Indies up, holding companies slide
One might conclude that even Publicis’s differentiated response to the same problems as WPP have left people unconvinced about the holding company model, writes Dominic Mills. Plus: what next for Facebook’s ad model
I’ll have a go at the Facebook issue further down this column, but first let’s look at the contrasting fortunes of the indies and the holding companies as revealed by recent news.
What we see is that, while the holding companies continue to struggle with models that look outdated, there’s plenty of life and vigour exhibited by the indies.
Starting with M&C Saatchi, which this week announced a strong set of results, with revenues up 12% and top-line profits up 16% to £27.7m (although actual profits were hit by exceptional restructuring costs in the US).
Enjoying his moment in the sunshine, M&C CEO David Kershaw noted that running an agency could “still be a wonderful business.”
OK, so M&C is technically a listed company (on the junior AIM market) but in its ethos and the hands-on attitudes of the senior team (with some still there from its original inception) it has all the hallmarks of an indie.
Quite so. Contrast that with the ongoing travails of WPP, whose share price fell 3% in the week to a four-year low of £11.10 and down about 30% over the last 12 months.
Part of the most recent fall can be attributed to ongoing wider market issues, but it is clearly still failing to convince investors of its plan to reinvent itself.
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The essence of this plan, to summarise succinctly, is two-fold. First, collapse as many internal siloes as possible in order to maximise agility (aka ‘horizontality’). Second, consolidate a sprawling and hard-to-manage agency portfolio.
This lacks a certain sizzle, which is probably why investors aren’t buying it despite piecemeal efforts at reinvention, exemplified last week by Mindshare announcing its plans to set up a ‘speedy’ media service and Wunderman offering clients an in-house option.
All the while, the wider trends that dog it – ongoing pressure on media pricing, advertisers taking more in-house, cost-cutting by the multinationals (P&G, Unilever and so on) that dominate its client list, the threat from consultants – just aren’t going away.
As Kershaw noted, M&C is less exposed to those trends. It got out of media (selling Walker Media to Publicis) and, as an entity more akin to an independent, its client list is not dependent on big multinationals in the same way. This works in its favour three ways: one, its business is more evenly spread; two, its clients are a) less prone to cost-cutting and b) less able to take activities in-house; and three, as a smaller, less geographically diverse entity, it is inherently more agile. I’d also add that M&C has a clear proposition, which is not something you can say either of the holding companies themselves, or of many of their constituent parts.
Last week also saw Publicis make its case to investors, with CEO Arthur Sadoun proclaiming, with no small amount of hubris, “We believe we are the only ones who have the right assets to succeed.”
His words may come back to haunt him, but he is basing his claim on two things: one, Sapient’s ability to help clients achieve the digital transformation promised by the likes of Accenture (at $3.7bn in 2015, it may have wildly overpaid for Sapient, but investors seem to have forgiven or forgotten that); and two, the role of AI platform Marcel helping the group work more efficiently together. (This sounds a bit like ‘horizontality’, but since that term was coined by arch-nemesis WPP it is clearly forbidden.).
The nuts and bolts of the new Publicis are here and here’s a video of Monsieur Sadoun towards the bottom of the page.
Will it work? Who knows. If Publicis was hoping to turbo charge investor perceptions by promising change and growth, you’d say the immediate jump of 3.2% in its shares (followed by a small drop) was a pretty ho-hum response.
Thus one might conclude that even Publicis’s differentiated response to the same problems as WPP have left people unconvinced about the holding company model.
Meanwhile – and I appreciate it inhabits a different world – the moves by Total Media to add an international flavour to its business show another aspect to the life of the indies. For those who missed it, earlier this month it announced a joint venture with German indie Serviceplan (the Germans aren’t great going beyond functional names) in which Total will open in Germany in a 60:40 JV, and Mediaplus Serviceplan’s media arm will open in the UK in a JV in which the stakes are reversed.
For Total, which says a third of its revenues now come from international business – a figure which might surprise many – this makes a lot of sense. Thinking wider though, it underlines just what rich seams the indies can mine. To mix metaphors, they plough their own furrow mostly unnoticed, but steadily growing and often nicking business off the holding company media operations.
I’ve written about the7stars and the indies before and their collective progress as a cohort is something to behold.
The German JV is not the only recent development from Total. In 2016 it launched a performance arm, Running Total (great name), as well as offices in Birmingham and a digital hub in Estonia.
As an indie, you don’t do any of those things unless you’re both confident of your positioning and your model. Go figure.
That Facebook apology
There’s a certain piquancy about Facebook’s use of the national press to prostrate itself – grovel might be a better word – after the Cambridge Analytica affair. This ad ran in the US and yesterday (Sunday) in the UK qualities.
After all, this is the medium in whose evisceration Facebook has played no small part, and two members of which – the Observer and the NYT – are responsible for the shit-storm in which it finds itself. Next, since it so clearly believes in the power of the personal, those 50m consumers whose data has been abused can no doubt expect to receive direct mail signed by Mr Z. Royal Mail would like that.
As for the ad itself, it’s a standard example of the ‘we-promise-to-do-better-next-time’ variety, the same as every other response it gives when caught in the public spotlight doing something naughty.
There’s no point in adding to the ton of justifiable opprobrium heaped on Facebook, but better to think about how, as the scandal plays out, it might affect its ad model.
You can read two contrasting views here, both from people I respect. One, from Alex Steer of Wavemaker, points out how CA was only doing what most advertisers do, or would like to. In fact, he says, he and his team at Wavemaker do a lot of the same things – and in his view there is nothing wrong with it.
I agree. Every time last week I read a newsbrand columnist foaming at the mouth about psychographic targeting, I thought: ‘Get real. The people who pay your bills do that and so, in the way in which you pander to what you believe to be the instincts of your readers and seek to confirm their biases, do you – albeit in a basic way.’
Brian Jacobs takes a different view, which is that use of data in this way whether by politicians or advertisers is morally and ethically wrong, even if it is currently legal.
I confess I sit on the fence both on this and the likely impact on advertising. By and large, except for one caveat, I don’t think it will be much. Advertisers will continue to use Facebook in their millions, and use it as effectively and efficiently as they can – and that means exploiting its data to the max.
The caveat. Well, some kind of regulation moved a step closer. The politicians are unlikely to sit on their hands on this one. But what kind of regulation? When Mark Zuckerberg told CNN last week that he would welcome regulation, I wonder what kind he meant, if indeed he meant it at all.
I can see two kinds. One, a US equivalent of GDPR, he could probably live with. And that is the more likely, although it will take an age to come. The second, treating the platforms as publishers (i.e. with legal responsibilities for the content they put up), is one he would resist with all his being.
This is the one we need but, sadly, I can’t see it happening.