To Avoid Conflict, OMC Builds A New Direct Home for SBC

Omnicom Group has averted a conflict with its $720 million SBC Communications account by forming a new agency to handle the majority of the client’s direct marketing duties, the incumbent, Rapp Collins, confirmed.

The move was orchestrated to avoid a potential conflict that arose this summer when SBC struck a joint venture with EchoStar, a competitor of Rapp Collins client DirecTV. It is the latest example of how far holding companies will go to satisfy important clients and how account consolidations and conflicts, especially in the telecommunication category, are increasing the need for customized client solutions.

The new shop, which has not yet been named, will open sometime before the end of the year in Irving, Texas, not far from Rapp’s offices, with about $100 million in SBC billings. The agencies will be operated separately. The new shop’s managing director, Greg Banks, who comes over from Rapp, will report to an executive at Omnicom’s Diversified Agency Services unit, as Rapp does.

The idea for the new shop began to germinate shortly after SBC signed an agreement in July with EchoStar to co-market an SBC DISH Network early next year. Rapp, based in New York, has handled direct work for DISH competitor DirecTV since 2001. DirecTV spent $175 million on media last year, according to Nielsen Monitor-Plus.

Client rep Larry Solomon said SBC did not tell its agencies about the DISH agreement until it made a formal announcement. Rapp, which won SBC in 2000, immediately began working on a resolution. Solomon said SBC insisted on keeping the same people on the account, including Banks, who served as svp, relationship manager. Banks would not comment on the new shop’s head count, but sources said about 60 employees at Rapp work on SBC.

The end result, Solomon said, is an “elegant solution” that “reflects the customer-service mentality of Omnicom.” Banks said his shop will initially handle only SBC work.

The new agency’s gain is Rapp’s loss, which has counted the telco among its top accounts, with about $15 million in revenue. It is the second significant client departure for the estimated $1.5 billion agency this year. It lost Dell Computer Corp.’s consumer catalog business in April, following a review.

SBC is one of Omnicom’s four biggest U.S. advertising accounts, according to TNS Media Intelligence/CMR. The client employs the services of Omnicom’s GSD&M in Austin, Texas, as well as Merkley Newman Harty & Partners in New York and BBDO in New York and Atlanta. (Some SBC business is handled by independent Rodgers/Townsend in St. Louis.)

Until July, Omnicom had Tom Moudry, vice president and senior creative director, working at SBC’s San Antonio offices to liaison with all the shops working on the business. He left that post after three years to become executive creative director at Martin/Williams in Minneapolis and will not be replaced.

Holding companies have created new agencies or units before to woo big clients or to keep them satisfied. In August, WPP Group formed Soho Square as an amalgamation of holding-company resources to handle Yahoo! In March, Publicis Groupe set up Chemistri and made it a dedicated General Motors shop.

Omnicom has been here before, too. In September 2001, the holding company formed Element 79 in Chicago to handle PepsiCo business that had belonged to Interpublic Group’s Foote, Cone & Belding. And in 1997, Omnicom set up PentaMark , dedicated to Chrysler.

Creating an agency to service a single client is a model that works in today’s marketplace, said Abe Jones, managing director of New York investment banking firm AdMedia Partners. “From a client’s point of view, the benefits are accountability and efficiency,” he said. “If I concentrate all my business with this unit, then I can get a better value or price for service. And the agency, by having a dedicated unit, can structure it efficiently to service that client.”

In fact, Omnicom’s history of such moves dates back even further. In 1993, the holding company formed Berlin, Wright & Cameron in New York to handle the Volkswagen of America account, which had been unhappy at DDB Needham. That same year it opened Focus GTE in Dallas to stabilize the GTE account, which was in trouble at DDB and Tracy Locke.