Will Omnicom-Interpublic Merger Disrupt Advertising Giants Like Amazon and Disney?

by

The potential fusion of two giants in the advertising sector could introduce some unexpected twists to Madison Avenue’s landscape.

The globally recognized advertising and marketing services provider, Omnicom Group, plans to merge with competitor Interpublic Group, resulting in an immense company that could significantly shape where major marketers allocate their advertising budgets across various media channels.

If the $13.25 billion stock merger receives clearance from federal authorities, it might stir up the tight-knit adverting and media purchasing industry. The merged Omnicom corporation, retaining its original name, would have unparalleled power to negotiate with a wide range of companies, from tech giants like Apple to entertainment conglomerates such as Warner Bros. Discovery. This deal underscores the rapid evolution of sales techniques due to digital technology’s ability to collect vast amounts of consumer data. The enlarged company could amass an enormous database of customer behavior and preferences, along with insights into the most effective platforms for entertainment, news, and sports outreach.

Traditional ad gurus who crafted memorable slogans and jingles have been replaced by a modern generation of executives, skilled in leveraging technology to pinpoint consumers. The future leaders of advertising will excel in utilizing data and AI applications to help marketers perfect the placement of their promotional messages. Previously, ad agencies and media buying firms primarily relied on intuition and an understanding of popular culture when guiding clients on where to strategically place commercials, magazine ads, and billboards. Now, they focus on identifying the ideal TV show or streaming series to reach specific consumer demographics, such as affluent young women who are both potential buyers of diapers (Pampers) and a new SUV.

Should the merger be completed, the resulting organization is expected to become a significantly powerful conglomerate with control over billions of dollars, according to Jay Pattisall, an analyst focusing on the advertising industry at Forrester Research. He predicts that they won’t hesitate to assert their influence.

Certainly, those on the opposite side of the table – TV networks, streaming services, social media platforms, magazines – are already expressing concern about speculation that Omnicom might leverage its influence to purchase large advertising time slots, which it could then divide and sell again for a profit through a system known as “principal-based media buying.” Omnicom’s executives plan to justify this approach by claiming that it would benefit clients in the long term, since they could potentially buy ad time at reduced rates due to Omnicom’s size. However, this proposal is causing unease among sellers because it would effectively make Omnicom a rival. This shift would be quite different from traditional advertising practices where buyers and sellers have always maintained clear boundaries.

According to Bruce Lefkowitz, a former executive at Fox Corp., it’s not clear or easy to follow (the technique). As far as he knows, you can’t find any information about the profits made from this method in the financial reports of companies that have tried it. Mark Read, CEO of WPP, compared principal-based media buying to what he called “complex and hard-to-track media models,” which are difficult to comprehend and monitor.

There might be other obstacles. Will the Trump administration approve the agreement? It’s a valid question to consider, as conservatives have frequently criticized an advertising industry that tends to resist social media platforms, such as Elon Musk’s X, for not effectively distinguishing ads from traditional marketers from potentially offensive or polarizing content. During a recent investors call, Omnicom CEO John Wren appeared hopeful that the deal would be finalized promptly.

By merging, Omnicom and Interpublic would gain significant power, managing approximately $71 billion in advertising expenditures for well-known brands like Apple, Renault, Nissan, Mitsubishi, Volkswagen, McDonald’s, PepsiCo, Disney, AT&T, Amazon, and Geico. The union is projected to yield almost $26 billion in revenue and around $3.9 billion in adjusted profits. It will also control slightly over 30% of the ad budgets allocated by the industry’s media-buying agencies collectively.

In summary, as per a study conducted by COMvergence, a research company based in Paris and New York focusing on marketing and communications, the revamped Omnicom would boast an influential purchasing power never seen before.

The leaders behind the merger highlight that it’s about the technology used in advertising (ad tech), rather than the artistic elements of the ads, that will make the significant impact. Notably quiet in public appearances, Omnicom’s longtime CEO, Wren, is renowned for his tight control over the corporation’s finances. In contrast, Philippe Krakowsky, CEO of Interpublic, has aggressively driven his company towards data and technology to bolster its competitive standing. Neither company chose to provide comments for this article.

In every aspect of our field we observe technology playing an increasingly significant role – whether it’s commerce, media, or production. Merging with another company allows us to invest more and innovate at a faster pace, which strengthens our position. And that’s where we want to be, Krakowsky said during a call with analysts in December.

A primary reason for the merger was to align with the size and reach of significant firms such as Google, Facebook, Disney, Fox, Warner Bros. Discovery, NBCUniversal, and Paramount Global, which are key players in selling TV and digital ad space. In essence, traditional Hollywood networks and studios have been consolidating over the past few decades as they too grapple with industry upheaval.

In the world of sports, Omnicom will carry significant influence when it comes to negotiations with leagues and rights holders. As Sean Moran, a former Viacom ad-sales chief and current COO at Evergreen Trading, points out, this boutique company that assists advertisers in purchasing media inventory, the sports sector is increasingly attractive for ad dollars, especially as it becomes more challenging to find content that can draw large, simultaneous audiences.

The two entities have a track record of wielding power. Back in 2017, Omnicom deployed employees to scrutinize numerous YouTube videos to ensure that the content was suitable for clients’ advertisements. This inspection revealed that YouTube wasn’t effectively monitoring its platform. The controversy surrounding risqué videos intermingling with commercial spots for household items like floor cleaners and snacks led some businesses to temporarily withdraw their ads from the platform. More recently, in 2022, Interpublic suggested to its clients to discontinue advertising on Twitter following its acquisition by Musk, allowing their experts to analyze the potential impact of Musk’s management on brand safety.

Frankly, the Don Drapers from past times didn’t have it as easy as they do now. The traditional glamour associated with “Mad Men” in advertising has vanished. Today, modern advertising is primarily shaped by leveraging algorithms to pinpoint specific audiences based on shared interests, mentalities, and product requirements. This necessitates “fairly substantial technological abilities” for large advertisers such as Procter & Gamble and Wayfair to “recognize audiences, outline audiences, and invest in media to capture and maintain their attention,” according to Forrester Research’s Pattisall.

The growing significance of data-driven consumer targeting in advertising has skyrocketed, especially considering the reduced barriers to creative aspects in this field. Nowadays, an individual with basic video production skills, a camera, and a social media presence can craft a catchy commercial. For instance, Frito-Lay, a significant snack division of PepsiCo, will broadcast an ad during the upcoming Super Bowl. This advertisement is to be created by one or more amateur contestants. The victor stands to receive $1 million. As Chris Bellinger, chief creative officer at PepsiCo’s food operations, remarks, “Today, everyone essentially functions as a creator, capable of filming entire movies using their mobile phones.

In the meantime, both media and entertainment platforms that advertisers rely on to promote their products are experiencing significant transformation. Through mergers and consolidations, many of these modern entertainment giants have grown expansively. The merger between Omnicom and IPG is occurring because, as advertisers grow larger and gain more pricing power, so too must they consolidate, according to Lefkowitz.

As a backer, I can attest that the growing trend of monetizing media time through profitable transactions might serve as a compensatory measure. When the merger agreement was unveiled in December, Krakowsky emphasized to investors that principal-based deals have gained significant importance for our clients.

According to Evergreen’s Moran, such practices will only be accepted when advertisers perceive a clear advantage, not just as a means to increase profits. Companies like Omnicom and Interpublic have resorted to this purchasing method to address their own organizational issues of diminishing profit margins and revenue sources.

Regardless of the circumstances, it’s essential for both parties – buyers and sellers – to find a way to coexist harmoniously. As Lefkowitz points out, Google, Fox, and Disney rely on companies like Omnicom and Interpublic just as these latter entities depend on them.

Read More

2025-02-07 19:50