Omnicom-Publicis: The Logical Extension - Michael Kassan

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“All great truths begin as blasphemies” – George Bernard Shaw

In the sixty or so hours since the Omnicom-Publicis merger went from rumor to reality, the marketing world has been enveloped by opinions and questions. There have been great reports form Brian Weiser at Pivotal as well as Matt Chesler of Deutsche Bank – but rather than quoting their excellent research and analysis, this blog will re-focus on the rationale behind a transaction. With that lens, I believe the mechanics of how this merger will be executed become much clearer.

In reading the coverage, the questions seem to fall into the following buckets – each of which can be addressed in the context of broader market trends:

1. Conflict

2. Scale

3. Efficiencies

4. Evolution of agency services

5. Expansion

6. Leadership

Let’s start with conflict, scale, and efficiencies – which are either the impetus for or the byproduct of consolidation.

First and foremost, consolidation is nothing new. This deal is a natural evolution of a movement that began years ago. The competitive imperative was the ability to negotiate on a level playing field with seller powerhouses and was one of the reasons holding companies unbundled media buying in the 1990s.

Media consolidation continues – whether directly through acquisition or indirectly through networks, the top tier of media companies are all oligopolies. Hence, agency and holding company mergers continue. Viewed in this light, the Publicis-Omnicom deal is a mirror of what is already evolving in other areas of the marketplace.

The second corollary to all these mergers is that the market has gotten more comfortable with conflict in shops, as the firewalls agencies put in place have worked quite well and the dedicated units the largest clients often receive have ensured confidentiality effectively.

I read a Bloomberg article with a lot of lawyers rattling their sabers about potential regulatory inquires. As someone who has sat on both sides of the table, it sounds more like guys who “sell it by the hour” trying to drum up business from those who “buy it by the second.”

As for efficiency, whatever the annual savings number, you have two organizations in Omnicom and Publicis that are experts in post-acquisition integration, so the execution risk is low.

The evolving role of the agency, expansion, and leadership

The bold vision of this merger becomes apparent when looking beyond rate negotiations to what an agency could be and should be.

The agency business model is evolving as is the practice of buying media – traditional margins are being squeezed and forcing agencies to move into new practice areas.

Real-time bidding has opened a new profit center for agencies and with it a thirst for data. And nothing is more valuable than first-party, proprietary data. With greater scale and more consolidated buying power comes more information, and more efficient and effective systems for automated buying.

With the global reach of a combined entity, what is left for expansion? I believe we’ll see continued investment in emerging markets and in smaller agencies specializing in emerging technologies.

As well, other growth may come from vertical investment – WPP has done this effectively with its investments in companies such as VICE, Buddy Media, and Fullscreen.

Finally, there’s the question of leadership. It’s easy to question the structure of co-CEOs; it’s harder to recognize that the uncertainty of a phased approach outweighs the disruption of an immediate transition.

You now have two of the industry’s best and brightest at the helm and with a timeline.

In his Bloomberg interview, Sir Martin Sorrell gave Maurice Levy a chapeau– I give my good friends, Maurice Levy and John Wren, a big high-five for structuring a sensible deal for their companies, their clients, their employees, and the industry at large.

Michael E. Kassan is Chairman and CEO of MediaLink, LLC, a leading Los Angeles and New YorkMichael KassanCity-based advisory and business development firm that provides critical counsel and direction on issues of marketing, advertising, media, entertainment and digital technology. Michael can be reached at michael@medialinkllc.com

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