Going large. The merger of Mad Men.

How should we take the news that Omnicom and Publicis are to marry in a “merger of equals” to create the world’s largest ad group?

Does the world need a really very big ad group? Does this mean Sir Martin won’t be on the radio so often? Is anyone going to benefit at all? Why on earth have they done it?

Why they’ve merged: what they say

They say it’s as a result of a jokey remark a few months ago made by Maurice Levy to John Wren. They recognized that they had a new enemy and that enemy came from Silicon Valley. They muttered darkly about new media and big data. The best way to counter the threat posed by Google, Facebook etc was to form a really big alliance. And in the process “benefit our clients by bringing together the most comprehensive offering of analogue and digital services”.

Eh? Two massive assumptions there: firstly that the best response to new media and big data is to get bigger. Secondly that clients love the benefits of “all under one roof”.

Apparently the only way to fight the Google behemoth is to create our own behemoth.

But getting bigger doesn’t seem such a smart response to the changes in the landscape. Not at all sure that say merging Waterstones and Borders would have fended off the threat from Amazon to their core business model.

But more than that – I don’t buy it. Google’s not the enemy. In fact Google’s probably the opportunity. No the real problem, and I reckon the real reason behind this merger is that the business of advertising is broken.

Why they’ve merged: what they don’t say

There’s no question that “marketing” has changed massively since Don Draper’s time. Technology has transformed how we engage with brands. The gap between hype and reality has never been more closely policed. Word of mouth is more powerful than ever before – and it spreads like wildfire.

Most of all though the economics of advertising have changed. In Don’s unfragmented media landscape advertising was a dream business. Clients paid handsomely for magic. Wave a wand and they would buy.

No more.

For several years now it’s been clear that the business model of advertising no longer works. For years ad agencies have undersold creativity (i.e. not charged for it) in exchange for a mark up first in media and also in production.

“How do we charge for ideas?” is a question every agency has asked itself – often late at night, often in awaydays, without actually answering it. But now it has to.

ad men deciding not to change their business model
ad men deciding not to change their business model

The ad business has to change if it is to survive. It hasn’t been changing at anything like the necessary speed. It was clear that it needs shocks to change. John Wren (I don’t know about Maurice) is famously unsentimental about the companies that make up Omnicom. He thinks only the fittest should survive – and that means those that change.

And for him one of the attractions of the merger will be the kick up the ass it gives some of big agencies.

But there’s another reason – and that’s the economics of being a really big group.

Fully half the revenues of Omnicom, WPP, Publicis etc come from media and production. Over the past decade or so each group has consolidated media out of individual agencies into mega buying groups. Size equals clout.

The game here – and the prize – is to create massive economies of scale not just in media but also in production. It’s a fair bet that soon the merger will create a kind of production powerhouse. Size equals clout.

The logic behind this merger is about economic scale not client benefit.

What it all adds up to:

  • Clients probably won’t get a better deal.  The big ones will get to choose between WPP and Omnicis occasionally for those big group deals. I have never found anyone who is a fan of that WPP group model – the supposed economic benefits are scarcely realized (spend seems to go up funnily enough), the agencies don’t enjoy collaborating very much, there’s a dearth of creativity.
  • Unfettered creativity will get harder. The ad agencies will have to learn how to make money without having either media or production as a fallback. Which means creative will be much more commercialized – it’s been kind of inevitable for a long time. The best creatives will be deemed those who can create ideas that sell. No bad thing perhaps –Don Draper come back.
  • Brace yourselves for more cookery shows. Media companies can expect some tough negotiations and lower revenues – so they’ll have less money to fund bold new programming.

Above all it changes the dynamics of those big groups. Omnicom especially has always been a place where the small and quirky can thrive. There’s a plethora of smart and nimble (and highly creative) agencies on the fringes of the group. With this merger they’ll be even tinier dots in the Omnicis universe.

That doesn’t bode well for the small and quirky. The merged group, with its enormous clout, will be increasingly industrial in scale and mentality. And not many craftsmen do too well housed inside big industrial machines.

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