Sectors: Creative, Media & Technology

In reaction to the news, Tony Walford, a partner at Green Square, told The Drum that he saw Sorrell as the industry’s “most famous ‘buy and build’ guru” with acquisition very much expected to drive the new venture from the start. “The announcement that he’s back is no surprise, but the speed in which he has sourced a vehicle and backing is astonishing,” said Walford. “What will be very interesting is seeing what his new group will consist – he’s no longer bogged down by legacy agencies, infrastructure or indeed legacy thinking. He has the ability to simply choose what works and dismiss what’s no longer relevant as we potentially enter a new paradigm in how marketing services are delivered to clients.” Walford identified staffing of both the M&A and strategy teams as one of Sorrell’s first priorities. “It’s market knowledge he doesn’t have non-compete covenants, but whether or not he has non-solicit restrictions is a different matter. Exciting times and very much looking forward to his first move,” he said. MSQ Partners chief executive, Peter Reid, questioned how Sorrell would be able to scale the ‘next generation marketing group’ without further damaging WPP where he still holds significant shares. “To start with, he will need a clear ‘platform’ acquisition, either in the UK or US, that provides access to a range of capabilities, growth and a level of cash flow,” Reid said. ” As well as the access to data and analytics and content that has been referenced, channel planning and performance marketing capabilities will also be key – as will an ability to deliver agile, multi-disciplinary solutions for clients. “Given the (relatively) limited amounts of money available, potential acquisition targets which meet the criteria will be fewer and further between than might initially be expected – and it will be critical, for him personally as much as anything, to the first one right.” Also offering his view was Keith Hunt, managing partner at Results International, who expressed his excitement at the speed of Sorrell’s return. “Sorrell’s name still clearly carries weight, as evidenced by the $150m already promised by investors for the M&A pot,” offered Hunt. “With 75% control of Derriston [the current name of the organization which will rebrand following a reverse takeover] he has the capacity to mold the business as he sees fit – and the new name suggests this is a highly personal venture. At WPP, Sorrell was weighed down by the heritage of a highly traditional marcoms business, with S4 Capital he has a clean sheet and an opportunity to create something truly different. “The arrival of S4 Capital brings yet another new player to a marketing services M&A landscape that is becoming increasingly competitive. Sir Martin’s stated intention to acquire businesses in technology, data and content can only be good news for independent vendors in these sectors.” At the time of writing, Sorrell has only provided a brief statement about the formation of S4 Capital, but his track record suggests he’ll be very vocal along the way as he aims to build his new advertising empire.

“The end of the era” is the ubiquitous phrase flying around the ad industry airways today (15 April), following WPP’s carefully buried Saturday night announcement that its founder and chief executive would be stepping down after 33 years. Such a grandiose expression is not unjustified in this case, however; Sorrell arguably built from nothing what is the modern ad industry today (or, what was the modern ad agency until the duopoly and consultancies showed up five years or so ago). Tributes flooded in thick and fast from those who had worked with him, interviewed him and admired or criticised him from afar, despite the fact that no-one is quite sure what misdemeanours WPP’s internal investigation into an ‘allegation of personal misconduct’ threw up. Operationally, however, his departure is “unlikely to have an immediate impact on the group”, according to Tony Walford, partner at M&A boutique Green Square. “Although he had a lot of personal involvement in how it was run, it was simply too big for one person to control. “However, he is a huge character, someone the industry and the global business community turn to for opinion, as well as being the public face of WPP. Going forward, WPP needs to ensure it retains its personality.” Still, there are those who are happy to see him go. They are, by and large, the creatives in operation in the days before Wire & Plastic Products turned into a marketing company in 1985; former creative director Iain Maclean wrote: “I look forward to seeing the likes of JWT and Ogilvy freed from the man’s spidery web”. But perhaps it’s because Sorrell was famed for spouting phrases such as “I’ll carry on until they carry me out of the glue factory” and “I’ll die at my desk” that most tributes to his time at WPP are in the ilk of an epitaph. Justin Cooke, the founder and former chief executive of WPP-owned agencies Possible and Fortune Cooke, wrote: “There are few people on the planet more driven and focused than Sir Martin – I have seen unicorns a third of his age left for dust … I never had an email go unanswered. Often a succinct reply would appear in minutes. “From dawn until dusk his commitment was Olympic. He was passionate about talent and despite a relentless work ethic understood the importance of family … For me he will always be the Founder’s Founder. Goodbye Sir Martin.” The PRCA’s director general, Francis Ingham, said Sorrell, “shaped our industry into the global success story that it is today”, while Paul Frampton, the former chief executive of Havas UK, believes the ad industry will be left “with a sizeable hole” in the CEO’s wake. “More than anyone,” Frampton said, “Sorrell was the poster child for advertising equalling big business and the ad industry would do well not to lose this important association moving forwards.” He added that “his one failing is perhaps that he spent almost no time on his succession plan and considered himself invincible”. The succession plan, as it stands, appears hastily put together. Roberto Quarta, chairman of WPP, becomes executive chairman until the appointment of Sorrell’s full-time successor is made, while Mark Read, chief executive officer of Wunderman and WPP Digital, and Andrew Scott, WPP’s corporate development director and chief operating officer, Europe, have been paired together as joint chief operating officers. Even the board of WPP, it appears, are unsure of what comes next in a post-Sorrell world. “[It’s a] sad day for advertising …” said Michael Moszynski, founder and chief executive of London Advertising. “I also suspect it marks the high tide mark for the big holding companies.” Drew Meyers, founder of Made Studios and former president of Gyro, agreed that Sorrell’s departure marks a new epoch for the industry. He said: “Aside from whatever scandal may or may not have occurred, this is another massive sign that the ad/marketing agency business as we’ve known it is OVER … “The holding companies, and their focus on ‘shareholder value’ versus client value … are embarrassingly out of step with the needs of clients today and the realities of the marketplace. Looking forward to seeing how this trend continues to evolve and how agencies can reinvent themselves to deliver true value and impact.” Yet Brian Wieser, senior analyst at Pivotal, argues that the industry may be overestimating the power of Sorrell, and that the news doesn’t equate to “the end of the network model”. “If that was occurring it was going to happen regardless of Sorrell, and I’d argue that Levy is still actively involved in Publicis, so to the extent they are making changes, it’s independent of who is in the CEO role,” he said. Fellow analyst Walford agreed, stating: “Regardless of whether Levy and Sorrell had stayed in situ, the traditional model was always going to be challenged at this point.” Read more

The audacious plan raises several questions. Among them: will teams accustomed to competing gel as one? Can they produce great work together? And how will payment be calculated for their contributions? But the biggest headscratcher of all is how P&G has managed to convince three competitor businesses to pool their services and talent together in the first place. And the answer says everything about the influence it has over its agencies. Pritchard’s powers of persuasion P&G’s chief marketing officer, Marc Pritchard, has become the most dominant figure in the industry in the last year, with his widely cited sermons from conference stages demanding agencies go back to basics. Pritchard’s proclamations have in turn spurred the likes of WPP and Publicis to wax lyrical themselves about the way they are simplifying their unwieldy structures to give clients better service and value. The reason agencies listen when Pritchard speaks is because he controls so much of their market. “Behemoths like P&G hold huge power,” says Tony Walford, a partner at corporate finance advisory Green Square. “While agencies have a choice over which clients they take on, rostered conglomerates like P&G make up a significant chunk of revenue even at the advertising holding company level – packaged goods companies constitute 25%-30% of the network groups’ revenues.” With their share of more than $11bn of P&G marketing spend at stake, agencies have little choice but to say “how high?” when Pritchard asks them to jump. “It will be nigh on impossible for groups to simply walk away from the P&Gs of this world without having to take a massive, possibly fatal, revenue hit,” says Walford. “It looks as though they will have to accede and at least do some restructuring.” Such restructuring moves have already begun in earnest at WPP – which has merged a number of its agencies together to remove silos, and promised to go even further this year – and Publicis, which has established the ‘Power of One’ model to simplify its labyrinth of agencies and services by bringing everything together under one roof, and one P&L, for clients requiring a full-service solution. Notwithstanding these efforts, Pritchard feels P&G can improve both its bottom line, and its creative output, by reshaping its roster of agencies on his terms. “What we are now doing is reinventing the agency models, so we can get the absolute best creativity and do it in a way that will grow our brands and the business of our agencies as well,” he told The Drum. “We see this as a joint value creation opportunity.” The unlikely team of Publicis’s Saatchi & Saatchi, WPP’s Grey and Omnicom’s Marina Maher Communications and Hearts & Science will be led by Saatchi chief executive Andrea Diquez, who will keep that role while serving in the equivalent post at the new entity. Diquez is a respected operator, but she has a unique challenge on her hands now. Can three into one go? Marshalling teams from Publicis, WPP and Omnicom in the same building will require delicate handling of both practical and cultural challenges. On the practical level, procurement consultant Tina Fegent says the issues will include: “How do they get paid? How do you work out the fee structure? Is there a performance-related fee? Each agency has its own P&L and will want to maximise that – creatives struggle to do timesheets and I really cannot think that they will be saying ‘we spent 15 hours on it so the cost is £x’. “Who owns the intellectual property rights? Most contracts say it is subject to the client paying the agency, so how does that work if the co-creation is with x number of agencies? “And who does the production? Again, each agency will want to use their production company. But maybe P&G produces it itself.” And then there are the cultural obstacles, which Huge executive creative director Wayne Deakin expects to prove problematic. “I am sorry but I find our industry still full of too many egos and hidden self-interest types likely to spoil this happening, which is a shame,” he says. “Creativity is all about identity and culture. A culture that goes beyond just the creatives and which everyone is aligned towards. They will need strong creative leadership to pull the folks together as one unified team and get them aligned to a vision and values.” Asked if great work can come out of this setup, Deakin adds: “Yes and no. It comes down to their ability to pivot fast and work frictionless end-to-end if they want to be competitive. Those will be the pain points in this set up and that takes a very distinctive modern mindset that I am not sure is in place yet.” Other creatives are more optimistic about the agency’s chances of success. “P&G already has dedicated creative departments in the UK, so it seems like a natural evolution for them to all converge in one place,” say the freelance creative duo Senan and Pansy, who have worked in AKQA, BBH and TBWA among others. “If this new setup enables P&G to reduce corporate red tape and give more trust to their creatives, then it has a real opportunity to create some memorable work.” The future of the agency model? Where P&G leads, agencies follow. But will other brands? Last month, the Ogilvy & Mather Chicago managing director, James Hidden, wrote a blog for The Drum titled: “The agency model ain’t broke – but it certainly needs fixing”. Pritchard’s announcement wasn’t exactly what he had in mind, however. “This is at the extreme end of what I’d expected to see, and I wouldn’t expect it to become standard practice across all clients,” he says. “Really Pritchard’s move is the very extreme expression of ‘survival of the fittest’ analogy I used, in that he appears to be employing almost a ‘Fantasy League’-style draft system to cherry-pick the best talent from across his agencies and force them into one blended team. Given its power and spend, P&G is able to take it to its most extreme application in a way that smaller clients may not be able to do.” On how it feels as an agency boss to see a client set up on their own like this, Hidden adds: “For agencies, this is yet another structural challenge. The administrative and financial challenges of figuring out the billing/hours/P&L logistics are no small question, but clients proactively separating the wheat from the chaff means there’s no room for mediocrity.” That certainly looks to be true at P&G, which has cut the number of agencies it works with from 6,000 to 2,500 in the last four years. Even at that, Pritchard thinks there is still room to halve its roster. Its cull has reduced the company’s expenses by $750m and Pritchard is aiming for another $400m of savings to come. Whether other clients set up similar agencies, Pritchard has already set the tone for an industry that is much more closely scrutinising where money is flowing, and the value coming back in return. As Brian Weiser, the influential advertising analyst from PVTL, puts it: “I don’t think there are necessarily new implications for holding companies, except to reinforce the idea that everyone has to continuously find ways to drive like-for-like costs down.” But it’s not all doom and gloom for creative agencies. In his interview with The Drum, Pritchard restated his desire to bring more of the company’s media buying in-house, to combat what he has famously described as a “murky at best, fraudulent at worst” media supply chain. Yet the new creative agency, however unorthodox in structure, will still be powered by P&G’s existing roster. It could be a precursor to in-housing creative services too, but Fegent believes P&G is instead testing what happens when you have an agency structure that puts more emphasis on creatives than suits. “My gut feeling is that no, it doesn’t support in-housing as it is still using the big agencies but has just stripped out account management and planning to buy just creative,” she says. So the world’s biggest advertiser might be questioning the value of much of its marketing spend, but it hasn’t lost faith in its creative agencies yet. It just has more sway over them than most. Read More

The group’s execution plan includes targets for up to €1.5bn in bolt-on acquisitions, €450m in cost savings and adding thousands of people to its so-called “technology execution centres” by 2020. “The future is bringing together data, content and technology in a connected way,” said chairman and CEO Arthur Sadoun in an interview. “Our shift is from being a communications partner to helping clients transform their marketing model to face digital disruption and the threat of new entrants.” The marcomms industry is under pressure as clients slash marketing budgets and rethink their relationship with external agencies, from whom they are demanding greater transparency and simplicity. ‘Big Data’, once seen as a saviour of the holding groups, is under intense scrutiny following the Facebook and Cambridge Analytica scandals; and over the past couple of years, the effectiveness of programmatic ad placements, which have driven the digital marketing industry has been called into question. Some clients, including the world’s two biggest advertisers, Proctor & Gamble and Unilever, have started saying that they want more accountability and better value for their money, and are murmuring about taking marketing in-house. And with Google and even troubled Facebook (as well as consultancies like Deloitte and Accenture) threatening to gobble up still more of the agencies’ share of marketing spend, it’s no wonder that the big groups’ shares have taken a battering. Many shareholders and clients have been arguing in recent years that it’s time for a change, for the old guard to move on. Legends like WPP’s Sir Martin Sorrell, IPG’s Michael Roth and John Wren of Ominicom are still leading their groups. But Publicis went through a generational changing of the guard when Sadoun took over at the helm last June from the charismatic and long-standing Maurice Lévy, and its share price has held up better than those of its rivals. Back in 2015, while Lévy was still at the helm, and shortly after buying Sapient for an eye-watering $3.7bn in cash, he and Sadoun began restructuring “its business model and its organisational structure to put its clients at the center”, called Power of One. Power of One was intended to make it easier for clients to access the group’s different services by putting everything under one of four “solution hubs” – advertising, digital, media and healthcare. Under the new organisational structure clients can have a single profit and loss account across the group. Like its rivals, Publicis has a lot of global blue-chip clients and, since the start of the initiative, it has appointed 35 global client leaders who between them represent one-third of the group’s revenues. Last week Publicis said it wanted 100 client leaders – representing 50% of revenues – by 2020. It also flagged €300m to €500m per year between 2018 and 2020 to be invested in organic acquisitions in data and what it calls “dynamic creativity and digital transformation” (these are said to represent 16% of revenue with the group’s top 100 clients, but by 2020 it wants this to be 30%). Furthermore, it plans to increase by about half its headcount in its “execution and production centres” in India, Colombia, Costa Rica and Mauritius, expanding it from 8,700 to 13,000 – again in just two years’ time. These are ambitious targets. But as the old song goes, when the going gets tough, the tough get going. Hard times and uncertainty require steely resolve and concerted action. And in an era that calls for transparency, simplicity and accountability, starting up Power of One three years ago increasingly looks like a canny move. When I’ve spoken with agency clients, some have expressed frustration that when they deal with agencies, they end up talking to huge numbers of people, and often end up schlepping from shop-within-a-shop to shop-within-a-shop. “If I hire a big global agency, I expect to be able to draw on all the talents and resources within that agency, but to deal with as few people as possible” appears to be a mantra. I think that’s the need that Publicis is looking to satisfy. And it seems to be working. Yesterday Publicis’ luxury arm 133 scooped the Swarovski account. Insiders say that Power of One played a key part in the win. The agency aims to build an internal team of experts for Swarovski across its key markets, by pooling together talent from across the network including 133, SapientRazorfish and MSL in Paris and Shanghai. And earlier in the month it won Campbell’s Soup, with Sapient’s data capacity and Power of One apparently winning admiration from the Campbell’s marketing chiefs. And let’s not forget the Mercedes European account win either. Maybe $3.7bn for Sapient wasn’t so much to pay after all, so some humble pie for me there given my comments on value at the time. Sadoun is doing something right. And what he’s doing right is something rather simple – he’s putting the needs of clients first. Someone within the group has obviously asked the right question (which is: “Why, in this day and age should someone hire us over our rivals? Or hire an agency at all”?) Publicis’ move a couple of years ago to bring creative and media back under one roof was exactly what certain clients had been asking for for years. Separate media networks suited the holding groups, and fuelled their growth in the ‘90s and early 2000’s. So while the networks enjoyed fat profits, the clients increasingly felt that they were dealing with an opaque system. For all the talk about “blowing up silos”, the big groups have got more complex. And while Sir Martin insisted earlier this month that the industry’s troubles were cyclical, many – including some within the all-important client community – have argued that they are structural, and that a bold, brave and new approach is needed. There is clearly going to be a lot of devil in the detail – how does the accounting for one P&L for a client sit with the P&L(s) of the agency business units themselves and how will this next wave of Publicis acquisitions be structured, given the tension between an acquired asset having to deliver for its own ‘earn-out’ as well as doing the right thing for the group. Perhaps the subject for another blog! But what I like most is that Publicis isn’t just shuffling management chairs around, or merging a few shops, it’s putting resources where its mouth is. Power of One is emblazoned across the Services page of the group website, but I suspect it will be some time before we see ‘horizontality’ in a similar place at WPP (although I would not underestimate Lindsay Pattison who, as chief transformation officer, is charged with driving horizontality across WPP’s top 50 clients so expect a lot more here). Publicis has been working on a platform called Marcel to connect its employees, which it plans to unveil in June. It will invest €300m – much of it coming from the awards budget, apparently – in hiring, training and development of staff over the next three years. Sadoun is spending serious money on getting its employees to talk to each other, and to think and act as one. Power of One seems to be not just another vacuous corporate restructuring exercise, rather a genuine attempt to create a new model that will see the whole group face its clients in a very different way going forward. Read More

The question is; what is driving this demand as other sectors ready themselves for Brexit? The over-arching driver has to be the digital transformation that is affecting how we do business and how we interact with clients, delegates and consumers. Twenty years ago video conferencing was said to be a threat – it actually made us travel more. And digital is having the same kind of effect on the events market; the immediacy of reaching people at virtually zero cost through online platforms is being echoed by bringing these tribes and groups together to experience the brand or product. The ramifications are far and wide; brands are creating events that will draw in their target audiences, consumers are posting and boasting about their lives, venues and organisers are seeing huge opportunities to capitalise on bringing likeminded people together. Immersive, experiential, brand activations may be the buzz words, but drawing audiences together to interact is the age old premise of the event industry. Not only is the sector seeing a new type of audience and increased demand from the brands, the traditional event agency model has evolved from solely venue finding to becoming a full service organiser providing creative, logistics and fulfilment solutions. Events are ingrained as part of today’s marketing mix and as such the more progressive and full service events agencies are becoming acquisition targets for the global marketing networks and companies. This is ratified by Tony Walford, partner at corporate finance advisors for the international marketing, media and technology sectors, Green Square. He says: “The world of marcomms M&A has been very focused on martech in recent years and for good reason – agencies that can prove the value they bring to their clients by being able to directly track and measure the results of their campaigns will always be of interest. “However, the corollary is that in focusing on ROI metrics, brands have started to lose that personal and direct touch with their audiences, and hence we have seen brands focus a lot more on social media interaction, open feedback, and reviews. “However, where the real opportunity exists is reconnecting with consumers in a more human way. We seem to be talking more often with acquirers about experiential and event agencies which can bring the ability for brands to directly interact with their audiences in a more physical manner – be it bringing awareness of product benefits via an experiential installation, launching new products at a major event or simply giving the opportunity to sample products at a festival. “As people, we love to be entertained and an immersive, personal experience with a brand’s involvement in a relevant way is a great way of building brand saliency, awareness and ambassadors.” For some years the event sector has struggled to find a voice, however, being increasingly recognised as being part of the marketing mix can only drive dividends both for the industry and the numerous private event agencies that exist in the sector. Disruptive technologies and the digital economy are driving demand for face-to-face and with companies like Green Square homing in on the sector, we are set to see a raft of interesting new allegiances; boom time for the event sector.

The advantage a blockchain has is that it’s very secure, and that records cannot be altered retrospectively without all the other records being similarly altered. And the longer the chain runs, the more secure it becomes. The blockchain organisation Ethereum allows almost anyone to contribute their computer to the network, simply by installing some software. Distribution helps to reduce tampering, fraud and cyber crime. With so many computers taking part, systems are also very hard to “take down” via traditional brute force network attacks (eg DDS – Distributed Denial of Service – attacks). So, blockchain seems to be one of the wonders of the cyber-age, and has almost limitless practical and useful applications. Some advocates have predicted that it will transform the way we all do business – and it might well. Certainly it’s got plenty of people in the marcomms industry very excited. Last week one of the world’s most powerful marketers, Unilever’s Keith Weed, announced that he’d enlisted IBM iX, (IBM’s business strategy arm) to create a blockchain solution to simplify the Unilver digital ad supply chain and provide more transparency and, consequently, build more trust – and Weed sees trust as a key issue not just for the industry, but for consumers too. As many observers have pointed out, the problem with digital advertising is that it’s become less transparent – and in the eyes of many clients – increasingly untrustworthy; the very opposite of what was supposed to happen. As fraud (I don’t think that’s too strong a word) and automation increased, more and more middlemen were introduced into the advertising supply chain in order to fix the problems. Great stuff. But here’s the contrarian’s view based on some inherent flaws. The first problem is that blockchain is by its very nature a space-hungry technology. Because transactions and changes are recorded everywhere the chain exists (these places are called “nodes”), the blocks can become very unwieldy very quickly – hundreds of gigabytes big. The chains are getting bigger, faster and storage capacity is not keeping pace; in addition, you might have to waste valuable time waiting for all that built-up data to download every time you made a transaction – not what you need when seeking to serve a programmatic ad. And let’s not forget – blockchains are immutable, so they can’t get smaller, only bigger. A related issue is one of sustainability. Blockchains use tremendous amounts of energy. According to Digiconomist’s Bitcoin Energy Consumption Index, cryptocurrency Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh, which represents 0.13% of total global electricity consumption. That means Bitcoin mining is now using more electricity than 159 individual countries! This consumption isn’t just bad for the environment, it costs a lot of money. Microsoft has been exploring the possibility of underwater data centers to deal with the heat generated – watch out Mr Polar Bear. And what of security? Enthusiasts for blockchain often say it’s 100% safe, but that’s not entirely true. Blockchain is currently mostly used for cryptocurrencies, and in the past decade or so, a fifth of all Bitcoins have been stolen, hacked or scammed – more than $2bn worth. Although the tech has thus far proven robust, that doesn’t mean that this will always be the case. Then there’s the lack of standards and regulation in the blockchain space – and of course, a lack of standards and proper regulation is what got digital advertising into its present pickle. Salon Media Group, an online publisher, is offering its readers a choice – allow it to display ads, or instead lend it your computer’s processing power so it can mine cryptocurrencies. Make of that what you will. Ultimately, nobody knows what’s possible. We’re in the wild west again, just as we were 25 years ago. Babs Rangaiah, another senior Unilever marketer (and a big advocate of the use of blockchain in advertising) says: “It’s like 1992 for the internet when we had no idea what was possible and when. We had an idea of what it could do, but not how soon we’d get there. That’s where we’re at with blockchain.” Moving into uncharted territory is always exhilarating, but presents challenges. There will be outlaws and con-men, as well as prospectors and fearless pioneers. Blockchain might be a (or even the) solution but we need to keep our eyes and ears wide open.