Why internal mergers may be as important as external ones

16th March 2017

An interesting mergers trend has been making itself felt in the marcomms industry over the past few weeks. Not mergers between agencies, though – but within them. Only last week Havas Media announced that it was merging its creative and media departments.

So instead of having separate media and creative groups, it will organize itself under regional chairs, covering the UK, Spain, France, North America, Latin America and Asia Pacific.

“We used to be network-centric, organised by agencies, and we will completely change to be the first group at being client-centric and regionally organized, so at the end you will see more and more the natural border between the agencies disappearing more and more to move to a much more coherent group,” Havas Group chief executive Yannick Bolloré told CNBC.com at the time.

“In the past, creative and media were together; 20 years ago [they] split, all over the industry, creative on one side, media on the other side. Today, we realize because of the digital platforms we needed to transcend this former differentiation and to reunify creativity and media.”

Havas has also combined several London offices into one European headquarters in the Kings Cross area, close to Google’s UK building, The Guardian Newspaper and art college Central Saint Martin’s.

Asked by CNBC whether it is possible for large companies to foster creativity, Bolloré said: “I don’t really think creativity is a question of scale, I think creativity is more a question of first having the right people, and two having them in the right environment. And I really believe that having them in this new home in this very place, at the centre of the new vibration of cool London, between Central St Martin’s, between Google, between some great news companies is really important and meaningful to our people and the belief that this new ecosystem will enable them to have even better creativity.”

So, how have we got to the current situation? Readers with long memories will remember when media departments were actually housed inside creative agencies – the agency would typically receive 15% in commissions for ad space (TV, print, radio, outdoor) they booked on behalf of clients, and this helped subsidise the big, extravagant creative departments that were a feature of ad agencies in those days and allowed for flexibility in the allocation of resources.

Under this commission system, ad agencies also provided clients with other services, such as market research and creative services, for no added fee. Media commissions were the primary form of revenue.

The agencies could offer more or fewer services, depending on clients’ needs, without having to bill the client directly for those services. If a client was happy with a campaign and increased its media buying, the agency directly benefited by earning more in commissions.

It wasn’t until the rise of big holding groups like WPP, Omnicom, Publicis and IPG in the late 1980s/early 90s that media began to be spun out of agencies. It seems that a lot of this was driven by clients, who thought they could get lower prices for media if the market was controlled by big national and international agencies with mega buying power; and they were – at the time – right.

The Clients also wanted greater transparency, and separating out media from creative allowed them to see who was doing what, and pay for it accordingly. However, once the cross-subsidy of media billings commission ended, the creatives were forced to start charging for their time (which was not popular, as anyone who’s had to fill out an agency timesheet will attest). And the separation had one unintended consequence – creative and media found themselves in competition and worse, conflict (particular when the creative shop belongs to one holding group and the media house to another). A friend of mine who used to work at a big creative agency has told me of his frustration in dealing with his ostensible colleagues and partners in media: arguments over deadlines, credit, and lines of communication with the client were common; and it often felt as if the two were working against each other, rather than together for the good of the client.

A number of clients, and agency-watchers, have been calling for a return to the old structure for a number of years now, and Havas’ move may indicate that this is beginning to happen.

The integration of media buying with creative services would not only speed up the process by centralising it into one agency, it also (as one observer put it), “bakes media into everything”. This is an especially important consideration in a digital media environment where the platform and the content are harder and harder to tell apart. And most important, media buying commissions would provide hard-pressed agencies with a new (or old) source of revenue.

For traditional creative agencies, vulnerable to client pressures to reduce their creative expenditures, and under attack from the big consultancy and accounting firms, this traditional business model might provide some advantages. It’ll be fascinating to see who follows Havas, but I’m guessing that they won’t be going it alone.

Just before Havas made its announcement, one of the most iconic of agencies announced its own solution to the issues that the marcomms industry currently faces.

Last month, WPP network Ogilvy’s worldwide boss, John Seifert, also said that the agency would be adopting a “client-centric” approach, bringing such famous sub-brands as Ogilvy PR, direct agency OgilvyOne and digital media specialist Neo@Ogilvy under one consolidated brand and P&L account.

What Seifert has set up in the US is a group of nine groups. Each group will represent a different mix of clients and talent in categories including enterprise branding, digital and innovation, customer engagement and commerce, influence and PR and media and distribution (interestingly, Seifert did announce a new Ogilvy brand – Ogilvy Delivery, which claims to offer a blend of production, project management and technology services all aimed at getting work out of the concept phase and into reality; one constant criticism of big agency networks is that they’re not always quick in getting work done, or out). In a way, it’s an Ogilvy version of the “four solutions hubs” that Publicis announced a couple of years ago.

Whether this will mean that the likes of OgilvyOne and OPR disappear isn’t yet clear, but I’m willing to bet that they will. What is clear is that – like a lot of agencies of its size – Ogilvy suffers from a kind of “Balkanisation”; it has many separate sub-brands, all trying to sell different products and services to the same clients. As with media and creative, big agency sub-brands are sometimes in competition with each other.

I suspect that these days, many clients would rather deal with a single team catering for their needs rather than lots of specialists who might not be talking to each other. (As an aside, a former senior manager at a big London agency told me recently of his frustration that more of his time was spent dealing with internal politics and competing sub-brands rather than with clients).

As with the media/creative split of 25 years ago, it’s easy to see why agencies built up sub-brands offering specialist services. When David Ogilvy set up O&M Direct (which later became OgilvyOne) back in the 1960s to service American Express, direct mail – as it then was – was a highly specialised discipline, which required different skills from planners, art directors and copywriters than did print ads or TV spots. The same is true of PR, shopper marketing, B2B, CRM and, in the early days, digital.

However, as already stated, all the boundaries are blurring, and everything is, in a sense, “digital’ now. Seifert’s attempt to rstructure a vast business might not go down well in all quarters, but it makes sense. Clients and their brands are increasingly global, and are increasingly “integrated” in their approach to engaging with consumers, so an integrated approach on the part of agencies is eminently sensible.

As with Havas, I doubt whether Ogilvy will be alone in its efforts to “blow up silos”. According to Ogilvy-watchers, Seifert is hoping that this client-centric approach will give his giant agency – which has been struggling of late in core but mature markets such as the US, UK and Europe – a form of first-mover advantage. Again, it’ll be fascinating to see how this pans out, which brands survive, and what will happen when the tsunami of change makes its way from New York and Chicago to London and Paris.