1. Advertising/PR Agency Consolidation and Globalization
Beginning in the 1980s, major advertising firms began the
consolidation and conglomeration that has become prevalent
in so many other industries. Prior to that time, advertising
agencies were often small and extremely competitive . The
business model was one built on long-term, exclusive relationships
with clients. Although some firms occasionally joined forces,
few ever went public, and those that did never achieved the
global presence that many advertising companies have today.
In the past, the desire for agencies to remain small, independent
operations was motivated in part by ethical concerns. By remaining
independent, rather than partnering with another firm, an
agency could avoid client conflicts of interest, such as representing
two competing firms.
Once agencies began to merge, however, new checks were put
in place to avoid such conflicts. One solution was the creation
of holding companies—corporate entities that looked
after finances and coordinated a few, large projects, while
in all other respects remaining separate from the day-to-day
operations of their advertising subsidiaries. This allowed
advertising agencies to keep their clients’ trust while
receiving the significant advantage of corporate backing.
Holding companies were also able to coordinate the efforts
of multiple firms. Benefiting from the economic efficiencies
and greater client access that often come with large-scale
mergers, while still maintaining the proprietary agency-client
relationships that are crucial in this industry, remains a
delicate balance, but the companies that have managed to achieve
this balance are a lasting presence.
A burst of acquisitions and mergers occurred in the 80s and
90s that have changed the face of advertising. WPP Group plc,
a new company in 1985, created one of the largest advertising
forces in the world in just a few short years. Omnicom was
born from the merger of three of the largest American firms
in 1986. Interpublic and Publicis, older companies, followed
the acquisition trend in short order. Acquisitions included
not only advertising agencies, but also media buying companies,
marketing consultancies, public relations agencies, branding
agencies and the other types of companies that make up the
industry. Today, WPP, Omnicom, Interpublic, Havas and Publicis
are the “Big Five” of advertising. Together, they
have a significant global market share. A handful of second
tier companies, such as Grey Global in New York, Dentsu in
Japan, along with several smaller firms with regional or local
reach and clientele, control most of the remaining market.
Global conglomerates and regional agencies each enjoy distinct
advantages in the advertising industry. For regional advertisers
that have modest budgets and/or specific concerns driven by
local market conditions, smaller agencies fill an important
niche. However, the needs of major corporations, such as Coca-Cola,
McDonald’s and Procter & Gamble, which rely on hefty
advertising expenditures to develop and enhance brand value,
both nationwide and internationally, are best served by larger
advertising companies. These global advertising agency conglomerates
are better equipped to create effective advertising campaigns
across broad consumer segments.
2. Media Consolidation and
Globalization
Large entertainment and media companies commonly use two
strategies for long-term growth. Companies that control massive
distribution systems often want to control more content. These
include cable and satellite television firms, as well as Internet
access providers. Likewise, companies that control large amounts
of content often want to control more distribution. Such firms
include those in film production, television production and
publishing. In the long haul, the greatest profits in the
global entertainment and media industries may come from distribution.
Nonetheless, distribution companies may have good reason to
diversify into content.
The media industry has seen a growing number of massive mergers
in recent years, including those between Time Warner and America
Online, CBS and Viacom and AMFM and Clear Channel Communications.
Comcast’s attempt to acquire Walt Disney was a continuation
of this trend, but in the end it decided to forgo that effort.
Clearly, Comcast thought at one time that it would benefit
from controlling more content, and it was willing to invest
in the neighborhood of $50 billion to prove it.
Recently, many companies, especially Viacom, have been picking
up cable channels, not only because cable has proven to be
profitable, but also because these channels give companies
like Viacom additional leverage with advertisers when combined
with their existing ownership of broadcast networks. In fact,
20 of the top 25 cable channels are owned by five media companies
that also own networks, including Viacom, Disney, Newscorp,
NBC Universal (part of GE) and Time Warner. Although a media
company’s ownership of both cable and broadcast channels
is clearly to its benefit, this ownership strategy may also
offer advertisers an advantage as well. By aligning with these
companies, advertisers can often secure cheaper package deals,
in which their commercials air on both broadcast and cable
networks for a single price.
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