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Wednesday, August 19, 2015

Advertising Agency Holding Companies

For some time, several readers from a number of companies have asked me to comment on Advertising Agency Holding Companies. I put people off as this blog focused more on issues facing the mid-sized and smaller shops and how they are dealing (or not) with the rapid changes in the media landscape. Yet the requests kept coming and a number of people wrote or talked with me about how their world had changed since they went to work for a holding company agency or were principals in a fair sized shop that was bought out by one of them. As you might expect, some loved it (usually due to the big financial payout) but others hated their diminished role and total loss of control.

Today, four major holding companies control the majority of advertising and soon perhaps marketing activity globally. They are Omnicom, WPP, Publicas and Interpublic. Each owns dozens of agencies and they operate in many of the 200+ countries around the world and all are publicly traded. They grew by buying up other agencies and getting economies of scale in media and finance. Also, they could often handle conflicting businesses as the agency partners in their groups operated fairly autonomously.

So, here is an update. I caution readers to note that my cross section of observers is not  necessarily a well drawn sample. All, however, have lived it or are still involved with a holding company.

A management rep who has worked at two holding companies had this to say--“People can complain all day and will. What the holding companies bring to the party is financial sophistication and muscle. I worked at a company with offices in nearly a hundred countries. They were foreign currency experts, great hedgers, and they had a global outlook. Intuitive marketers, no way! Yet one of the firms that I worked with reminded me of Nestle or Exxon Mobil. They could thrive in any environment given their deep diversification.”

A friend who is a creative chief but sharp eyed observer of the industry says: “From a mid-sized agency standpoint, when we have a pitch against a big agency, they have a capacity to throw fifty teams at a project when I have one or two. But that isn't as much about a holding company as it is just big agencies. Are there any big agencies that aren't part of a holding company?”

“The money comment is dead on. They can pretty much make or break an agency if they want to. Once you are owned by one and have to meet their numbers, it certainly changes how you do anything at the end of the year because you have to do work that produces. In that way, the holding companies are a bit ahead of the game when it comes to doing what's next, because they are solely focused on the profit of the business”.

“So when I see a holding company being experimental with something (like they were with digital agencies about 15 years ago) then I get interested. They certainly have a great perspective on the business because they can see what all of their clients are doing, where they are spending their money, and whether something is turning into a solid business practice or if it's just a trend that will fade. They also have the money to play in a lot of different arenas where smaller places have to really focus on one or two core practices or they will spread themselves too thin”.

A deeply experienced agency owner who worked for a few holding companies weighed is as follows: “Most small shops that sold were for CEO’s and cronies to get a guaranteed pay day--then they realize what was said in the brochures ain’t quite what they expected so they walk away or grumble away their contract time and then leave unhappy staffers who came with them looking for other jobs.” He also added that you need to “hire an agency you think can move faster than you and will fill you with thinking that is better than yours.”

A man in his 80’s who sold his shop nearly 25 years ago said, “I was just lucky. We got out when I had a health scare. I was able to get thousands of thousands of shares of a publicly traded shop that is now part of a holding company. Today my dividends alone cover my needs and guarantee my grandchildren’s future. But, I was not treated well after the takeover. No one wanted the advice of a hick.”

From the midwestern U.S., a friend writes: “Every agency that I have ever worked at had a distinct culture. Some were unpleasant, a few were wonderful. When you become part of a holding company, much of the charm goes away. You have to drop the platinum bars off in New York or London or Paris each quarter. Nothing else matters.”

An agency owner who would like to retire or sell his shop says: “I was born maybe 20 years too late (laughs). Back in the day, I would have sold to DDB or Ogilvy in a heartbeat. Today, the mega-shops do not want or need agencies of my size. And, they can buy speciality companies. If someone makes a breakthrough in mobile or some other emerging medium, one of the holding companies can scoop them up with an irresistible offer. Then they are #1 or #2 in that arena. You have been honest in your blog the last few years about we mid-sized players faking it. In truth, we can compete with ideas and energy and fast turnaround but NOT in technology.”

A few people mentioned that companies often choose a mega-shop as they want to be perceived as a global company. Once, I pitched to hold a piece of business with a few colleagues against a mega-shop. We fought like hell for it. Our holding company competition arrived with a map of the world stuck with flags in it. The pitchman said they were the biggest and the best. We lost the business, as the main client, an international player, loved the identification with the giant. Years later, after a punishing trip, I was stalking through the Atlanta airport eager to get to my car. I was stopped by a man who looked vaguely familiar. “Are you Don Cole,” he asked. He introduced himself and said he was in the room the day we lost our account. His boss was eager to deal with the global giants. He then said they never saw the slick pitchman again and he would not return phone calls. Off the record, he said even his boss said he had made a terrible mistake. I am not sure if nearly as much of this goes on as in the past but they can promise one stop shopping across emerging media types that smaller guys cannot match. And, they do have people on the ground all over the place so you are less likely to stumble and use wrong verbiage, colors or even packaging when operating abroad.

A feisty buying service player says the big guys need to watch out with their programmatic buying. “If they are not transparent with how much they are making, it will come back and bite them. Arrogance generally does not work long term.”

A marketing chief writes, “I tell young people to go work at a holding company. They are an excellent training ground and have resources that are amazing. Then I suggest that they go client side or to a mid-sized agency that still does good work where they can make a difference and have a life.”

A tough minded realist who is a junior partner at a relatively large agency says: “These guys know that Integrated Marketing Communications is slowing taking hold. For some companies, advertising was 85% of marketing spend a decade ago. Now, it has shifted across the board into promotion, PR, mobile, online, etc. So, they buy companies across the marketing arena. As the advertising portion of the marketing pie shrinks, and, it will, they pick up revenue in all disciplines that are picking up the slack.”

From the West Coast, a financial analyst says, “The only thing that can stop these guys is if the Big Data players such as Google and a few others go directly to big clients and offer their services. Will that happen? I just don’t know.”

So, the future for the holding companies will be cyclical and tied to the vagaries of the global economy. They are here to stay. Something is lost when the bean-counters take over a creative industry. As we move to more mobile and abbreviated means of communication, it appears that classic creative will increasingly take a back seat to social media and other media yet to emerge. And, the big will likely get even larger.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

1 comment:

  1. I would have sold to DDB or Ogilvy in a heartbeat. Today, the mega-shops do not want or need agencies of my size. branding agency in dubai