The Daily: The Omnicom/IPG deal, and what it means for the advertising universe

On today's podcast episode, we discuss why Omnicom and IPG are merging, and who will be most impacted as a result. Tune in to the discussion with Senior Director of Podcasts and host Marcus Johnson, Senior Director of Briefings Jeremy Goldman, and Analyst Daniel Konstantinovic.

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Episode Transcript:

Marcus Johnson (00:00):

Data collaboration enables innovative companies to uncover powerful new insights that transform customer experiences and fuel business growth. With LiveRamp marketers get the industry's only interoperable platform for data collaboration across every cloud, walled garden and media platform. Learn more at liveramp.com.

Daniel Konstantinovic (00:19):

But what these really big holding companies are competing for are these top of the pile clients with big ad spending budgets, who there is a lot of competition for. So the question is, will this help them win a larger share of those clients?

Marcus Johnson (00:41):

Hey gang. It's Tuesday, December 24th. Danny, Jeremy, and listeners, welcome to the Behind the Numbers Daily, an EMARKETER's podcast made possible by LiveRamp. I'm Marcus.

(00:51):

Today, I'm joined by two gents. Let's meet them. We start with our Senior Editor of the Marketing and Advertising Briefing. He is based in New York, in New York City. It's Daniel Konstantinovic.

Daniel Konstantinovic (01:02):

Hello. Happy to be here.

Marcus Johnson (01:03):

Hey fella. Also based in that very same city, he is our Senior Director of Briefings. It's Jeremy Goldman.

Jeremy Goldman (01:11):

Greetings and salutations.

Marcus Johnson (01:13):

Hey fella. So we start with the fact of the day of course. Who invented the submarine?

(01:19):

So Dutch Inventor Cornelis Drebbel born in 1572 was an engraver and a glass worker who later turned to applied science. In 1604, he went to England where King James 1 became his patron. And according to Britannica, in 1620, he completed his diving boat propelled by oars and sealed against the water by a covering of grease leather. The wooden vessel traveled the River Thames in London at a depth of 12 to 15 feet, about four meters from Westminster to Greenwich with about 16 passengers. Air was supplied by two tubes with floats to maintain one end above water.

(02:01):

So he was the original inventor. And then American John Philip Holland, born in 1841, he's considered the father of the modern submarine designing and building the first underwater vessel accepted by the US Navy.

Daniel Konstantinovic (02:15):

Usually you will give us a chance to guess, but I am really grateful that-

Marcus Johnson (02:16):

Sorry.

Daniel Konstantinovic (02:19):

I'm really grateful that you didn't this time 'cause I had no idea.

Jeremy Goldman (02:22):

How does somebody go from, I'm really good at glassmaking. I should probably ...

Marcus Johnson (02:27):

I know.

Jeremy Goldman (02:28):

Make some vehicles that ... Like forget about, I couldn't make a boat, but he's going to be like, "I'm going to make things that go underwater and don't kill people." So good for Cornelis.

Marcus Johnson (02:38):

It is quite the pivot from glassmaker to submarine inventor, but he apparently, when he got to England, he devised this ingenious little device called the perpetual motion clock, which is actuated by changes in atmospheric pressure and temperature. And that made him very famous, greatly enhanced his reputation. So that's how he pivoted.

(03:00):

It's still quite the pivot, an incredibly impressive invention. Submarines and their crew, they can stay underwater for months at a time and can travel about 35 miles per hour.

Jeremy Goldman (03:12):

It's like if you went from podcast host to exotic dancer.

Marcus Johnson (03:16):

It is similar. Yes.

Daniel Konstantinovic (03:17):

Yeah. That's what I was about to say.

Marcus Johnson (03:19):

Yeah, I've not ...

Daniel Konstantinovic (03:20):

It's exactly like that.

Marcus Johnson (03:22):

Can't say it's crossed my mind. Oh, God, but I ... So you guys are stuck with me for now. Anyway, today's real topic, the Omnicom-IPG deal and what it means for the advertising universe.

(03:35):

On December 9th, Omnicom, and Interpublic IPG, the world's third and fourth-largest ad agency holding companies by revenue proposed to combine to become the biggest ad agency in the world notes The Economist. Under the deal, which Omnicom said it expected to close in the second half of 2025, Omnicom shareholders, they get to own about 60% of the combined company, IPG shareholders will get the rest.

(04:10):

But Daniel, start with this question. You wrote about this for us. Why are Omnicom and IPG merging?

Daniel Konstantinovic (04:17):

Well, there's a couple of reasons. These agencies have been consolidating a lot of their units in the last couple of years trying to become more efficient, reduce costs. And part of that I think is perhaps or now can be viewed as enabling a merger like this. I mean, there was an attempt to merge in 2013, I think between Omnicom and Publicis that kind of fell apart because there were a lot of complicated moving parts. Now perhaps that's a little bit less of the case, although there will be a lot of redundancy in this newly merged company.

Marcus Johnson (04:51):

And part of the problem, really quickly, part of the problem there, so it was a $35 billion deal potentially, but it did fall through and in part was because they were kind of battling over who would control certain positions in this combined company. And the two of them couldn't even agree on which company was going to be the buyer, going to be the acquirer.

(05:10):

Whereas this, it does seem there's a much clearer, Omnicom is bigger, IPG isn't quite as big and maybe needs more of the help. And so it seems like there's a clear understanding of who's getting acquired by who and that it seems like it's made this much more likely to have gone through or to go through than that deal of 10 years ago.

Daniel Konstantinovic (05:33):

Yeah. I think also aside from streamlining the businesses to make a merger like this easier, the reason there has been this kind of streamlining is because there's a real demand from clients for full service agencies that can do everything from creative to maybe not handle buying but help buying that has AI tools that marketers can use that has a large pool of data to pull from. And when you're combining two of the largest four ad agencies in which this merge company would become the biggest one, that is a lot of valuable data that I'm sure will attract business or that will help existing clients do even better.

Jeremy Goldman (06:17):

And by the way, and I know we'll get to this, I think all of that is true, but we should kind of look at this through a clear head about that's the best case scenario of all of these investments that they've made over the years, particularly the AI partnerships more recently. All of those can work out really well and seamlessly if they figure out how to fold these things together.

(06:39):

There's also a world in which it doesn't, in that it takes longer to integrate all these facets of their business and it doesn't put them necessarily at a competitive advantage. Does that scale wind up working against them, which is a real possibility as well.

Marcus Johnson (06:55):

Yeah, there's a lot to pull together here and it could be a huge distraction. I mean, anyone who's been part of a merger knows just how difficult things can get and how nervous everyone is and how much of a focus there has to be internally on making sure that everything comes together and is lined up correctly. And whilst that's all going on, existing clients could be the ones that lose out.

(07:22):

Shiv Singh, former CMO of mortgage broker LendingTree was saying something on this scale would be a huge distraction, and every CMO who's a client of theirs will be worrying about getting the attention they deserve. A Wall Street Journal piece saying that clients worried about distractions or the elimination of their agency brands might consider working with other holding companies as the combined Omnicom works out the kinks.

Daniel Konstantinovic (07:45):

Yeah. I think that's an interesting point. I mean, there are sure to be redundancies as a result of this merger and layoffs to come. And you have to wonder in those layoffs, what if people that a certain client of either of the two companies works with very closely are affected by layoffs?

Marcus Johnson (08:03):

Exactly.

Daniel Konstantinovic (08:03):

Does that affect the client's desire to keep working with that company? There's a lot of risk involved for sure, but clearly they think that the benefits of technology, data, just full funnel capabilities perhaps outweigh the risk of losing business in the short term.

Jeremy Goldman (08:19):

Yeah, the companies, I think, and I think Danny had this in his piece, the companies project a savings of 750 million within two years, which is great, but that for the most part, I would imagine is going to go to the company's bottom line. It's going to not necessarily go towards cutting costs to service clients. The clients that have signed major multi-year deals are not going to necessarily get a better deal as a result of that. They're still going to be paying quite a bit.

(08:47):

The company wants to be competing with blue chip clients in as much as possible. So again, they're not really trying to compete on price and is this better for the bottom line and the financial health of these companies? I would say yeah. But at the same time, if you're a major client of these companies, you don't care about Omnicom's or IPG's overall financial health provided they stay in business.

(09:12):

So is this good for them as holding companies? Absolutely. Is it necessarily in the short term as good for the clients? That remains to be seen. They definitely have their work to do in order to show that this can be advantageous to the average client.

Marcus Johnson (09:29):

Yeah. Yeah, as Jeremy mentioned, a lot of money they're hoping to save every year by merging shared functions, spending on vendors, real estate, service centers, things like that.

(09:42):

And Danny to your point, I think it's a good one, there are going to be people who walk, who leave from either on their own accord or forced out and people at every level, high-level execs included, and a lot of the time to what you were saying, they've developed close relationships with clients and they could suffer as a result.

Daniel Konstantinovic (10:00):

Yeah. I think though, maybe as a counterpoint to my own point, this is something they're definitely going to take into account when they're making these layoffs, but maybe, and I don't know if you agree with this, Jeremy, but we can view this merger happening despite all of these potential drawbacks as a sign from the two companies that they think what clients value more than perhaps these relationships with people at the holding companies are the technological benefits like the access to AI tools and the data that will be available.

Jeremy Goldman (10:37):

I think that's, by the way, Marcus, that's a really good point that Danny's making, just in the sense that from an opportunistic standpoint, this is almost the kind of thing that you have to do if you're a major holdco in order to just have a chance at relevancy going forward.

(10:54):

Big tech, I would say more and more are making these plays directly to brands and advertisers. "Go ahead and use our stuff and we're going to reduce friction. We're going to be able to serve you to some degree at scale." It's not to say that big tech isn't working directly with these major holding companies. They are. But at the same time, you have to make major investments in AI solutions, in sophisticated data plays. If you want to increase relevancy, you need to give the average major advertiser reasons to come to you as an agency.

(11:31):

And I think that frankly, it seems like a very difficult time to be a major holding company right now. Think about all of the really great low-friction tools that are being put in front of advertisers. It's harder I feel year after year to justify your existence if you're a network of these highly qualified agencies that have really great skills. It's not that they don't have value. It's that year after year, it's going to prove harder to justify that value as there are more and more freemium and low cost things where you can go directly to big tech and transact with them.

Marcus Johnson (12:07):

Yeah. Yeah. It makes you wonder maybe why this wasn't done sooner, given everything that you've just said. And I know IPG CEO has been actively shopping the company and its parts for over a year now, but they do face a lot of, I don't know if you want to call them external market forces, for example, and trying to protect themselves against scary things. Like that's been something they've been trying to do for a long time, even more so now with the advent of AI.

(12:33):

Forrester recently saying that automation could eliminate some 33,000 jobs or 8% of the workforce at ad agencies by 2030, and that's in just in five years' time now with various forms of AI being responsible for a significant portion of those losses.

Daniel Konstantinovic (12:51):

Yeah. Yeah. I mean, something we wrote about, I can't remember if it was earlier this year or perhaps last year when WPP signed a deal with Nvidia, an AI deal, something that the CEO of WPP said was that he expects this to eventually lead to some job loss.

(13:08):

And I think AI is something that has kind of loomed over the ad industry, something that could potentially affect jobs. And then when you have this major merger that there will almost certainly be layoffs out of, with those concerns, I really wonder what the on the ground experience of an employee at one of these two companies is like right now and what they're feeling, wondering, fearful of, 'cause I think certainly there are things that are unique to working at one of these big holding companies, but in some level, the things that they are experiencing are probably being felt throughout the entire ad industry at firms of all sizes.

Marcus Johnson (13:47):

Yeah, it's a good point. I mean, it's been no secret, right, that the agency business at large has been hurting for a while now, and so to be part of that for a long period of time, yeah, how do people do work at those places? Feel The Economist had made a really interesting point. They were saying if you strip out the kind of up down period of the COVID-19 pandemic, the global ad agency industry has grown by barely 3% a year since 2018 according to MoffettNathanson. And speaking specifically to those big five WPP, Publicis, Omnicom, IPG, and Dentsu, the biggest five agency holding companies had a 30% share of all agency services revenue last year. That's down from closer to 40% a decade earlier. That's an estimate from ad consultancy Madison and Wall.

Jeremy Goldman (14:34):

One thing that's really interesting though about this is that, and I checked by the way, WPP-Nvidia was as recent as June, late June.

Daniel Konstantinovic (14:42):

Wow. My gosh. Well, time's-

Jeremy Goldman (14:43):

A lot of stories we've covered this year-

Daniel Konstantinovic (14:46):

... relative.

Jeremy Goldman (14:46):

But I think that, and we've even covered how many people have been broadly within the PR and advertising agency ecosystem in the US in particular. And we've seen generally relatively strong, consistent gains within that world, which to me says that, I mean, again, this is a bit of a hypothesis, but there's relatively strong growth outside of the big holdcos. There are smaller agencies.

(15:16):

And in part because again, if there are these tools that are easier and easier to use, you can hire a small agency if you're a brand to do more basic things for you. Without a major retainer, you can in source and have a lot of components of your advertising and marketing internal to your brand. And then you can just hire a small agency to help you when you need it. I mean, there are a lot of jobs still within the marketing and agency world. It's not like this is entirely going away. It just might be expanding and maybe there's less and less benefit towards being one of these Goliaths.

Marcus Johnson (15:54):

Yeah. These big agencies having to fight competition from all over the place where it's big tech and Google and Meta and Amazon, whether it's AI, whether it's each other, whether it's these small agencies that Jeremy's talking about.

Daniel Konstantinovic (16:09):

Yeah. Or like consultancy. I mean, Accenture is a company that's also been pushing into some of this turf. So it's no longer just these big four advertising agencies. They have several industries that are pushing into their turf.

(16:23):

And to your point about slower growth, Marcus, and going all the way back to your first question of why now, if the growth is really slow, the best way to capture larger share of the market is to consolidate. And you have an administration coming in that is expected to be very friendly to consolidation. And there are CEOs of other companies and adjacent industries where there's also a lot of saturation, specifically streaming and entertainment who are saying like, "Oh, this administration is a green light that we could do further mergers." David Zaslav, CEO of Warner Bros Discovery has been very public about this is going to be good for industry consolidation and the timing is very beneficial for something like this.

Marcus Johnson (17:06):

Yeah, yeah. No coincidence at all that this deal getting announced right on the heels of this new administration coming in. And it does seem like it's going to be favorable, this new administration for business. However, one reason Omnicom or two reasons Omnicom and Interpublic are hoping to join forces, the Qantas Economist article was saying, to protect themselves against the incoming Trump administration.

(17:30):

In this regard, one, Mr. Trump has hinted at curbing pharma ads and that 7% of the US ad pie right there, according to our forecasting team. So that could affect the advertising world. And then two, always talk about tariffs. And starting a trade war could hurt big spending industries like cars and electronics as well, so more reasons to join forces and try to protect themselves from some of these things going on.

(17:55):

And there's been no secret that IPG as well has been hurting for a while. It's no secret the agency business has been struggling. IPG in particular, they've lost business from big clients, Pfizer, Verizon, BMW, Spotify, most recently lost most of its most lucrative account Amazon ad buying assignments, which are split between Omnicom and WPP. So they have been struggling somewhat for a short while.

(18:18):

Gents, let's end with this question. Jeremy, I'll start with you. Who do you think is going to be impacted the most as a result of these two big ad holding companies getting together?

Jeremy Goldman (18:28):

I think that Publicis is probably a really good example. Just obviously being pretty much going from the biggest to one of the biggest is obviously a bit of a change in terms of the market dynamic. I think that other competitors a little bit lower down the totem pole in terms of holding companies and beyond might feel increased pressure to offer a similar scale and comprehensive services, which could obviously trigger another wave of mergers and acquisitions among ad agencies. So I think that's another thing that keeping a lookout in early 2025 as well.

Marcus Johnson (19:04):

Danny, how about you?

Daniel Konstantinovic (19:05):

Yeah, I mean, I think the answer is the holding companies themselves. There's been a lot of talk as this consolidation within the big four themselves has happened that this could affect demand for smaller firms, for boutique creative agencies, things like that. And while that's certainly possible because these big holding companies are offering a ton of data and technology in addition to some creative services, I do think that there will always be some market even if diminished for those sort of handpicked agencies.

(19:38):

But what these really big holding companies are competing for is are these top of the pile clients with big ad spending budgets who there is a lot of competition for. So the question is, will this help them win a larger share of those clients?

(19:55):

I think it's interesting that you've seen some of the companies that maybe are encroaching on agency space trying to rely less on those top of the pile agencies. Like there are a lot of social media companies like Meta or even Snapchat that have released a bunch of advertising features and products that are designed to open a door to small and mid-size businesses because that is a much more stable, consistent pool of spending than, I don't know, the McDonald's or Coca Colas of the world, who everyone wants as a client.

(20:30):

So yeah, I mean the big clients are the ones that they're competing for, and there's only so much room to move around there.

Marcus Johnson (20:38):

Yeah. Yeah. It was already going to be a big year for the advertising world for a lot of reasons. One reason our forecasting team estimating worldwide total ad spend will cross the 1 trillion mark in 2025, a 9% year-on-year versus 11% in 2024, this year. So another strong year for advertising, a major milestone crossing that 1 trillion mark. And this just adds another plot twist to the continuing story and soap opera that is advertising space.

(21:07):

We'll be keeping an eye on it in the new year. Now it's time to go enjoy some festive holidays with family and friends. Gents, thank you so much for hanging out with me for the last episode of the year. Thank you to Danny.

Daniel Konstantinovic (21:20):

Thank you. Always a pleasure and Happy New Year.

Marcus Johnson (21:22):

Same to you, friends. Thank you to Jeremy.

Jeremy Goldman (21:25):

Thank you. I'll be having some eggnog and toasting to many amazing podcasts from Marcus and team in 2025.

Marcus Johnson (21:32):

Oh, eggnog. We're going to cut that.

Daniel Konstantinovic (21:34):

Look a quick scratchy eggnog. Team crumpets. Team crumpets.

Jeremy Goldman (21:36):

It's so good.

Marcus Johnson (21:36):

There you go.

[NEW_PARAGRAPH]Thank you so much of course to the whole editing crew, Victoria, Lance, John, and Danny. Stuart runs the team, and Sophia does our social media. Thanks to everyone for listening in to our last episode of The Behind the Numbers Daily, an EMARKETER podcast made possible by LiveRamp. As I mentioned, we'll see everyone again, hopefully in the new year on January 3rd for more Behind the Numbers podcast content. That'll be the first episode of the new year, and happiest of holidays to everyone in the meantime.