Consolidation is in the air in 2024

Consolidation is in the air in 2024

The merger between VMLY&R and Wunderman Thompson is likely to kick off another wave of consolidation in the agency sector next year that could lead to the elimination of more storied agency brands.

It’s no secret that the agency business is under pressure.

From increased pitching demands to squeezed fees, agencies are required to do more with less while adapting to new technologies and consumer habits that threaten to further upend the business.

The proof is in the pudding.

Revenue at WPP’s integrated creative agencies dropped 1.1% in Q3 and 0.9% in the first three months of the year, while media growth slowed significantly.

IPG’s integrated advertising and creativity-led solutions segment, which includes its creative agencies, decreased 4.1% organically in Q3. Media grew, but even CEO Philippe Krakowsky admitted the group’s $2 billion bet on Acxiom in 2018 isn’t paying off as well as expected, sparking a reorg at Mediabrands in September.

At Publicis, despite outperforming across the board, and in media in particular, creative agencies grew low single digits as clients made cuts to what was once this sector's bread and butter: “classic advertising.”

In fact, Omnicom seemed to be the only major holding company to see solid growth at its advertising and media division in the most recent quarter, up 6.1% YOY.

These lackluster numbers have already spurred some holding companies into action.

In October, WPP merged VMLY&R and Wunderman Thompson, two very large agencies already both the product of previous mega-mergers. The idea is to create a “super-agency” that services brands across three areas: brand experience, customer experience and commerce — while achieving millions of dollars in cost savings.

Further cost savings for WPP will come from a restructure of GroupM, which occurred just over a year after another mega-merger between Essence and MediaCom.

With these consolidations, WPP is attempting to do what some of its peers already have — streamline back-office operations to achieve cost savings and offer more integrated, less siloed solutions for clients.

The strategy is not new — Publicis put its agencies on country-level P&Ls (a move that GroupM is now adopting) back in 2018, and Havas implemented its similar “village model” as far back as 2012. Dentsu is still working through a consolidation from 120 agencies into six.

Some of these strategies have played out more successfully than others (see: Publicis’ stock price compared to its peers). Each has been billed as a way to better access the breadth of talent and services holding companies can offer their clients.

But the push toward simplification and evolution has not come without costs. And some are pushing back against the notion that in this pursuit of agility and better financials, agency brands no longer matter.

There’s been much ink spilled about the erasure of the J. Walter Thompson, Wunderman and Young & Rubicam brands, a sign of the times that Madison Avenue nameplates no longer hold weight in an era dominated by technology.

This week, FCB Global CEO Tyler Turnbull penned an op-ed for Campaign US defending the relevance of agency brands to attract and retain the best talent. Omnicom has also made a point to bolster its agency brands in pursuit of a more agile model for similar reasons.

In her latest Creative Fix column, my colleague Sabrina Sanchez questions what defines a creative agency at a time when holding companies are shape shifting in a way that attempts to be all things to all clients.

But no matter how much the industry wants to hang onto its legacy, the hard truth is that publicly listed companies need to grow — and mega-consolidations present cost-cutting opportunities that are too tempting to pass up.

I believe the industry will continue to streamline and consolidate in 2024 — regardless of whether that means it has to leave decades of legacy behind.

Correction: This story previously said IPG paid $3 billion for Acxiom. The correct figure is closer to $2 billion.

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