Agency M&A’s Build Creative Talent Pool

NEW YORK Despite ad agencies’ desire to regain media capabilities following the industry’s unbundling stage, it appears media shops are now bolstering their creative skills, particularly in the digital realm—with services ranging from search and banner ads to branded content and mobile networks—to retain clients and win new ones.

Recent acquisitions illustrate the point, including last week’s purchase of full-service interactive agency Schematic by WPP, which has aligned the firm with GroupM. Two weeks ago, Publicis Groupe purchased Paris-based mobile ad/marketing firm Phonevalley and housed it within Publicis Groupe Media.

Acquisitions aside, several media shops have been developing substantial digital creative resources to complement their media duties. Publicis Groupe’s Starcom MediaVest Group, for example, offers a full slate of digital creative services to a growing roster of clients, including Kellogg, Allstate and ESPN, through a unit called Pixel.

SMG now places about $1.3 billion in annual digital ads, which is on pace to become the agency’s third biggest media-spend bucket (behind national and local broadcast) by the end of 2008, said Laura Desmond, CEO, Americas, SMG.

Search marketing in particular, said Desmond, will be “one of the most important marketing tools of the 21st century.” Search revenue at SMG will grow 200 percent in 2007 alone, driven in part by creative work for clients such as Procter & Gamble and General Motors.

In the digital space, “clients want full-service solutions,” said Sarah Fay, who last month was named CEO of Aegis Group’s Carat when it merged its digital and mainstream media units into a single integrated entity. When Carat Interactive was launched seven years ago as an online media shop, she said, “it was difficult to win interactive accounts,” because the shop didn’t have creative resources. But over the years it has developed creative expertise through acquisitions and internal investments and now has a digital practice with revenue that totaled $48 million at the end of 2006.

At GroupM, “we think of media as the place where consumers and brands meet,” said Rob Norman, CEO of GroupM Interaction, who along with GroupM Entertainment president Peter Tortorici analyzed and completed the Schematic deal. “We don’t just buy television anymore, we make TV programs. And we don’t just buy online advertising, we build consumer experiences. Schematic fits absolutely at the nexus of content and interactive media.”

Publicis hopes to jump-start its mobile capabilities—both creative and media—with the purchase of Phonevalley, a full-service mobile agency. “Let’s be honest, creative lives everywhere increasingly,” said Nick Pahade, executive director of digital development, Publicis Groupe Media. “Content is so crucial, it can’t be the exclusive domain of any discipline, and that’s especially true in the digital space, where the line is constantly blurring.”

Publicis Groupe’s Zenith Media made a bid last year to ratchet up its digital creative capabilities through its purchase of Atlanta-based Moxie Interactive, a full-service online shop. Since being absorbed by Zenith in August 2006, Moxie’s revenue has doubled, a “pretty remarkable reaction,” from the shop’s client base, said a source familiar with the situation.

Zenith declined to comment, but one senior-level media executive within Publicis said the Moxie investment has provided the media shop with creative capabilities that have helped it win new business. “Moxie provides resources to offer solutions to clients in a variety of ways,” the source said.

“We can be as holistic a partner as they want or as specialty a partner as they want,” the source continued. “Some clients just want online planning/buying. Others want to have a full online digital suite, from creative through development, hosting, search and online media planning/buying linked to offline planning and buying. So, clients want different things. And that landscape will continue to merge and blur.”

Of course, digital remains the fastest growing media sector, which is driving the quest by media shops to broaden their capabilities beyond planning and buying, sources said. According to TNS Media Intelligence, online display advertising was up 18 percent in the first half of the year, to $5.5 billion, and was the only major media to show double-digit growth in the period.

That said, don’t expect to see media shops begin producing a stream of traditional TV spots or print ads, which has been and will continue to be the domain of creative ad agencies. “On a Venn diagram, I’d say that 80 percent of what we do is discreet from what [creative shops] do,” said GroupM’s Norman.

Indeed, Pahade stresses that while mobile shop Phonevalley was bought specifically to be aligned with media shops SMG and ZenithOptimedia, “other Publicis shops can tap into the expertise as well.” The same is true of Digitas, the full-service digital shop the holding company acquired last year. It remains a stand-alone offering, but both Publicis creative and media agencies can and do work with the full-service digital shop, he said.

Although the growth of digital has motivated some media shops to acquire creative skill sets—and fully integrate their digital practices—others haven’t.

Do they risk falling behind? “I don’t want to say that,” said Marc Goldstein, GroupM’s CEO, North America, suggesting that other strategies may work, depending on client needs.

But others aren’t so sure.

“Online media and creative is braided very tightly together,” said Carat’s Fay. “It is very difficult to be strategic and execute a program when those things are separate.”

But Richard Beaven, CEO, Initiative North America, disagrees. “Do we have creative sources in-house that can create content? No, we don’t at this point. But do we work with outside people very closely and have we created partnerships that allow us to do that? Yes, we have.”

Holding company resources help, he said, noting that IPG has invested in both search and mobile firms whose services can be tapped to solve client needs.

“We’re fully integrated,” from a digital perspective, said Beaven. “To some degree everybody is touching digital.”