)
How does the merger of $8.78-billion Publicis Groupe and $14.22-billion Omnicom, announced last Sunday, change the media landscape in India?
The question is critical — for rival media agency networks, advertisers and media owners. At over 300 million consumers, India is one of the world’s largest markets for everything from mobile phones and refrigerators to financial services and apparel. The happy subtext of this is a thriving marketing services industry. In 2012, marketers spent an estimated Rs 40,000 crore ($8 billion at the exchange rate prevailing then) on print, TV, events, outdoor and the digital media among other things to reach, remind and persuade Indian consumers to buy their brands. Of this over 70 per cent was spent through six large global networks such as Interpublic Group, Publicis and WPP. After the merger, the buying arms of Publicis and Omnicom will control over Rs 5,500 crore ($1.1 billion), or about 20 per cent, of the organised marketing spends, going by Paris-based research agency RECMA (See charts). This puts it firmly at number two in the pecking order, right after WPP which has dominated the Indian market for almost a decade now.
ALSO READ: Me too? Maybe not
The deal therefore redefines the power equation on the media side of the agency business. “The creative part of the business (the two own among other agencies Leo Burnett and DDB) may not be as affected. This move is driven by three things. One is the desire for clout in media buying; two, to counter the likes of Google and Facebook in the digital space; and three, to dominate the US and the emerging markets," says Farokh Balsara, partner and markets leader, India, EY (formerly known as Ernst & Young). He is one of the few people to come on record. Most of the CEOs within the networks speak off the record because of an international diktat against commenting on the deal. (INDUSTRY SHARES IN 2012)
The other possible implications? The squeezing of margins for media owners, as buyers become more powerful and another wave of consolidation as rival networks start eyeing independent agencies such as Allied Media (Percept) or Madison.
India impact
For historical reasons, WPP, till recently the world’s largest marketing services firm, has had a phenomenal headstart in India. When the Foreign Exchange Regulation Act, or FERA, came into force in 1973, many multinationals and their agencies left India. However Unilever decided to stay on. So, its agencies, namely Lintas, JWT and O&M, too stayed back. Later, WPP was formed. When it acquired JWT and O&M, it bought an unusually dominant share of the market. Martin Sorrell, WPP’s CEO, has believed, long before anyone else, that the future of marketing services lies in emerging markets. He has been hyper-aggressive about acquiring anything and everything in emerging markets, making WPP a colossus in China, Brazil and India, among other countries.
Currently, it controls over 40 per cent of all organised marketing spend in India, making it the leader by far. This merger challenges that dominance in one stroke by combining the planning and buying power of two of the largest groups in the world. This will mean better rates for advertisers, lower costs and more efficiencies. That is what WPP achieved when it brought together all its media buying agencies— Fulcrum, Mindshare, Maxus and others—under one umbrella called GroupM more than a decade ago.
More importantly, as Balsara points out, it makes a bold bid for potential dominance of the digital media, the fastest growing part of the marketing spend pie. At just over Rs 2,100 crore, digital ad-spend is growing at over 40 per cent per annum, four times the average growth rate of the industry. “The digital media will get a big boost with this merger,” thinks Balsara. “Both Publicis and Omnicom are way ahead (of WPP) in digital capabilities,” adds the former India head of one marketing services firm. Globally, Publicis has been very bullish on the digital media, acquiring a slew of brands such as Digitas and Razorfish, among others. “The combined power of the duo’s creative and buying strengths in digital could potentially counter WPP’s strengths in the traditional print and TV markets. Otherwise, it is impossible to dislodge GroupM on the print and TV side,” says one analyst.
The big challenge, says a rival CEO, is leadership and “how they integrate.” Mediabrands, the $6.9-billion Interpublic Group’s consolidated media outfit, struggled for a year before getting its act together on the operational front. Even GroupM struggled for years before the various heads of businesses started working together to bring the cost and revenue efficiencies that such a merger usually entails.
Impact on media owners
“If this merger had happened five years back, broadcasters (the biggest recipient of advertising money) might have been worried. But now, as their dependence on advertising goes down and subscription starts going up, they may not be as concerned,” says Balsara. Sunil Lulla, managing director and CEO, Times Television Network, agrees. “Sure they (media agencies) will negotiate harder and buy smarter, so it puts some pressure,” says he. But that is about all the impact it will have on media sellers.
Advertisers, whose demands usually drive these mergers, are nonchalant. For them the merger means lower marketing costs. The big impact then will be on the independent agencies. Wait and watch out then for some more mergers.
