Publicis’ Klues Sets High Expectations For 2006

Jack Klues has been CEO of Publicis Groupe Media only a short time, but he’s not shy about making long-term plans for the holding company, including the establishment of new negotiating units, an increased focus on branded entertainment and, perhaps, another bid for the Aegis Group.

No offer is imminent, or even certain, but Publicis, which made and then withdrew a bid for Aegis Group last fall, still has an interest in the London-based media holding company. Top Publicis executives continue to talk internally about a possible bid, according to Klues.

The new CEO, who oversees the holding company’s media assets (including the Starcom MediaVest Group and ZenithOptimedia), declined to elaborate on how acquiring Aegis might be a game-changer for Publicis. To do so, he said, “could only hurt our chances for getting it done at the right terms and conditions.”

“It’s something that [Publicis CEO] Maurice [Lévy] has expressed his interest in, and we’ve supported that interest. But I’d rather leave it at that,” he said.

Publicis approached Aegis last fall about acquiring the Carat parent after Havas chairman Vincent Bolloré began acquiring shares in Aegis last summer. A short time later, WPP also made an offer for the company in tandem with San Francisco-based investor Hellman & Friedman. Publicis subsequently withdrew, opting not to get into a bidding war, sources said at the time. WPP later withdrew its offer after failing to come to terms with Bolloré, who has acquired over 25 percent of Aegis and is thus in a position to veto any offer, under British takeover rules. WPP is also reportedly still interested in Aegis, which had $5 billion in U.S. billings in 2004. Major clients include Procter & Gamble, Pfizer and Motorola.

But Publicis’ renewed interest in Aegis —coupled with a “prioritized wish list” of other potential media-related acquisitions that Klues and his team have submitted to Lévy—indicates that the holding company is willing to open its checkbook to expand and strengthen its already extensive media operations, currently ranked No. 2 in worldwide billings behind WPP, according to RECMA.

RECMA estimates 2005 billings for WPP (whose media agencies include MindShare, Mediaedge:cia and MediaCom) totaled $55 billion. It estimates Publicis Groupe Media billings for 2005 at $40 billion.

Klues, who was promoted from CEO of SMG in October, is also establishing new service offerings from scratch, expanding others and setting up new operations in certain markets that may enable his two main networks—SMG and ZO—to buy ads at better prices.

For example, plans are in the works to establish separate units to negotiate prices for both SMG and ZO in China and in certain European territories, rather than both negotiating prices individually, as they do now. But Klues cautioned that such units won’t work everywhere. “Not every market supports it or encourages it to the point where you can see it as a client competitive advantage,” he said.

That’s particularly true in the U.S., he added, where ad sales organizations have not encouraged the practice and where many multibillion-dollar clients believe they have enough spending power to meet their pricing goals on a stand-alone basis—which is why, he said, “I can’t see the U.S. going to that structure, at least not in the near- or mid-term.”

Only one holding company has set up such a unit stateside: Interpublic, which established MAGNA Global in 2000. There’s been much debate about how effective MAGNA has been, although the agency has maintained that it meets clients’ pricing goals.

Beyond negotiating units, look for a beefed-up branded entertainment presence from Publicis Groupe Media agencies in 2006, said Klues. “I’d like to find a way to enhance and heighten their profile and contribution,” he said of the executives who spearhead those efforts at Starcom and MediaVest (Laura Caraccioli-Davis, svp, Starcom Entertainment, and Brian Terkelson, svp, entertainment marketing, respectively). Klues said that both executives were producing “great work, but when I look at what Omnicom or WPP are doing with those practices, I feel that I would like to be even more competitive against them.”

Klues also said that he would help the ZO management team with the resources it needs to “institutionalize” the branded entertainment practice at that network. Up to now, most of the efforts at both Zenith and Optimedia have been limited to joint ventures with third parties.

While he now oversees all of Publicis’ media assets, Klues said his top managers —Starcom MediaVest Group CEO Renetta McCann and ZenithOptimedia CEO Steve King—will continue to run their networks fairly autonomously.

And Klues’ role? “I’m a connector of best practices from one office to another or one part of the world to another. And a bit of a facilitator of resources that I know are inside PGM to help solve problems.” And, he said, he’ll also be the “connection” from the media group “to other Publicis Groupe resources at large.”

In order to do that, he said, he’ll be traveling extensively among regions and offices (like Düsseldorf, where he phoned from last week to field questions for this story) trying to figure out what gaps need filling and how to strengthen weaknesses.

Klues also said he has high hopes in ’06 for several new service offerings that he believes will “take off” after a period of incubation, such as a video gaming unit and digital wireless and word-of-mouth practices.

The big industry challenge for ’06? “The contradictory push and pull for lower prices [paid by clients] for media product and service … at the same time, there are higher expectations for what the media agencies bring to the marketing communications process in total. It’s a conundrum.” The solution? “We’ve got to compete on the power of our product and less on price. That’s what I’d wish would happen. We’ll see.”