Media Agengy Report: Omnicom’s Media Dilemma

Why is a powerhouse like Omnicom struggling to gain media mastery in the U.S.?
Historically, Omnicom Group has been ahead of the advertising curve, a pioneer in an industry that is creative by nature. It ushered in a new era of mega-mergers back in 1986, when the original architects of the holding company, Allen Rosenshine of BBDO Worldwide and Keith Reinhard of DDB Needham, hammered out the blockbuster deal that brought their agencies under one roof.
Under much-admired chief executive officer (now chairman) Bruce Crawford, Omnicom
continued to flourish well into the ’90s, thanks to his unwavering commitment to creativity.
Current CEO and president John Wren has proven equally prescient. By embracing marketing services early on, Wren turned Omnicom’s Diversified Agency Services group from a bunch of mismanaged, mismatched marketing communications firms into a thriving operation.
More recently, Wren was one of the first agency leaders to see the potential and importance of interactive shops. He made investments in what has become the cream of the crop in that exploding field.
With such a rich tradition of championship play, what is holding up Omnicom’s anticipated foray into the media game in the U.S.?
Optimum Media Direction (OMD), Omnicom’s media brand, is a successful enterprise overseas. In terms of worldwide billings, in fact, it ranks No. 1 in size, according to Paris-based research firm the Recma Institute.
Still, OMD has yet to take shape in the U.S., and until recently has been a constantly evolving concept still on the drawing board, according to sources.
Even the arrival in March 1998 of Procter & Gamble’s heralded global media executive, Daryl Simm, as president and chief executive officer has not hastened the arrival of OMD in this market.
Wren, however, denies OMD is lagging behind. He counters that Simm has made “a lot of progress,” and ticks off a number of successful initiatives overseas. “Daryl created OMD in Asia. It’s the best media company in the Asian market today.”
As for the U.S., Wren promises an announcement in mid-January will “make crystal clear” the structure and mission of OMD here in America.
It is believed OMD will house the pooled media buying resources of DDB, BBDO, TBWA/Chiat/Day and media agency Advanswers. Goodby, Silverstein & Partners and Martin/Williams are also expected to participate. Combined, these agencies have an estimated $7 billion in billings. Austin, Texas-based GSD&M may remain separate, as will Creative Media, in order to handle conflicting accounts.
The compromise between OMD and the agencies is unusual; the media planning function is being divided so that “strategic” planning remains at the agencies; “tactical” planning will move to OMD.
The questions of who will control planning and how to allocate profits from new business (revenue sharing) have been the key issues under discussion for the better part of a year.
Earlier conversations, however, were even more fundamental, involving not just the shape, structure and function of an OMD entity in the U.S., but its very existence.
Indeed, months were spent debating the necessity of a U.S. arm of OMD, and the participation of Omnicom’s biggest networks, BBDO and DDB, was not automatic, said sources.
“When we started this process, to do it properly, we had to look at the tangible benefits to the clients,” says Wren.
Others claim OMD was pushing from the start to launch in the U.S., aware that in order to be a global player, it would have to complete in this key market.
But even though Rosenshine and Reinhard are staunch supporters of media consolidation and the concept of OMD, they needed plenty of convincing before agreeing to pool their media buying resources in the U.S.
“Clients weren’t clamoring for it [in the U.S],” says Rosenshine. He admits that the discussion over whether OMD was necessary here at all “was bigger than any [discussion] about planning.”
“[The launch] has been held hostage by the reluctance of some agencies to relinquish buying responsibilities,” says an executive at an Omnicom shop.
With little influence to affect events, agency executives who have not been privy to the talks have grown increasingly frustrated by an apparent lack of progress and communication.
In fact, outside of BBDO and DDB, Omnicom agencies were surprised last week to learn that an agreement has been reached. “I have yet to be told there is a solution. I guess I’ll hear about it in January,” one executive says.
This great debate between OMD and the agencies in the Omnicom empire is both a classic case study of the role of a holding company in general and a testament to the power and persuasiveness of the Omnicom agency leaders in particular.
“John [Wren] is dealing with two highly successful, fiercely independent, large agency networks. Because it’s not his style to insert himself into the affairs of those networks, creating a powerhouse media management company is not the layup it would be at other groups,” says one senior agency executive. “But the odds are the entity [eventually created] will be far stronger when it comes out the other end.”
For his part, Simm has found the transition from client to agency side difficult, say sources, despite his success at consolidating media at P&G and Wren’s support. Says one media executive, “Daryl knows how to make smart decisions across a brand spectrum, but until now, he hasn’t needed that account-guy finesse that enables us to present successfully. He wasn’t prepared for the hard checking that goes on among holding company agencies in these kinds of negotiations.”
Simm is said to have floated several scenarios about how OMD would work, says one media executive, and was finally able to reach a compromise.
Says one source, “First, we’d be asked to merge network TV buying. When [no agreement can be reached], maybe we’ll pick one network to negotiate with in unison. That never got off the ground. Then let’s try daytime. It became a comedy of missteps.”
“Daryl does not have the authority to push this through,” says one senior-ranking executive at a large Omnicom agency. “Besides, that’s not the way they do things over there [at Omnicom]. It’s a blessing and a curse sometimes.”
Says another agency exec: “I don’t think anyone blames [individual CEOs] for trying to protect their own brands and bottom lines. You can’t blame Simm for trying to do what he thinks is best for OMD. But yes, we wish it would just move forward already.”
Sources say most of the discussions involving revenue sharing centered on how profits from new business would be allocated. One scenario is that an agency gets a percentage based on what it contributes to the venture in the first place. “There have been many different parts to the revenue-sharing discussions,” said one executive.
Rosenshine wouldn’t discuss details of the final revenue-sharing agreement but said, “It’s very complicated when there are profit issues involved. [When there are shareholders], their profits have to be protected. At the same time, OMD has to be funded.” The second major stumbling block– planning responsibility– is a familiar one to media agencies.
Advertising agency executives often contend that they must retain responsibility for strategic planning, while media agency leaders say their mandate should include both planning and buying.
It surprised no one, therefore, that Simm wanted OMD to include planning in order to “be more competitive,” says one agency executive. Similarly unsurprising was the fact that the Omnicom shops balked at that arrangement, with Reinhard and Rosenshine adamant about retaining strategic planning.
“Strategic planning stays, it has to be that way,” says Reinhard.
“We can’t be in the position of being told how the brand should be communicated,” adds Rosenshine.
While strategic planning remains at the agencies, so-called tactical planning moves to OMD. But the definitions and distinctions of each seem to vary depending on who you talk to. One offers the definition that strategic planning is which media to use; while tactical planning involves selecting vehicles without certain media; others disagree with that assessment.
Like most agency executives, Reinhard and Rosenshine believe media strategy is a basic component of brand building. In addition, each agency has its own proprietary tools. As Reinhard puts it, “We don’t want to share with BBDO and all the rest.”
When asked if the planning issue has been a sticking point hampering OMD’s launch in the U.S., Reinhard says, “I wouldn’t characterize it that way. It’s been a rigorous debate about the merits of two different approaches.”
The DDB chief says he’s happy with the compromise that’s been reached. As far as any disagreements with Simm, he adds: “He comes from a client side, and I come from a client service side. Our difference of opinion is quite understandable and to be expected.”
Meanwhile, Omnicom’s rivals have been busy building up their own U.S. operations. The Interpublic Group of Cos. (IPG) was first out of the gate when it consolidated buying for two of its agencies, Ammirati Puris Lintas and Lowe Worldwide (now Lowe Lintas & Partners), at IPG media agency Western Initiative Media Worldwide at the beginning of 1999.
WPP Group’s MindShare, also a media superpower abroad, has a business model for combining media operations at its two agencies, J. Walter Thompson and Ogilvy & Mather, into a U.S. MindShare entity, even though it won’t be up and running until sometime in 2000.
Other global media agencies have established presences in this country or successfully entered the market in the past few years, including The Media Edge and Carat (the latter through acquisition mostly, ironically a hallmark Omnicom tactic).
“We’ve been patient,” says Wren about the development of OMD in the U.S. Don’t bet on that lasting much longer. As Rosenshine says: “John gets it done.