said, adding that increased vigilance with regard to resources has imposed a tremendous burden on the agencies. The GroupM approach appears to alleviate those burdens.
Per Wieser’s estimates, POG and GroupM together would account for as much as 70 percent of a given broadcast network’s overall ad sales revenue.
Viewing trends also seem to support a top-down model. “TV…has become so fragmented that advertisers are becoming incrementally indifferent about what programming their commercials run up against,” Wieser said. “When ratings fall below a 1.0 [in the adult 18-49 demo], the impact of brands associating with specific programs becomes harder and harder to assess.”
One optimistic TV ad sales veteran said the formation of POG could actually help dispel some of the animosity that occasionally muddies the waters between agencies and network groups. “Consolidation has been going on for years, and one takeaway is that because there are fewer people to work with everyone tends to be a little more genial,” the sales exec said. “Or, looking at it another way, I can’t afford to piss off the guy who controls 15, 20 percent of my budget. So, we almost have to be more cordial to each other. [laughs] It’s a stretch, but what can I tell you? I’m a glass-half-full guy.”
Other sales bosses are less sanguine. “I think they do want to use leverage to try to force us to lower rates,” said one network exec. “At the end of the day they haven’t been very successful at doing that.” (For one thing, the TV marketplace is not a zero-sum game. Pricing depends on rate-of-change, not market share.)
At least one exec who manages north of $1 billion in national TV inventory questioned the assumption that POG would lift the GroupM model. “Starcom, MediaVest and Zenith all operate as autonomous agencies, so why would Publicis suddenly decide to reverse that? These are brands that are meant to stand on their own merits. They achieve different things. You’re going to do away with all that brand equity after the merger goes through? Don’t think so.”
As TV execs mulled over the whys and wherefores, publishing and radio execs likewise downplayed the notion that the combined company would have more leverage in negotiating ad rates.
"That's not generally how the holding companies have approached the market," said Paul Caine, CEO of radio company Dial Global and formerly the chief revenue officer of People and Sports Illustrated Time Inc. "We're still talking to them account by account, division by division, agency by agency. We're not seeing holistic deals by buying groups."
David Jackson, evp at fitness and celebrity publisher American Media Inc., said that as print selling has become more integrated with digital and other platforms, it’s become harder for agencies to drive down costs. “Gone are the days when you’re just doing a print buy,” Jackson said. “Our partners no longer look at print versus digital versus mobile. We don’t package any one part of our business any longer.”
Others take the view that agencies aren’t taking advantage of their clout as it is and that the merger is more about wringing costs out of their operations than driving down rates.
A Wall Street analyst who wasn’t authorized to speak on the record echoed that view. “If you’re a seller of great content, I really don’t think this case is going to have great impact,” the analyst said. “There’s a ton of buyers for your service. Maybe for the marginal content [though].”
Many execs in the digital-media space said that the merger wouldn’t necessarily usher in sweeping changes in that sector. “We have rates with advertisers based on what category of client they are, not based on what agency they’re with,” said Jason Krebs, president of sales and marketing at Blip. “It’s very hard to see that changing. It’s almost unseemly for an agency to think that because they spend with you for one piece of business they should get a rate preference for another piece of business.
“What we really know about how agencies make money, and how hard it is to make those margins, is that they are big banks," continued Krebs. "They make money when they pay their media partners.”
While early estimates see POG laying claim to a 40 percent market share of the six major agency holding companies, the current leader isn’t exactly shaking in its boots. Characterizing the proposed merger as “an interesting move,” GroupM global president Dominic Proctor suggested that achieving scale may be easier said than done.
“Neither Omnicom nor Publicis was able to bring their investment teams together effectively as individual companies, so it will be fun to see if [Publicis and Omnicom] can now do it together,” Proctor said. “Getting scale in media investment management is critical for clients, but it only works if it all joins up. … Media investment management relies heavily on scale, but scale counts for nothing if it continues to be disparate.”
Should Publicis and Omnicom clear regulatory approvals, the deal could be closed before the end of the year. —Additional reporting by Lucia Moses and Sam Thielman