PHD takes the global approach

Omnicom’s PHD Group is set to join the global agency market in early 2006. MarkBanham and Tony Lithgow ask what this will mean for the industry.

PHD takes the global approach
PHD takes the global approach

The launch of a new global network is never going to be an unremarkable affair, simply because in an advertising industry that generated £141bn last year there are surprisingly few players – and even less so on a worldwide scale.

Last week saw the promise of the first new entrant into the global agency market since the merger between Zenith and Optimedia in 2001 to create ZenithOptimedia.

The new network will be Omnicom's PHD Group, with an ambitious plan of expansion across Europe, the Middle East and Africa.

The agency currently has a presence in the UK and US and will be bolstered by Omnicom's pooled buying outfit Opera, which represents the buying power of Omnicom agencies OMD, Manning Gottlieb OMD and PHD, with a near synchronised roll-out across territories.

The project is expected to begin in the fourth quarter 2005, with most markets in the Asia Pacific and European territories being in place by early 2006.

Although it is clear that Omnicom will want to leverage buying power through Opera to back up PHD's offering, if recent events in the UK are a yardstick, it may take time to convince clients that this is a viable arrangement, if the recent awarding of the UK planning and buying briefs for the £28m BMW account and the £8m Mini brief are an indication.

Last month, both BMW and Mini decided to award their planning accounts to PHD and its offshoot Rocket after lengthy pitches.

Buying brief

However, when it came to awarding the buying brief, both clients weren't so keen that the business should find a home at the agency, preferring to retain Vizeum.

Critics would suggest that PHD did not have the buying clout to satisfy either of the two clients and that unless PHD and Opera can sing from the same hymn sheet in the new territories across Europe, the Middle East and the Asia Pacific region, the partnership may hit a few bum notes before reaching a crescendo – a situation Omnicom's rival networks will, no doubt, be observing.

Chris Shaw, Universal McCann's EMEA chief executive, says there are bound to be teething problems with the new network, but that the alternative would have seen Omnicom slip down the network ladder. "There are a number of problems they could run into," he says. "But they are nothing compared to the problems of doing nothing. The situation is that there's nothing left to acquire. I doubt very much if Omnicom will buy Aegis."

He adds: "Omnicom is a compliant company and Aegis isn't. Putting two things like that together is extremely difficult.

You've got the added complication that there is very little left, even locally, to acquire of any size that's still independent.

"So they're probably going to have to create from scratch in many of these markets, around business that they win."

Speaking exclusively to Media Week last year, Omnicom president and CEO John Wren suggested PHD would be the obvious candidate to be the second global agency within the Omnicom group and that Opera was the natural partner for the agency in creating a truly global network, adding: "The success of Opera allows us to entertain a similar concept in other markets, which would allow Omnicom to expand PHD into other markets as well."

Daryl Simm, chief executive of Omnicom Media Group, says Omnicom is taking a well established media brand and extending it for the wider market, and that clients across wider territories than the UK and the US know the agency.

"The PHD brand was obviously established in the UK at the time of the unbundling of media and creative, but it's well known familiar with the PHD brand, its history and reputation, and we are extending that brand," he adds.

"PHD is rolling out at this time because clients in our territories are interested in additional capacity time for international business. We've had some good success in the UK and the US over the past 12 months, we have clients that are asking for international service and we have to have the capacity to serve them."

PHD was, ultimately, the prime candidate to create a global footprint for the network being already established in the American market.

Wren has been able to watch the agency's progress under the stewardship of David Pattison, the worldwide chief executive of the PHD Group, and obviously likes what he has seen, commenting previously: "What PHD presents is something that the market can't get enough of."

The question most commentators will now ask is whether the timing of this announcement will mean that Omnicom will steer itself clear of any potential bid for Aegis Media (currently the subject of a £1.57bn bid from Publicis Groupe headed by chief executive Maurice Levy)?

Rumours circulated that Omnicom would make an aggressive counter bid for one of the last two [the other being Havas] of the remaining mid-sized networks.

Expanding network

The battle for the recently acquisition-obsessed Aegis looks likely to be fought on French ground, with a possible challenge from chairman of Havas Vincent Bollore, who has built up an 8% stake in Aegis.

Wren has a history of expanding his network through organic growth and through smaller acquisitions, and is likely to have weighed up the viability of a takeover of the traditional media services of Aegis or Havas.

Wren and his team may have decided there was room to let his main strategic agency expand its operations – at least this way there doesn't have to be justification of a bid to match or beat Publicis to Omnicom shareholders.

Some might suggest the more pragmatic approach would be to look at the resources of the network and the leverage to expand these operations, instead of bolting on an acquisition and rely on your own networks to deliver the growth.

A high-ranking source in a rival network suggests that the opposite is true and that the move is a "defensive response" to Omnicom's lack of movement in the bidding process for Aegis, a criticism many are likely to level at Omnicom if it doesn't indicate an interest.

Shaw disagrees that the move is a strategic one to avoid an acquisition of Aegis, or indeed, Havas. "I don't think it's defensive. They've been working on this for some considerable time. They don't rush into anything, but they've been looking to develop the PHD network globally for some time as the second network of Omnicom."

Jerry Hill, group chief executive at Interpublic-owned Initiative Media, says the Omnicom network needed to add a second global network to give itself parity with the amount of global offerings from rival networks.

"I think what Omnicom's saying to themselves is "how do they create a second string global media brand?", he says.

"It's clear they are going for the organic approach. It strikes me that they're a bit light. Most of their competitors have got a number of global media brands.

Interpublic has two, others have more than that. So Omnicom feels a bit light in that area, so to some extent it's inevitable that they're trying to create a second string."

Management challenges

Meanwhile, Iain Jacob, group managing director at Starcom, which is owned by Aegis suitor Publicis, thinks one of the main advantages of PHD becoming a global network will be to balance client conflict issues that may present themselves in its sister agency OMD. "It gives their potential client base a bit more diversity and it allows them to manage clashing," he says.

"I think building a network, if it's going to be another network, takes a lot of effort. Even if you're building it out of assets you've already got, you've got all sorts of management challenges.

"You've got to go through each local market. You've got to understand which bits are going to be in which network. You've got to deal with the local managing director to expedite that. It's not easy."

Taking a successful business model in the UK, transferring it to the US and finding that clients take to it, has obviously germinated PHD's growth opportunities across the globe.

The challenge now is to make it a viable proposition across every territory, and Simm can probably expect the initiative to take up most of his waking hours over the next few years.

At least he can take comfort from the fact that this is not the network's first attempt at creating a truly global entity and he can learn from the positives, and negatives, already faced in building OMD into a viable, credible, global offering. "We've done it once", he says, "and we'll do it again."


The global agency market players

WPP Group

The network's pooled buying operation is Group M, which takes the combined buying power from Mindshare, Mediaedge:cia, Maxus and MediaCom. Group M covers Europe, the Middle East, Africa, USA, Latin America and Asia Pacific.

Omnicom Group

With the creation of the PHD network, the Omnicom Group will now have two global media agencies, the other being the OMD Group. Opera is the pooled buying operation that encompasses the billings clout of OMD, PHD and, in the UK, Manning Gottlieb OMD, while Opera is rolling out across new territories.

Publicis Groupe

Has two separate media brands, the ZenithOptimedia Group and the Starcom Group, but has no overarching pooled buying umbrella operation. Both agencies are actively encouraged to compete against one another. A £1.57bn bid for the Aegis Group [portfolio agencies are Carat and Vizeum] may change this position if successful.

Interpublic Group

Has two media agencies – Initiative and Universal McCann– which both have an international footprint and channel top-level buying through Magna Global. After a series of account loses, industry rumours persist that the two agencies could be rolled into one.

Aegis

The subject of an acquisition bid from rival Publicis, Aegis is the only network which does not have a creative arm. The global network does not have a pooled buying operation, preferring to run its two agencies, Carat and Vizeum, as separate entities.

Havas

Has one media network, Media Planning Group, which operates globally. Created in 1999 as the result of the merger between Media Planning and Mediapolis, the agency has recently entered into a partnership with WPP's Group M to enhance its cross territory offering.

Have your say...

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Media Week Jobs
Search for more media jobs

Latest

Share
Bauer launches daily football stats email The Equaliser

Bauer launches daily football stats email The Equaliser

Bauer Media has launched The Equaliser, a football-based daily email combining sports statistics and analysis, targeting desktop and mobile users.

Share
Mediacom takes over first ad break in ITV's Good Morning Britain

Mediacom takes over first ad break in ITV's Good Morning Britain

Mediacom has struck a deal with ITV to fill the first ad break of the channel's new breakfast show, 'Good Morning Britain', with spots for its clients.

Share

Get news by email