Mediapalooza hit the marketing lexicon back in 2016 when dozens of big clients and brands were stung by a report from the ANA (Association of National Advertisers) doubting the transparency of media agencies in the way they did business.
This resulted in a series of eye-watering multi-billion-dollar media and creative reviews, with virtually every significant global advertiser choosing to reset and make sure it was getting the best, most transparent, and effective deals for its marketing bucks.
The review bonanza was also driven by rapidly changing media consumption habits of consumers, especially in the lucrative 18-34 age segment. It is further impacted by the rise of Google, Facebook, and Amazon and the effectiveness of advertising and marketing spend in that context.
When I say eye-watering reviews I’m talking about the scale of spend, which dwarfs the amounts companies spend on PR and in some ways accounts for the position communications finds itself in the pecking order, especially in the big holding company structures. This is especially true in the consumer packaged goods, food and drink sectors.
Clearly a lot of these budgets are pass-through monies that eventually end up with the media owners. And if PR folks think they are under increasing scrutiny from procurement departments then they should try being in the shoes of their media agency colleagues for a few days.
Here, the review process revolved significantly around caveman-style (it’s usually men) Trumpian macho media deal-broking, spreadsheets, and shaving off fractions of percentage points. Although, again, in an age of digital media that is changing and programmatic buying ruled by algorithms is increasingly taking over.
Creativity, customer service, chemistry, and synchronicity all play a part, but the numbers are king, however much the agencies may claim to the contrary. That’s why massive buying operations such as WPP’s GroupM, Omnicom Media Group, and IPG Mediabrands have evolved to pool their buying power across multiple clients and get the best deals possible from media owners. (That’s also why they potentially fell foul of the ANA, but that’s a story for the ad trades to cover...)
In Japan, Dentsu is a marketing services behemoth that bestrides the agency sector with all-powerful heft and reach. It increased its influence when it completed its acquisition of media powerhouse Aegis in 2013 and formed the Dentsu Aegis Network to house all its international brands.
Dentsu has an in-house PR function as well as a separate Dentsu PR business. Client conflicts don’t seem to bother businesspeople in Japan as much as other parts of the world and these two operations also helped alleviate this issue.
Outsiders would rather scathingly look at the way Dentsu operates and accuse it of bundling in PR services almost as a freebie to convince clients to give it the more lucrative creative and media elements of their spend.
But with the increased tendency for all the holding companies to go to market with a more integrated sell, I can’t help wondering if PR is increasingly being positioned like this all over the world. And I can’t see how that is positive for the profession in any possible way.
Look at Publicis and its Power of One proposition, or the Team WPP approach of the formerly Martin Sorrell-helmed operation, or Omnicom’s increasing centralization around discipline-oriented groups that go to market together in the hope of hooking the big fish.
In all of these structures there is an element of PR having exposure to the bigger marketing budgets and a more visible seat at the holding company table. But there is also a danger that they too will start to downgrade the PR element of the mix and throw it into the pot as a cheap sprat to catch an expensive mackerel.
This may go some way to explaining the decline in global PR agency year-over-year organic revenue growth in 2017 to 4% from 6% during the year prior, and an even more stark drop from 7% to 2% growth in the U.S. over the same period. This at a time when U.S. business seems to be booming, corporate taxes are down, inflation is steady, and companies across the board are posting higher profits than ever.
Independent players such as PR industry behemoth Edelman aren’t subject to the same holding company drive toward horizontality, but they are certainly playing in the same market and trying to win big name client assignments in the face of these integrated plays.
Holding company-owned PR firms often complain that Edelman can undercut them on pricing to win accounts because, as an independent company, it doesn’t need to hit the same margins as those insisted upon by John Wren, Arthur Sadoun, Michael Roth, and whoever replaces Martin Sorrell. But the latter's integrated ‘Power of One’-style propositions are looking to circumvent the PR pitch process altogether and bag the comms business as part of a bigger prize.
According to media and advertising consultancy R3, this has already been a massive year for creative wins globally, with business up for review increasing 57% amid big alignments from clients including Nestlé, Procter & Gamble, and others. The firm says clients are moving larger pieces of business than in 2017.
It’s been a huge year for U.S. creative agencies especially, with revenue up for grabs increasing 88% and Saatchi leading the way on P&G.
Globally, R3 says the situation with media reviews is similar to last year globally, but it is up 70% in the U.S., with Initiative and Hearts & Science leading the way.
The trends show no sign of slowing down, with this week’s news about Mars consolidating its $1.4 billion media spend with WPP’s GroupM and Publicis, at the expense of Omnicom; and the same two holding companies winning in Mondelez’s media review - estimated at $1-1.5 billion by R3 – with Dentsu/Carat losing out.
Pharma and consumer heath group GlaxoSmithKline is reviewing its $1.75 billion global media agency arrangements. Confectionery, food and beverage giant Nestle is looking to save money by consolidating its U.S. creative business into fewer firms.
In addition, Publicis’ Starcom and Omnicom’s OMD are currently going head to head on a noteworthy McDonald’s global media review. And Ford is also in the middle of a significant global creative review.
The world of marketing services is changing and the trend toward integration and consolidation is not going to stop. I’m fully aware that there’s a whole eco-system outside this world, in which small and midsize PR firms are prospering, as evidenced by the in-depth analysis in this year’s PRWeek Agency Business Report.
But the holding company PR firms do account for around four in every five dollars spent on PR agency services, so the impact is undoubtedly significant.
I sincerely hope the trend of PR being thrown in as a makeweight commodity in much bigger deals does not become too commonplace, because that will ultimately lead to lower-quality, watered-down earned media services that struggle to distinguish themselves from the offerings of harder-charging holding company agency siblings.