Big Plans For The Smaller Media-Agency Spin-Offs

In the media-agency world, size has always mattered. Huge volume can translate into more favorable pricing from vendors. Discounted rates will always appeal to clients. But size has been a double-edged sword, because perpetual growth—something demanded by agency parents and investors—inevitably leads to client conflicts, as well as complaints that service eventually suffers.

Up to now, the holding companies have dealt with conflicts and the drive for new business by creating or buying big media shops. Publicis Groupe has four separate multibillion-dollar media shops: Starcom, MediaVest, Zenith and Optimedia. Omnicom Group has two: OMD and PHD. WPP Group has three: MindShare, Mediaedge:cia and the recently acquired MediaCom.

Now there’s a new wrinkle in what is seen within the industry as further unbundling: The bigger shops are spinning off or importing “specialist” agencies that attempt to attract clients with similar marketing orientations or ad budgets.

OMD recently launched a spin-off shop called Prometheus Media Services, based in Chicago, that intends to pursue new clients that are all “very close to their consumers,” as one source put it. Charter clients include JC Penney, Dell and Cars.com.

After a false start with a new agency called Frontier (shelved after its CEO, Mark Stewart, left for OMD last month), Interpublic Group in April launched G Media, which intends to pursue clients with billings of less than $100 million. WPP’s GroupM brought its European media agency, Maxus, to the U.S. earlier this year, also with an eye toward snapping up clients that might get lost at a larger shop. Its first stateside client is Church & Dwight, the Princeton, N.J.-based packaged-goods company, which spends about $80 million in measured media.

Agency consultant John O’Connor, president of Relevant Insight Group, foresees additional spin-off shops being created as big media agencies continue to grapple with conflicts and service issues. “This is something that will continue,” he said. “When you start to have so many clients, it is difficult to maintain the service level, because you spread your resources out.”

Mike Lotito, CEO of Media IQ, a media audit and consulting firm, agrees that more spin-off media shops are likely. “It’s easier to manage smaller sub-brands than it is to manage one mega brand,” he said. “The mega brands tend to lose their differentiation. If you listen to what Carat, MindShare, Initiative, OMD [or any of the big agencies] say, they have the exact same pitch.”

From the day it opened earlier this year, Prometheus (named after the titan from Greek mythology who introduced fire to humans), was handling $700 million in annual measured media from its three charter clients, according to Nielsen Monitor-Plus. All three had been with OMD. A fourth, eBay, was recently added to the roster, also from OMD.

One executive within Omnicom who is familiar with the strategy said agency executives crafted a service offering that’s designed to meet the particular needs of clients that do a lot of individual transactions with their customers and that are constantly reassessing their marketing mix. “There are certain requirements and opportunities facing these types of accounts that we felt with a dedicated unit with highly specialized resources we could service them in a very focused way,” the source said.

Lotito said it sounded like OMD was trying to create a retail specialty shop with Prometheus, but sources familiar with the strategy cautioned against putting a label on the agency. “Prometheus may look completely different in the next six months,” said one. “Don’t be surprised to see a car client end up there or possibly even a major media company.”

Jamie Korsen, president of G Media, the new IPG shop, said smaller clients (his agency’s specialty) get the best of what both large and boutique shops have to offer—attention and focus but also the clout of a multibillion-dollar buyer. As an IPG agency, all of the ad rates are negotiated through co-owned Magna Global. “We offer all the proprietary tools that the big guys do,” he says.

In effect, shops like G Media and Prometheus are planning-, coordination- and client service-focused while having the advantage of being able to rely on bigger sibling agencies for buying clout, said O’Connor. “I think that’s good for clients, because it offers them additional agencies to chose from,” he said.

The new spin-off shops could also provide more competition to independent media agencies, O’Connor said. He sees both sectors pursuing many of the same potential clients. “I think they are a considerable threat to the independents,” he said. “Look at Prometheus, starting out with $700 million in billings and all the resources of OMD. That’s a huge piece of competition.”

Korsen agreed. “It makes their life tougher,” he says of the independents. “They lack the access to the technology and research and vast pool of resources that the holding company can offer.”

The independents don’t quite see it that way. Bill Koenigsberg, president and CEO of Horizon Media, believes just the opposite is true. “The large independents were supposed to become extinct with consolidation, and that didn’t happen,” he said. “I think we’ve become a threat to them, and that’s why you’re seeing the spin-off of these smaller entities.”

Koenigsberg added, “I’d love to be a fly on the wall when [client and agency] are in the mother ship and the client is being told why they’re being moved to a smaller ship. What benefit were they getting by being on the inside in the first place?”

Kal Liebowitz, chairman and CEO of KSL Media, said the slew of smaller holding-company shops are as much of an opportunity as a threat for the independents. He believes the service offerings at some of the new agencies aren’t fully in place. “How could Church & Dwight pick two agencies that don’t exist?” he said. He also charges that client conflicts don’t go away just because the holding company hangs out a new shingle. “Who are they going work for, the direct clients or the secondary brands?” he said.

While Liebowitz may disagree, the answer from the holding-company agencies is, both.