The Real Reason Publicis And Omnicom Are Merging

The merger of Publicis and Omnicom is yet another sign that the traditional media and advertising business is being disrupted. When this wave of consolidation is over, there will be just a few major holding companies left. At that point there will be a holding company for each of the top two or three brands in each category (auto, telecom, CPG, beauty, etc.), and then a roiling, vibrant economy of emerging brands, independent agencies and new technologies.

The driving force behind holding company consolidation is not the desire to align to the needs of mega-brand clients or to stop the downward pressure on agency fees. If that were the case, holding company shareholders would have demanded this merger years ago.

Publicis and Omnicom are merging because of us. Anyone who has used Facebook, done a search on Google, or watched Netflix instead of buying a local newspaper, using the phone book or watching broadcast television has contributed to this merger. Omnicom CEO John Wren alluded to this when he spoke to journalists yesterday: “We have many new competitors,” he said.

The feud between Publicis CEO Maurice Levy and WPP CEO Martin Sorrell looks like an old-time media industry version of the Hatfields and the McCoys when viewed against the backdrop of what consumer behavior and technology are doing to the media and advertising business.

For years, offline media people — especially the TV guys — have lived in relative ignorance of the coming changes to the industry. This was because even as broadcast television audiences were shrinking, the prices for TV advertising continued to go up. The simple economic principle of supply and demand has extended careers in TV advertising far longer than anyone imagined.

But the future has finally arrived. The massive Millennial generation, those born after 1980, are now entering the workforce and have increased buying power. Other than tent poleevents like the Super Bowl, broadcast television has much less relevance to this generation. These are the kids who popularized Facebook, Twitter, Pinterest, and Snapchat — and god knows what else is coming next. So it’s not surprising that traditional mass marketers like McDonalds now have a “Millennial problem."

Of course, it’s not just the Millennials who are to blame. Netflix hooked Gen X’ers like myself on occasional DVD movie watching, and then mainlined us with their streaming, on-demand video service. Netflix is now a nightly and completely ad-free habit. As a result, we are part of Netflix’s data set, not Nielsen’s. And that’s exactly what worried Publicis CEO Levy. “The explosion of Big Data,” is how Levy described the threat from new-media giants.

With this in mind, agency holding companies are finally waking up and circling the wagons. They have come to see what many of us have known for a decade: digital media and big data are going to change everything.

The only question now is if this merger will make a difference.



5 comments about "The Real Reason Publicis And Omnicom Are Merging".
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  1. Mike Einstein from the Brothers Einstein, July 29, 2013 at 11:19 a.m.

    Even as a shadow of its former self, broadcast television remains the reach devil we know and the branding medium of first choice, period. And the reason McDonald's has a Millennial problem is because online advertising can't possibly work in an on-demand media universe. Otherwise how do you explain the fact that you can buy a thousand ad impressions on Facebook (the Millennial Temple) for thirty cents? Like I said, worthless. And that's not just my opinion. It's clearly the opinion of the folks buying and selling thirty-cent CPMs. It's like a baseball coach describing a player by saying: He's not much of a hitter, but he's slow.

  2. Al DiGuido from Optimus Publishing, July 29, 2013 at 11:41 a.m.

    Pretty sure that in this case...Bigger is most certainly not better in terms of helping marketers navigate the shifting media landscape. While this is a great financial engineering play; waking up this morning, I am pretty sure that clients in both of these mega agencies are scratching their heads as to how all of this helps them achiever THEIR goals..My sense continues to be that in order to market effectively in 2013 and agency needs to be incredibly nimble and innovative in operating and executing on new ideas and strategies to engage customers. None of that comes to mind as core to announcements like this one. Advertising is increasingly becoming more "direct marketing" like in terms of the need for relevancy and personalization. Using a sledge hammer as the tool of choice doesn't seem like the best use of anyone's time. Look for a rise in the number of midsize agencies who take on bigger assignments as a result.

  3. Ian Gilyeat from I.R. Gilyeat & Company, July 29, 2013 at 2:03 p.m.

    Interesting takes on the merger announcement. We should also consider that the ad companies have been moving in this direction for multiple years. Still, these holding companies have a long way to go to get scale of digital platforms into their operations. Doing data mining on Twitter in order to craft better ads is not the same thing as automating the data mining process and delivering personalized content to customers even while the consumer controls what, when and where they consume that content. In addition to data scientists and ad serving networks they better think demand planning through supply chain management processes... and Al, is right in highlighting the continual march back to disciplines of "direct marketing."

  4. Paula Lynn from Who Else Unlimited, July 29, 2013 at 7:43 p.m.

    Mike, you are as sharp as ever. The more data driven objectives and paths, the more costs to market, to make messages and get them out and the more the costs will be added on to the consumer and the more money, power and control is added to the top few and Wall Street powers. It's part of a bigger game.

  5. R.J. Lewis from e-Healthcare Solutions, LLC, August 3, 2013 at 9:46 p.m.

    Mike, I totally agree that the ad agency business model is quickly being disrupted? With Google, Facebook and others increasingly disintermediating agencies though easy to use self-serve data driven platforms, how much of this merger is purely scaling for the sake of long-term survival?

    With new players like Amazon moving into the data-driven advertising realm, I think a large agency like the newly combined Publicis Omnicom could try to do something radical like broker an exclusive deal w/ a party like Amazon to "own" a piece of big data while simultaneously dealing a blow to both Google and Facebook (their new competition).

    Either way, it's obvious to clients that increasingly the agencies will deal with significant conflicts of interests. This is already the case w/ their "in-house" trading desks. Who's best interest they are operating in... their clients?... or their own?

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