Consolidation beckons in leaner and meaner world

AS we hurtle towards the end of 2018 and prepare to embrace 2019 with a degree of trepidation, there is one sure thing in the advertising world that we can bet the house on: consolidation at all levels of the advertising industry will be a key feature for the foreseeable future.

A degree of consolidation has always been a feature within the industry and over the last 10 years the large global networks have spent billions of dollars snapping up smaller agencies in areas such as digital and data, often for very frothy valuations.

But this time around the consolidation is being driven by the need to be leaner, less siloed, more transparent and accountable when it comes to delivering effective advertising and measurable returns on their clients’ money.

On top of this, the investment community would appear to be taking a very dim view of the industry. With sluggish organic growth in recent years, this is now reflected in their respective share prices – with many of them down by as much as 40pc over the last five years.

Clearly something has to give. To paraphrase the well-known management guru Marshall Goldsmith, what got them here won’t necessarily get them there in the future.

The recent decision by the embattled WPP to merge two of its leading agency brands — J Walter Thompson (JWT) and Wunderman — is a case in point. JWT is the oldest advertising agency in the world and has a long, successful and enviable track-record as a creative powerhouse. For its part, Wunderman, which developed as a direct marketing agency, has built up a strong reputation in digital, data and ecommerce.

What was surprising in all of this is the fate of JWT and the rich creative legacy it has dined out on for years.

In the many eulogies that followed on from the announcement of its impending shotgun nuptials, former staff waxed lyrical about the good old days when it straddled the global advertising landscape like a creative colossus.

Sadly, it appears that those days are over. Hardly a week goes by without some CMO bemoaning the fact that marketers want simplicity across the ecosystem, full access to agency talent who can offer not just creative and media services but all the other above, below and through-the-line line services that form part of the modern- day marketing armoury. And they want these services provided in a transparent manner accompanied by a measurable and realistic return on their investment.

When he made the announcement, Mark Read, chief executive of WPP and the guy who had to step into Martin Sorrell’s shoes earlier this year, said: “Wunderman Thompson (the agency’s new name) is a formidable combination, bringing together the capabilities our clients are demanding-award-winning creativity alongside deep expertise in technology, data and commerce — in a single organisation.”

Read may be right but tying two boulders the size of Wunderman and JWT together is no guarantee that they will float post-merger.

While there will be obvious savings to be extrapolated from a greatly reduced headcount, it remains to be seen whether clients will give it the thumbs up over the longer term.

But Read is no fool either and he clearly knows that the unwieldy structure of WPP, and the wider industry, had to change. His decision to merge VML with another well-known industry brand, Y&R, back in September was the first indication that change was going to come.

Now other parts of WPP may be merged or auctioned off — Kantar is rumoured as one possible candidate — while it may also return to the drawing board to look at the media-buying end of the business.

While WPP is by far the largest marketing communications group in the world, it is by no means the only network facing challenges. All the other major networks have reached such a scale that they too have developed unwieldy corporate structures and it’s now entirely conceivable that they too will embrace some internal consolidation while we may even see some major merger activity along the same lines of the aborted Publicis-Omnicom deal in 2013.

But the traditional networks have other challenges to contend with in the form of the so-called cagencies like Accenture Interactive and Deloitte who have a much wider offering that embraces everything from business consultancy, creative, design right through to customer experience and data.

Accenture, for example, has been snapping up a wide range of creative, design,technology and content-led agencies around the world over the past two years, including Ireland where it splashed out on buying Rothco earlier this year. Accenture is also rumoured to be in the bidding to acquire MDC Partners which owns a string of agencies including agencies like Anomaly, Crispin Porter + Bogusky, 72andSunny, Assembly and Forsman & Bodenfors. If it does, all bets may be off.

So, as we hurtle towards 2019, grab your seats and buckle up because it’s going to be one hell of a roller-coaster ride for the industry. And it definitely won’t be for the faint-hearted.