Media Agengy Report: Media Gambit - The Scramble for Supremacy

To have a global media operation, you must have a solid U.S. base. When Young & Rubicam combined the media functions for The Media Edge (TME) with the U.S. planning and buying activities of Y&R Advertising and Wunderman Cato Johnson in 1997, everybody took a number. The four groups referred to themselves by their street addresses: "285" or "295" for the Madison Avenue shops, "1180" for the Sixth Avenue crowd and "230" for the Park Avenue contingent. The idea, of course, was to eliminate identification with the old groups and encourage bonding under the TME banner, a challenge facing all global media agencies. The problem with media empire building is that people from different cultures--corporate or country--don't arrive at a consensus naturally, especially if they sense a threat to self-interest or their individual brands. Not surprisingly, the U.S.--the most diverse nation in the world--is also the most intractable market for media consolidation, particularly for the big three agency holding companies: Omnicom Group, Interpublic Group of Companies and WPP Group. True, the ad business does not revolve around the U.S., but it's hard to convince anyone you have a global media operation if it doesn't exist here. So as an action-packed 1999 comes to a close, virtually all the major agency players have consolidated, unbundled, merged or acquired the ability, at least on paper, to plan and/or buy media anywhere on the planet. The year began when IPG siblings Western International Media and Initiative Media formally wed, creating a $10 billion-plus media management giant. In February, the unbundled media resources of D'Arcy Masius Benton & Bowles and N.W. Ayer & Partners, two MacManus Group holdings, hooked up with their sister TeleVest and MediaVest units to form MediaVest Worldwide, an autonomous unit led by chairman and CEO Irwin Gotlieb. In September, Gotlieb left to bring WPP's international media heavyweight MindShare to America by combining Ogilvy & Mather and J. Walter Thompson's media enterprises. (See related story on page 34.) That development was quickly trumped by the November announcement that The Leo Group and The MacManus Group had agreed to form a new company, with 20 percent Dentsu ownership, temporarily called BDM. The late fall engagement also brought under joint ownership The Leo Group's Starcom and MacManus' MediaVest media entities. Although BDM claims it will keep both entities separate, their combined $13 billion punch may prove too tempting to keep asunder. All of these alliances followed the big media move of 1998, when Omnicom wooed executive Daryl Simm away from Procter & Gamble to run Omnicom Media Direction (OMD) and to explore the launch of a U.S. arm. Getting the component parts of the resulting behemoths to actually work in concert, however, has given their architects world-class headaches. Political jockeying, philosophical disputes, culture clashes and a myriad of other problems have hindered almost every effort, much as they have in other industries undergoing consolidation. Consequently, trying to determine which model works best or what enduring benefits bigness may bring, can be frustrating. The new century isn't likely to usher in much clarity, either--at least not immediately. Y2K promises to be a wild year in advertising history, with a presidential election and the ongoing dot.com billings tsunami distorting the picture in the U.S. For good measure, toss in an Olympics in Australia, prosperity cushioning Europe and North America, expected economic revival in Latin America and Asia and the certainty of surprises to come. In his annual forecast on advertising expenditures, Robert Coen, Universal McCann senior vice president/director of forecasting, expects worldwide ad revenues (in local currencies) to reach $464.4 billion in 2000, an increase of 7.6 percent over 1999. "A lot of this [media consolidation] has occurred during profound economic vitality," says Phil Guarascio, General Motors vice president/ general manager, marketing/advertising, North American Operations. "These deals haven't been tested under the stress of a poor economy. There's the whole issue of communication integration and the role convergence will play," explains Guarascio. "The third issue is that there are a lot of plays left and a lot of players we don't know about yet who are going to affect how the game is played. Two years ago, for example, Yahoo! and America Online weren't even on our radar screens." ------------------------------ Jockeying for Position IPG's merger of its U.S. media arm, Western International Media, with its Paris-based European operation, Initiative Media, has taken a year to resolve. Only now, after months of turbulent reassignments and firings, including the departure of Western president Michael Kassan and the arrival of Campbell-Ewald vice chairman Lou Schultz as Western chief executive officer for North America, do the $10 billion-plus media company's management ranks appear to be steadying. Still, IPG's flagship shop, McCann-Erickson, is a global power in its own right. It does not use Western Initiative for media planning or buying. Over at OMD, Simm has tried all sorts of ideas to bring the strong-willed players in the Omnicom agencies to consensus. Sources say revenue sharing and disagreements over whether planning should be consolidated with buying have complicated OMD's task and slowed the launch in the U.S. (See related story on page 37.) On the 15th floor of Ogilvy's midtown Manhattan office headquarters, Irwin Gotlieb stares balefully at two burnt out lightbulbs in his ceiling. He doesn't know who to call to fix them, an apt metaphor he believes, for the task of building a media agency from the ground up. He begins with a color scheme. MindShare has selected purple as its new corporate color because that's the result of combining Ogilvy's signature red with JWT's venerable blue. In actuality, Gotlieb's task will be far more demanding; he must also convince 700 people from two different corporate cultures to appreciate the gestalt: MindShare is greater than the sum of its parts. At stake is the biggest prize in the global media game: North America. OMD is the top dog worldwide with global billings of $12.2 billion, according to figures released by the Recma Institute, a Paris-based research firm. In the U.S., OMD and everybody else trails IPG's Western Initiative's claimed $5 billion-plus in red, white and blue billings. MindShare, also strong in Europe, could use a jump-start in the U.S. to improve its No. 6 ranking worldwide. Following OMD on Recma's list of the largest global media agencies are: Western Initiative Media Worldwide, in second place with $10.2 billion in worldwide billings; Carat, $8.7 billion; MediaCom, $7 billion; The Media Edge, $6.6 billion; MindShare, $5.8 billion; Zenith Media, $5.7 billion; Starcom, $5.5 billion; Media Planning, $5.2 billion; MediaVest, $4.1 billion; CIA Medianetwork, $3.3 billion; Universal McCann, $2.8 billion; Optimedia, $2.7 billion; and TN Media, $2.6 billion. Now, all the unbundled contenders in the U.S. face fierce competition from global media management firms such as Carat, the largest European media agency with billings of $7.2 billion. Carat has also amassed more than $1 billion in U.S. business since entering North America in 1996. ------------------------------ Best Laid Plans Philosophical differences have also complicated efforts to consolidate. The conceptual disagreement centers on whether the entity being created should handle buying or buying and planning. Plus, if planning is part of the mission, should it be "tactical" planning--such as which TV show to buy--rather than "strategic" planning--such as whether to buy broadcast versus cable--or both? Agencies frequently balk at handing over strategic planning to a media sibling, seeing it as part of the process of brand building, which is viewed as their most basic responsibility. Most media executives argue that since they are the stewards of an advertiser's media investment, they rightfully should be responsible for planning as well as buying. "As a media specialist company, we have to be full service," insists Gotlieb. "There may be some clients which only want to give us implementation. We can do that. But do we build our business model around implementation only? No. How do we then service a client which wants to give us their full media assignment?" Zenith Media Worldwide, the first unbundled media entity, created in 1988 by Saatchi and imported to the U.S. at the beginning of 1995 (and which is now jointly owned by Saatchi and Cordiant Communications Group, the parent of Bates Worldwide), does not include planning. Allen Banks, Saatchi's executive media director for North America, says his shop is committed to the idea that planning is part of an agency's brand-building function--but many media agency executives say this is the reason Zenith is a model no one wants to emulate. "If they had to do it over again, they wouldn't have done it that way," says a competitor. "They did it that way, I believe, because it was easier from the standpoint of conflict management, not that it made sense." Banks believes each of these media agency models will endure. "There are advertisers which have engaged in a third philosophy: They'll go where the best opportunities are," he notes. In the end, while combining buying with some or all of planning is more commonplace, any number of models are likely to prevail in the new media world. "There is no such thing as one size fits all," says Steve Grubbs, BBDO executive vice president of national TV buying and one of the executives who will be moving to OMD in the U.S. "We have to do what's best for the client and its structure." ------------------------------ A Brave New Media World Where is this bigger-is-better mandate headed? How will the media markets of the world change as a consequence? We can expect more consolidation on both the client and agency side, but what else? Even as its practitioners struggle with re-structuring, the consequences--good and bad--of media consolidation are beginning to emerge. Some changes impacting media agencies appear to be transient. For example, the uncertain future of various dot.com companies has created a cash upfront market in lieu of the credit system that has traditionally greased the media wheels. It's also fueled an increase in equity swapping in lieu of financial compensation. Once dot.coms, including Web sites, e-commerce companies and other cyberbusinesses, winnow themselves out, the true nature of change in the global media marketplace will become more apparent. One of the most intriguing media evolutions is the creation of what Western Initiative's veteran media negotiator Bill Croasdale calls a "two-tier world." As the industry evolves into a handful of huge buyers and sellers, a subclass of media specialists is also forming that includes Horizon Media in New York, Empower MediaMarketing in Cincinnati and others. These players, tiny by mega-media agency standards (up to $500 million in claimed billings), are content to pick up smaller clients with $10-20 million accounts that giant firms choose not to service. "Let the big guys go after the whale," says Horizon president/CEO Bill Koenigsberg. "There are tons of fish out there for a little independent with no shareholders to deal with and no bureaucracy in decision making." This scenario is similar to what has happened on the traditional agency side of the business, in which thriving boutiques compete against the largest agencies in every media market. The irony, BBDO's Grubbs believes, is that this reality is likely to come full circle and clients "will start looking to small media boutiques." The combined mega-media shops can realize the traditional efficiencies that size often bestows. Buying clout is an obvious advantage, although it is more important in Europe, with dozens of different countries, than in the U.S. After all, does every individual agency in a holding company's stable really need its own proprietary optimizer? But the most potent and lasting changes arising from globalization, media buyers and sellers agree, are resource and research dividends. This is the true promise of the media agency model: Huge global media companies can offer their clients a breadth of resources and a depth of strategic thinking, technological innovation and negotiating prowess unknown until now. For example, Grey Advertising's media agency, MediaCom, spends more on research than any other factor save personnel, says Jon Mandel, MediaCom chief negotiating officer. At Western International Media, an immediate post-merger research bonus was realized when the media management firm was able to tap into Initiative Media's proprietary research on how consumers relate to advertising. "If you look at the infrastructure costs-- both hard costs, such as developing comparable systems across many offices, and soft costs, like research or better productivity--it's stupid not to use the innovation you've developed in Germany, in Thailand or New York," Mandel says, "even though everybody's market situation may be different." This notion bodes well for another much-discussed evolution in the media business: cross-selling, connected media buying across different vehicles but negotiated by one buyer and one seller. "We will start to see changes in behavior that unlock the value everybody thought was there when they went off and merged or acquired," predicts Steve Heyer, president/CEO of the Turner Broadcasting System. "These new media entities can handle the complexity needed to really understand who an advertiser's target is and move us away from CPMs to something that looks a lot more like return on investment," adds Heyer. "The media buyer of tomorrow will be far more focused on the latter than the former and as the definition of value evolves, smart media professionals will be at the forefront to create integrated packages that will make the difference.

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Media Agengy Report: Media Gambit - The Scramble for Supremacy

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