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Publicis and Omnicom have lost more than $1.5 billion of client work in recent weeks and face a fight to retain billions more, including a huge Samsung contract, just as the two advertising firms struggle to keep their merger on track.
When the world's second and third-largest ad groups announced a merger last July, it sparked talk from rivals, led by Martin Sorrell, the boss of leader London-based WPP, that the US and French firms could lose clients and talent.
The deal's closing has been delayed at least six months because of regulatory issues, and relations are so tense between the two that they haven't been able to yet decide who becomes the new finance chief. Several large contracts, including Vodafone's $1 billion global media and buying account, moved hands from Omnicom to WPP in April.
On Wednesday, Microsoft announced it was moving its multibillion-dollar ad and media business from Publicis and WPP to Japan's Dentsu Aegis and US Interpublic. Others to move away from Publicis or Omnicom in recent weeks include Danone, pharma group GSK, electronics firm Sony, and retailer Marks & Spencer. In the ad business, accounts do change hands quite regularly and there are often reviews and pitches when contracts come to an end. Also, none of the clients who have jumped ship have publicly blamed the merger.
Omnicom CFO Randall Weisenburger has noted on an earnings call last week that swings in the business, such as the Vodafone loss, are quite normal: "Each quarter you get one or two big wins or one or two big losses". And the wins are not all in WPP's favor.
Publicis prevailed against WPP on a contract with food company ConAgra in February and its BBH agency expanded its role with British Airways at the expense of WPP's Ogilvy in March. Nevertheless Publicis and Omnicom face the unenviable task of defending contracts, including the multibillion dollar account of tech giant Samsung.
Among any client's biggest concerns will be whether they will get the quality of service they want from staff and management who will be wondering if the merger will happen and what lies ahead for them whether it goes ahead or not.
A person familiar with the thinking of one big consumer brand which recently moved its global account from Publicis to WPP says it had not been put off by the merger, but that WPP had offered more attractive and efficient terms. Another person at a multinational which recently moved its media buying account from Omnicom to WPP, says Omnicom had in recent months failed to maintain the relationship, that WPP was better in certain areas including digital, and that the company couldn't see the benefits to the Omnicom-Publicis merger. "No one explained what synergies were in it for us," the person says.
One of the biggest accounts to come up for grabs is the creative, digital and media business of Samsung Electronics. Starcom MediaVest Group and Leo Burnett, units of Publicis, have much of the work with other agencies doing parts. According to Ad Age, Samsung spent $4.35 billion on advertising in 2012. Exane BNP analyst Charles Bedouelle says the account could be worth 2 per cent of Publicis' revenues and says the review indicates how big companies are consolidating their work across countries and sectors as they look to save on costs.
"There is more than $4 billion in review for the combined company counting major accounts like Samsung that could change hands," Pivotal Research analyst Brian Wieser says. "Publicis and Omnicom lost contracts worth $1.5 billion from four accounts in one week in April," he says.
As they feted the deal with champagne in Paris last summer, Omnicom's CEO John Wren and Publicis' CEO Maurice Levy had said it would enable them to better compete with the likes of Google and Facebook in the digital ad space, which accounts for nearly a quarter of global marketing spend. Greater scale was supposed to give the new group better bargaining power in buying space when many global brands are looking to cut costs on advertising.
