EMM in the News

More Bang - same bucks?

By Gary Silverman
Published: September 20 2004 17:07 (Financial Times)

Whatever its other virtues, WPP's $1.5bn purchase of Grey Global of the US makes it the top player in what is rapidly becoming a key part of the advertising business.

It goes by the name of media buying and planning, and it is gaining importance because advertisers are growing confused. Dwindling audiences for network television, and the rising popularity of cable channels and the internet, are making it harder for advertisers to reach large numbers of consumers at any particular time or place. Media planners and buyers help advertisers figure out where to put their marketing messages to get the most bang for their buck.

Sir Martin Sorrell, WPP chief executive, said last week that the media buying and planning arms of WPP and Grey had combined revenues of $1.2bn last year. That compares with $960m at Publicis, $803m at Interpublic, $703m at Omnicom, $700m at Aegis and $276m at Havas, according to the Sanford C Bernstein brokerage in the US.

It is a measure of the power of the combination that even critics of the deal see opportunities for economies of scale and improvements in service as WPP adds Grey's MediaCom unit, the world's eighth-biggest buying network, to its stable.

"To me, that is the central positive I can find," said Michael Nathanson, a Bernstein analyst, who had said WPP would be better off using its spare cash to buy back shares from its investors. "It is a business of scale." How WPP's media resources will be combined is being worked out. Sir Martin cautioned against assuming that MediaCom - which is strong in the UK and Germany - would be folded into WPP's operations. WPP's media assets are housed in its Group M; its brands include MindShare, the world's second-biggest buyer after Omnicom's OMD, and Mediaedge:cia, the seventh biggest, according to RECMA, the research company.

The combined buying power of WPP and Grey would suggest that it could get better advertising prices for its clients. But analysts and industry consultants expect that the bigger pay-off could come from combining intellectual resources - number-crunching techniques, as well as market knowledge.

"The real benefit will be putting all that cleverness together," says Stephen White, chairman of Effective Media Management, a consultancy that helps companies audit their advertising spending. "I would suggest more pick-up over time will come from having the resources to give them greater strength in planning, research and strategy."

Andy Perch, chief executive of Billetts Media, an advertising auditor, says: "Clearly, there are complementary skill sets and systems that each party can bring to the other." For example, he says, Group M has tools for global clients that should be of use at MediaCom, while MediaCom's abilities in direct marketing should help WPP.

However, outside experts are less sure about whether the combined buying power of WPP and Grey will produce much lower advertising prices for their clients.

"In many markets, additional volume should bring cost savings and negotiating leverage that they didn't have before - if they choose to use it," says Perch. "It's not necessarily a given that MediaCom and Group M will negotiate together in every market. In some markets, they might choose not to." Recent US experience also suggests that a smaller number of buyers does not necessarily translate into lower prices for advertising. Nathanson said US consolidation has had a "perverse effect" - higher prices for network television time.

Michael Neiss, a managing media director at Interpublic's Lowe Worldwide, says the problem is that with media fragmentation, US advertisers have to buy more network TV time to reach the same number of consumers as before, squeezing supply and driving up prices for advertising. The more clients a buyer has to satisfy, the greater the desperation to buy, he argues. "From a media buying organisation standpoint, the larger you are the more inelastic pricing becomes," Neiss says. "It limits your ability to say no and seek an alternative. I don't think there will be a straight-line impact on media efficiency. It could go the other way."

Nevertheless, it is certain that the WPP-Grey deal will increase speculation about further consolidation in media buying and planning. The benefits of scale - particularly in back-office activities - are hard to deny.

Only days before the WPP-Grey deal, for instance, Publicis created a new management structure, Publicis Group Media, to identify opportunities for its media planning and buying networks - Starcom MediaVest, the third-biggest buyer, and ZenithOptimedia, the fifth-biggest - to work together.

Maurice Levy, Publicis chairman and chief executive, might as well have been speaking for the rest of the industry when he discussed his hopes: "The best way for us to protect our margins is to bring the best deals to our clients. Obviously, we will continue. We believe we will be in a position to bring the price [of advertising] slightly down."