Ad agency merger more about egos than efficiencies

An ancient and venerable Hindu once contemplated his navel for seven years and came to the conclusion that there was nothing in it.

I came to the same conclusion about the recent proposed merger between advertising conglomerates Omnicom and Publicis – admittedly after a much shorter period – in spite of the fact the Financial Times had plastered the story across its front page.

Not many stories about advertising agencies make the front page of that paper and it has been a long time since any such story achieved this level of prominence. It’s hard to see why this one should be different.

The logic of this deal has more to do with the egos of those at the top of their respective organisations and potential share gains from cost savings than from any benefits likely to accrue to the clients of the respective agencies and, as for the thousands of staff involved, you can be pretty certain their interests were given scant consideration.

But even the promised benefits to shareholders may prove illusionary, as there is considerable academic evidence to suggest that mergers of this size devalue rather than increases shareholder value and that senior managers invariably overestimate the benefits.

Credibility

Three reasons have been offered to lend credibility to the deal. The first is to do with media buying, an area where size does matter. The combined media-buying operations of the merged group will be able to do better deals with media owners, especially the giant global ones, which could result in savings for clients and more revenue for the new group.

The second advantage that might accrue from the deal is increasing clout in trying to break into new markets, especially China, whose vast size requires equally vast resources to make an impact.

The third reason is inevitably to do with the digital revolution and the emergence of “big data”, which claims to have found the Holy Grail of marketing: the ability to target specifically relevant messages to individual consumers. You need big resources to cope with big data.

But in the new edition of Mark Tungate’s Adland: A Global History of Advertising, the author, having considered the impact of the increasing power of four or five global advertising behemoths, their media-buying power and the opportunities afforded by digitalisation, concluded that “creating ideas that people want to spend time with” remained at the heart of the business.

The capacity to perform this critical task is not in any way dependent on size and may in fact be more inhibited by the inevitable lack of agility of the overweight.

The boss men and women of the Irish offshoots of the two groups have already been at pains to point out that the merger does not presage any changes here and they are probably right. But every consolidation of power in the global market ultimately creates problems for small domestic markets like Ireland.

Power naturally gravitates to the centre and in the past few years we've seen a depressing amount of business transferred from Irish agencies to "the
mainland".

The fact that the resulting campaigns have been uniformly dreadful is a small consolation but sadly butters no parsnips.

The continuing viability and health of Irish advertising is more important to our economic recovery than I suspect the political, administrative and business establishment realise. Notwithstanding the continuing success of IDA Ireland in attracting foreign direct investment, we are going to need a much stronger performance from the indigenous sector in the immediate future, and success in any business sector is nowadays more dependent on being well turned out and having a good story to tell than ever before.

Advertising agencies have more experience and expertise in these branding skills than anyone else and are therefore a critical resource for emerging Irish businesses.

Negative consequences

Before leaving the subject of advertising megamergers, it should be noted that they may also have negative consequences for the already battered domestic media market. Transnational deals between the big media buyers and the global media organisations like those controlled by Rupert Murdoch can also leave domestic media in small countries out in the cold.

Perhaps Minister for Communications Pat Rabbitte and his department officials should be taking this into account in their current review of Irish communications strategy.

John Fanning is an adjunct faculty member at UCD Michael Smurfit
Graduate Business School and a former chairman and chief executive of
McConnells Advertising