Don't Write Off The Holding Companies Just Yet

Is it really the end of the road for the massive holding company? Is it really a case of change or face extinction, as a contributor suggests this week in The Drum?

Those who suggest the holding company agency model is facing the end of the road certainly got a report to refer to when Forrester recently suggested that today's setup doesn't meet the needs of a modern CMO. The argument wasn't particularly new but, of course, it does come at a time of potential great change for WPP -- the subject of the report. 

The argument, that has been made before, is that a modern CMO wants digital transformation and answers to the big problems they face and that quest can be hampered by signing up to a massive holding company through which all decisions of whom they can subsequently work with are made.

It's a very logical argument, and it's one I hear in informal discussions with client-side marketers. Someone signs a mega-deal with a holding company and then all of a sudden some snazzy, smart ladies and gents are telling them what they should be doing. Not only is there an invisible shift in the power behind the strategy, but also the execution. More often than not, those kind folks at the mega-agency have just the team required from sister agencies to make sure an entire process can be handled under one roof, although often not off one P&L account. Those bills tend to creep up as new talents and skills and requirements are added.

So there is a sound logic behind some brands needing to grow a bit more of a spine and ensure the people at the coal face have a say in whom they work with and agencies aren't left to bring in teams from sister companies unchecked. 

It's also true that the days of the mega agency's trading desk coining it in through rebates and topped-up fees could be drawing to an end. The clarion call is resounding around the whole of adland. Brands want greater transparency.

Now, I think only a fool would say WPP might want to shed a few agencies and streamline the rest. But does that mean the holding company model is broken beyond repair?

The answer is probably not, or at least, not immediately. The reason lies in the huge media deals that are being signed regularly by the likes of airlines, carmakers and FMCG giants. These are multi-million deals that are changing hands between the media operations owned by the holding companies. 

I have talked to people involved in the process before, and although the wording seems grandiose, it's generally all about cost. The huge brands want a better deal and they generally want it halfway through their existing contract. Hence, a large agency can only celebrate for so long, they will soon be repitching for the work they have just won and have to be resigned to the fact it may be "bought" by another agency.

These deals effectively require media agencies to take a punt on what inventory will cost in a year or two's time and that they can deliver x for the cost of y. There are not so many small media agencies that can compete on contracts against the guys with big pockets who can stand by a bet they made at the start of a bidding process.

So I wouldn't be in such a hurry to write off the holding companies completely. Every review is almost certainly cutting into the margins that were previously relied on to bring the big bucks into the sprawling holding companies. And transparency is a major catalyst for agencies. They can either embrace it or lose out. 

Reform, streamlining, lower margins and more transparency are most certainly arriving at the holding companies, and they would be foolish to ignore the way the industry is going. But facing extinction? I'm not so sure. Reform is far more likely than a complete revolution -- in the short to medium term, at least. 

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