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Behind the Numbers: an EMARKETER Podcast
The Daily: The Omnicom/IPG deal, and What It Means for The Advertising Universe | Dec 24, 2024
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- [00:00]
Marcus
Data collaboration enables innovative companies to uncover powerful new insights that transform customer experiences and fuel business growth. With Liveramp, marketers get the industry's only interoperable platform for data collaboration across every cloud, walled garden and media platform.
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Daniel Constantino
Learn more@liveramp.com but what these really big holding companies are competing for are these like top of the pile clients with big ad spending budgets who there is a lot of competition for. So the question is, you know, will this help them win a larger share of those clients?
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Marcus
Hey, gang. It's Tuesday, December 24th. Danny, Jeremy and listeners, welcome to the behind the Numbers Daily and Emarks podcast made possible by Live Ramp. I'm Marcus. Today I'm joined by two gents. Let's meet them. We start with our senior editor of the marketing and Advertising briefing. He is based in New York. In New York City, it's Daniel Constantino.
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Daniel Constantino
Hello. Happy to be here.
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Marcus
Hey fella. Also based in that very same city, he is our senior director of briefings. It's Jeremy Goldman.
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Jeremy Goldman
Greetings and salutations, hey fella.
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Marcus
So we start with the fact of the day, of course. Who invented the submarine? So, Dutch inventor Cornelis Drebel, born in 1572, was an engraver and a glass worker who later turned to applied science. In 1604, he went to England, where King James the First became his patron, according to Britannica. In 1620, he completed his diving boat. Propelled by oars and sealed against the water by a covering of greased leather, the wooden vessel traveled the River Thames in London at a depth of 12 to 15ft, about 4 meters from Westminster to Greenwich with about 16 passengers. Air was supplied by two tubes with floats to maintain one end above water. So he was the original inventor. And then American, John Philip Holland, born in 1841, he's considered the father of the modern submarine designing and building the first underwater vessel accepted by the US Navy.
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Daniel Constantino
You know, usually you will give us a chance to guess, but I am really sorry that I'm really grateful that you didn't this time because I had no idea.
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Jeremy Goldman
How does somebody go from like, I'm really good at glass making. I should probably, I know, make some vehicles that could, like, forget about, like, I couldn't make a boat, you know, but like, he's going to be like, I'm going to make things that go underwater and don't kill people. So good for Cornelius, it is quite.
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Marcus
The pivot from glass maker to submarine inventor. But he apparently, when he got to England, he devised this ingenious little device called the perpetual motion clock, which is actuated by changes in atmospheric pressure and temperature. And that made him very famous, greatly enhanced his reputation. So that's how he pivoted. It's still quite the pivot. An incredibly impressive invention. Submarines and their crew, they can stay underwater for months at a time and can travel about 35 miles per hour.
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Jeremy Goldman
It's like if you went from podcast host to exotic dancer.
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Marcus
It is similar. Yes.
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Daniel Constantino
Yeah, that's what I was about to say.
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Marcus
Yeah, it's exactly like that. Can't say it's crossed my mind, but I. So you guys are stuck with me for now. Anyway. Today's real topic, the Omnicom IPG deal and what it means for the advertising universe. On December 9, Omnicom and Interpublic IPG, the world's third and fourth largest ad agency, holding companies by revenue, propose to combine to become the biggest ad agency in the world, notes the Economist. Under the deal, which Omnicom said expected to close in the second half of 2025, Omnicom shareholders, they get to own about 60% of the combined company. IPG shareholders, we will get the rest. But Daniel, start with this question. You wrote about this for us. Why are Omnicom and IPG merging?
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Daniel Constantino
Well, there's a couple of reasons. These agencies have been consolidating a lot of their units in the last couple of years, trying to become more efficient, reduce costs. And part of that, I think, is perhaps or now can be viewed as enabling a merger like this. I mean, there was a attempt to merge in 2013, I think, between Omnicom and Publicis that kind of fell apart because there were a lot of complicated moving parts. Now, perhaps that's a little bit less of the case, although there will be a lot of redundancy in this newly merged company.
- [04:51]
Marcus
And part of the problem really quickly, part of the problem there. So it was $35 billion deal potentially, but it did fall through and in part was because they were kind of battling over who would control certain positions in this combined company. And the two of them couldn't even even agree on which company was going to be the buyer, going to be the acquirer. Whereas this, it does seem there's a much clearer, you know, Omnicom is bigger, IPG isn't quite as big and maybe needs more of the help. And so it seems like there's a clear understanding of who's getting acquired by who. And that's made, it seems like it's made this much more likely to gone through than, or to go through than that deal 10 years ago.
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Daniel Constantino
I think also, you know, aside from streamlining the businesses to make a merger like this easier, the reason there has been this kind of streamlining is because there's a real demand from clients for like full, full service agencies that can do everything from creative to maybe not handle buying, but you know, help buying, that has AI tools that marketers can use, that has a large pool of data to pull from. And when you're combining two of the largest four ad agencies you, in which, you know, this merged company would become the biggest one, that is a lot of valuable data that I'm sure you know will attract business or that will help existing clients do even better.
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Jeremy Goldman
And by the way, and I know we'll get to this, I think all of that is true, but we should kind of look at this through like a clear head about like that's like the best case scenario of all of these investments that they've made over the years, particularly like the AI partnerships more recently. All of those can work out really well and seamlessly. They figure out how to fold these things together. There's also a world in which it doesn't, in that it takes longer to integrate all these facets of their business and it, it doesn't put them necessarily at a competitive advantage. You know, like, does that scale wind up working against them, which is a real possibility as well?
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Marcus
Yeah, it's, there's a lot to pull together here and it could be a huge distraction. I mean, anyone who's been part of a merger knows just how difficult things can get and how nervous everyone is and how much of a focus there has to be internally on making sure that everything comes together and is lined up correctly. And whilst that's all going on, existing clients could be the ones that lose out. Shiv Singh, former CMO of mortgage broker LendingTree, was saying something on this scale will be a huge distraction and every CMO who's a client of theirs will be worrying about getting the attention they deserve. A Wall Street Journal piece saying that clients worried about distractions or the elimination of their agency brands might consider working with other holding companies as the combined Omnicom works out the kinks.
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Daniel Constantino
Yeah, I think that's an interesting point. I mean, there are sure to be redundancies as a result of this merger and layoffs to come. And you have to wonder, like in those layoffs, what if people that a certain client of, you know, either of the two companies works with very closely are affected by layoffs, does that affect the client's desire to keep working with that company. There's a lot of risk involved for sure. But you know, clearly they think that the benefits of technology data, just like full funnel capabilities, perhaps outweigh the risk of losing business in the short term.
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Jeremy Goldman
Yeah. You know, the companies, I think, and I think Danny had this in his piece. The companies project savings of 750 million within two years, which is great. But that for the most part, I would imagine is going to go to the company's bottom line. It's going to not necessarily go towards cutting costs to service clients. The clients that have signed major multi year deals are not going necessarily get a better deal as a result of that. They're still going to be paying quite a bit. The company wants to be competing with blue chip clients and as much as possible. So again, they're not really trying to compete on price. And is this better for the bottom line and the financial health of these companies? I would say yeah. But at the same time, if you're a major client of these companies, you don't care about Omnicom's or IPG's overall financial health, provided they stay in business. Right. So good for them as holding companies. Absolutely. Is it necessarily in the short term as good for the clients? You know, that remains to be seen. They definitely have their work to do in order to show that this can be like advantageous to the average client.
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Marcus
Yeah, yeah. As Jeremy mentioned, a lot of money they're hoping to save every year by merging shared functions, spending on vendors, real estate, service centers, things, things like that. And Danny, to your point, I think it's a good one. There are going to be people who walk, who leave either on their own accord or forced out, and people at every level, you know, high level execs included. And a lot of the time, you know, to what you were saying, they've developed close relationships with clients and they could suffer as a result.
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Daniel Constantino
Yeah. I think, though maybe as a counterpoint to my own point, you know, this is something they're definitely going to take into account when they're making these layoffs. But maybe, and I don't know if you agree with this, Jeremy, but we can view this merger happening despite all of these potential drawbacks, as a sign from the two companies that they think client. What clients value more than perhaps these relationships with people at the holding companies are the technological benefits like the access to AI tools and the data that will be available.
- [10:37]
Jeremy Goldman
I think that's. By the way, Marcus, that's a really good point that Danny's making. Just in the sense that from an opportunistic standpoint, this is almost the kind of thing that you have to do if you're a major holdco in order to just have a chance at relevancy going forward. You know, Big Tech, I would say more and more are making these plays directly to brands and advertisers. Go ahead and use our stuff and we're going to reduce friction. We're going to be able to serve you to some degree at scale. It's not to say that Big Tech isn't working directly with these major holding companies, they are, but at the same time, you know, you have to make major investments in AI solutions, in sophisticated data plays if you want to increase relevancy. You need to give the average major advertiser reasons to come to you as an agency. And I think that frankly it seems like a very difficult time to be a major holding company right now. Think about all of the really great low friction tools that are being put in front of advertising advertisers. It's harder, I feel, year after year to justify your existence. If you're a network of these highly qualified agencies that have really great skills. It's not that they don't have value. It's that year after year it's going to prove harder to justify that value as there are more and more like freemium and low cost things where you can go directly to big, big Tech and transact with them.
- [12:08]
Marcus
Yeah, yeah. It makes you wonder maybe why this wasn't done sooner given everything that you've just said. And I know IPG CEO has been actively shopping the company and its parts for over a year now, but they do face a lot of, if you want to call them external market forces, for example, and trying to protect themselves against scary things like that. It's been something they've been trying to do for a long time. Even more so now with the advent of AI. Forrester recently saying that automation could eliminate some 33,000 jobs, or 8% of the workforce at ad agencies by 2030. And that's just in five years time now with various forms of AI being responsible for a significant portion of those losses.
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Daniel Constantino
Yeah, yeah. I mean, something we wrote about, I can't remember if it was earlier this year or perhaps last year when WPP signed a deal with Nvidia, an AI deal. Something that the CEO of WPP said was that, you know, he expects this to eventually lead to some job loss. And I think AI is something that has kind of loomed over the ad industry, is something that could potentially affect jobs. And then when you have this major merger that, you know, there will almost certainly be layoffs out of with those concerns. Like, I really wonder what the on the ground experience of an employee at one of these two companies is like right now and what they're feeling, wondering, fearful of. Because I think certainly there are things that are unique to working at one of these big holding companies, but in some level, the things that they are experiencing are probably being felt throughout the entire ad industry at firms of all sizes.
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Marcus
Yeah, it's a good point. I mean, it's been no secret, right, that the agency business at large has been hurting for a while now. And so to be part of that for a long period of time. Yet how do people who work at those places feel? The Economist had made a really interesting point. They were saying if you strip out the kind of up down period of the COVID 19 pandemic. The global ad agency industry has grown by barely 3% a year since 2018, according to Moffitt Nathanson. And speaking specifically to those big five, WPP Publicis, Omnicom, IPG and Dentsu, the biggest five agency holding companies, had a 30% share of all agency services revenue last year. That's down from closer to 40% a decade earlier, as an estimate from ad consultancy Madison and Wall.
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Jeremy Goldman
One thing that's really interesting though about this is that, and I checked, by the way, wpp Nvidia was as recent as June, late June. So.
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Daniel Constantino
Wow.
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Jeremy Goldman
Yeah, it's been a lot of stories we've covered this year, but I think that. And we've even covered how many people have been broadly like within the PR and advertising agency ecosystem in the US in particular. And we've seen generally relatively strong, you know, consistent gains within that world, which to me says that. I mean, again, this is a bit of a hypothesis, but there's relatively strong growth outside of like the big hold, cos there are smaller agencies and in part because, again, if there are these tools that are easier and easier to use, you can hire a small agency, if you're a brand, to do more basic things for you without a major retainer, you can insource and have, you know, a lot of components of your advertising and marketing, you know, like internal to your brand and then you can just hire a small agency to help you when you need it. I mean, there are a lot of jobs still within the marketing and agency world. It's not like this isn't like this is entirely going away, it just might be expanding and maybe there's less and less benefit towards being one of these Goliaths.
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Marcus
Yeah. These big agencies having to fight competition from all over the place where it's big tech and Google and Meta and Amazon, whether it's AI, whether it's each other, whether it's these small agencies that Jeremy's talking about.
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Daniel Constantino
Yeah. Or like consultancy. I mean, Accenture is a company that's also been pushing into some of this turf. So, you know, it's no longer just these big four advertising agencies. Like, they have several industries that are pushing into their turf. And to your point about slower growth, Marcus, and going all the way back to your first question of, you know, why now? If the growth is really slow, the best way to capture a larger share of the market is to consolidate. And you have an administration coming in that is expected to be very friendly to consolidation. And there are CEOs of other companies and adjacent industries where there is also a lot of saturation, specifically streaming and entertainment who are saying, like, oh, this administration is a green light, that we could do further mergers. David Zaslav, CEO of Warner Brothers Discovery, has been very public about, like, this is going to be good for industry consolidation. And the timing is very beneficial for something like this.
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Marcus
Yeah, yeah. No coincidence at all that this deal getting announced right on the heels of this new administration coming in. And it does seem like it's going to be favorable, this new administration for business. However, one reason Omnicom or two reasons Omnicom and Interpublic are hoping to join forces, the Qantas Economist article was saying, to protect themselves against the incoming Trump administration in this regard. One, Mr. Trump has hinted at curbing pharma ads, and that's 7% of the US ad pie right there, according to our forecasting team. So that could affect the advertising world. And then two, always talk about tariffs and starting a trade war could hurt big spending industries like cars and electronics as well. So more reasons to join forces and try to protect themselves from some of these things going on. And it's been no secret that IPG as well has been hurting for a while. It's no secret that agency business has been struggling. IPG in particular, they've lost business from big clients. Pfizer, Verizon, BMW, Spotify most recently lost most of its most lucrative account, Amazon ad buying assignments, which are split between Omnicom and wpp. So they have been struggling somewhat for a short while. Gents, let's end with this question. Jeremy, I'll start with you. Who do you think is going to be impacted the most as a result of these two big ad holding companies getting together.
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Jeremy Goldman
You know, I think that publicist is probably a really good example. Just obviously being pretty much going from the biggest to one of the biggest is obviously a bit of a change in terms of the market dynamic. I think that, you know, other competitors a little bit lower down the totem pole in terms of holding companies and beyond might feel increased pressure to offer similar scale and comprehensive services, which could obviously trigger another wave of mergers and acquisitions among ad agencies. So I think that's another thing that I'm keeping a lookout in early 2025 as well.
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Marcus
Danny, how about you?
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Daniel Constantino
Yeah, I mean, I think the answer is the holding companies themselves. There's been a lot of talk as this consolidation within the big four themselves has happened that, you know, this could affect demand for smaller firms for like boutique creative agencies, things like that. And while that's certainly possible because these big holding companies are offering a ton of data and technology in addition to some creative services, I do think that there will always be some market, even if diminished, for those, you know, sort of handpicked agencies. But what these really big holding companies are competing for is are these like top of the pile clients with big ad spending budgets who there is a lot of competition for. So the question is, you know, will this help them win a larger share of those clients? I think it's interesting that you've seen some of the companies that maybe are encroaching on agency space, trying to rely less on those top of the pile agencies. Like there are a lot of social media companies like Meta or even Snapchat that have released a bunch of advertising features and products that are designed to open a door to small and mid sized businesses because that is a much more stable, consistent pool of spending than, you know, I don't know, the McDonald's or Coca Cola's of the world, who everyone wants as a client. So yeah, I mean, the big clients are the ones that they're competing for and there's only so much room to move around there.
- [20:38]
Marcus
Yeah, yeah. It was already going to be a big year for the advertising world for a lot of reasons. One reason our forecasting team estimating worldwide total ad spend will cross the 1 trillion mark in 2025, up 9% year on year versus 11% in 2024 this year. So another strong year for advertising and a major milestone crossing that 1 trillion mark. And this just adds another plot twist to the continuing story and soap opera that is advertising space. We'll be keeping an eye on it in the new year. Now it's time to go enjoy some festive holidays with family and friends. Gents, thank you so much for hanging out with me for the last episode of the year. Thank you. To Danny.
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Daniel Constantino
Thank you. Always a pleasure and happy New Year.
- [21:23]
Marcus
Same to you friends. Thank you to Jeremy.
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Jeremy Goldman
Thank you. I'll be having some eggnog and toasting to many amazing podcasts from Marcus and team in 2025.
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Marcus
Eggnog.
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Daniel Constantino
We're gonna cook a quick scratchy eggnog. Teen crumpets. Teen crumpets.
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Jeremy Goldman
It's so good.
- [21:39]
Marcus
Thank you so much. Of course, to the whole editing crew, Victoria, Lance, John and Danny. Stuart runs the team and Sophia does our social media. Thanks to everyone for listening in to our last episode of the behind the Numbers Daily, an E Marketer podcast made possible by Live Ramp. As I mentioned, we'll see everyone again, hopefully in the new year on January 3rd for more behind the Numbers podcast content. That'll be the first episode of the new year and happiest of holidays to everyone. In the meantime.