DUBAI: Wider consolidation in the advertising industry is “unavoidable” and “inevitable” as the sector faces a tough economic climate and continued disruption.
The sector has seen a string of mergers — and acronyms abound.
In September, WPP merged VML and Y&R, creating a single global agency network called VMLY&R.
Two months later, WPP’s J. Walter Thompson — the oldest US advertising agency — merged with Wunderman to create Wunderman Thompson. Both acts were born out of a need for WPP to consolidate and simplify the group’s structure.
The mergers are part of a three-year plan of “radical evolution” by WPP to deliver improved performance, with the results of a strategic review announced earlier this month. The plan sets out to return the business to growth, promising to deliver organic growth of at least 15 percent by the end of 2021.
“The restructuring of our business will enable increased investment in creativity, technology and talent, enhancing our capabilities in the categories with the greatest potential for future growth,” said WPP Chief Executive Mark Read. “As well as improving our offer and creating opportunities for clients, this investment will drive sustainable, profitable growth for our shareholders.”
Far from being isolated incidences, wider industry consolidation is likely, with the ripple effects of consolidation almost certain to be felt across the Middle East.
“I think further change in the industry next year is inevitable, though there will be some clients who will always require a degree of scale that no longer equates to having an office in every market,” said Seyoan Vela, executive creative director at Dubai-based independent agency Livingroom.
“Having the right capabilities delivered from key locations is becoming more and more important. That is obviously going to affect agencies in the region.
“In general, big network agencies have for the last decade been slow to adapt to the demands of their markets, being tied to legacy ways of working. On top of that, many of them have not been great at doing what they advise their clients continually to do — have clear and distinct differentiated positioning in the market place. The ones that do — be it TBWA or DDB, Ogilvy or BBDO — I think will continue to thrive and have a reason to exist. Many others though are going to struggle unless they radically change their offering enough to change perceptions of their brand — and that is more likely to happen through a merger than it is by releasing a new vision or mission statement.”
The past few years have not been easy for traditional advertising agencies. They have struggled to reinvent themselves in the face of technological revolution, and watched as falling budgets took their toll. Consumer consumption habits have also shifted dramatically as competition from consultancies has increased.
Many clients have also taken their communications needs in-house. According to the Association of National Advertisers in the US, 80 percent of its members now have some form of in-house agency, compared with 58 percent five years ago.
Reda Raad, chief executive of the Dubai-based agency TBWA\Raad, said “further consolidation is not only inevitable but necessary” in the industry.
“Clients don’t want complexity, they want simplicity. They want to be able to go to one agency for all their needs. Which means that an agency must be more nimble, more integrated, more customer-centric, more brand-centric, and put the consumer at the heart of everything,” he said.
In many ways, agencies have been their own worst enemies. They have moved from being privately held, vision-based propositions that delivered ideas, to being publicly traded organizations governed by strict financial metrics, said Kamal Dimachkie, chief operating officer at Publicis Communications MEA. The need for future-facing solutions and new skills has also been a challenge.
“Brand agencies are finding that they not only have to change to keep pace, but they need to metamorphose and rejuvenate to deliver on the business needs of the brands they service,” said Dimachkie.
“Clients’ cries for more agile and nimble cost-efficient solutions will not disappear because the industry is unprepared to meet them.
“We should expect more of such announcements (as the recent mergers), which will sometimes be loud and other times more discreet,” added Dimachkie.
“Either way, the march to consolidation is unavoidable and perhaps long overdue. The bottom line is that we should all hope it will be regenerative and create healthier offerings and dynamics for those who work within these companies.
“When natural organic growth doesn’t suffice, consolidation becomes an unavoidable imperative as the focus on generating efficiency becomes sharper and the need to deliver an improved return on shareholder values becomes even more pressing. Today, this is further exacerbated by a depressed economic outlook and an alarmingly shrinking industry. Not only has the drive to consolidate become obvious, it is actually urgent and immediate.”
