By Nick Kostov and Suzanne Vranica
WPP PLC's new chief executive is preparing to consolidate some
of the advertising giant's major properties, as traditional
agencies struggle to keep pace with the industry's digital
shift.
Marquee ad agencies that buoyed WPP in earlier decades --
including Young & Rubicam, Ogilvy, J. Walter Thompson and Grey
-- are generally growing more slowly than WPP's digital and media
buying operations, according to the company.
CEO Mark Read has said that he will unveil a strategy update by
year-end and that merging creative and digital firms makes more
sense than combining creative agencies.
One idea under consideration is a merger between Young &
Rubicam and WPP's digital-ad firm VML, with VML Chief Executive Jon
Cook leading the combined business, according to people familiar
with the matter. That change would place Mr. Cook at the helm of
Young & Rubicam, an agency that WPP acquired in 2000 for a
record $4.7 billion, and that sports accounts as varied as Office
Depot and the U.S. Navy. The new entity could be called VMLY&R,
according to one of the people.
A WPP spokesman declined to comment on merger
considerations.
There have also been discussions about having WPP's tech-savvy
direct-marketing company Wunderman work with its creative firms, to
provide access to consumer data to help them craft more relevant
ads, a person familiar with the company said.
The strategy aims to make the creative agencies less dependent
on television and other traditional advertising revenue while also
bolstering their digital know-how and giving them access to more
consumer data and new technologies such as artificial
intelligence.
Advertisers are increasingly doing more of their creative work
in-house or taking their business to smaller agencies that have
been more nimble in adapting to a digital age dominated by Facebook
Inc. and Alphabet Inc.'s Google. "It's been the perfect storm" for
creative agencies, said Greg Paull, co-founder of R3, a consulting
firm that helps match marketers with agencies.
WPP's like-for-like net sales -- a figure closely watched by
analysts to measure the company's underlying performance -- have
dropped for six consecutive quarters in North America. Although WPP
doesn't break out the performance of its creative agencies, it
blamed weakness in their North American operations for its latest
lackluster quarter. Analyst Brian Wieser from Pivotal Research
estimates their sales fell 5% during the first half of the
year.
JWT, one of the world's oldest agencies, has lost business from
consumer-goods companies Kimberly Clark Corp. and Kellogg Co. For
more than two decades, the agency handled the Royal Dutch Shell PLC
account for WPP. But when WPP pitched the oil giant earlier this
year, it used an approach from its Wunderman agency, according to
Mr. Read.
WPP won a bigger share of Shell's business, but JWT lost some of
the work it does for the oil company.
Meanwhile, American Express Co. has been shifting business away
from Ogilvy, which handled its ads for more than five decades.
"Creative agencies are disproportionately impacting
holding-company-level results," Mr. Wieser said.
Despite their decline, some executives at WPP's creative
agencies don't want Mr. Read's overhaul to affect the status they
have traditionally wielded within WPP's pecking order.
Under WPP founder Martin Sorrell, who resigned in April, many
agencies operated mostly independently, competing against each
other to win accounts. Executives are jockeying for position as Mr.
Read looks to streamline reporting lines, limiting his direct
reports to between 10 and 20 executives compared with the dozens
who reported to his predecessor, Mr. Sorrell, according to some of
the people.
Some executives were surprised when Mr. Read singled out the
creative agencies for their lackluster performance on a Sept. 4
conference call with analysts. One head of a top creative agency at
WPP phoned Mr. Read to complain, said people familiar with the
matter.
"I tell things as I see them -- maybe a little bit too much,"
Mr. Read told one executive, according to a person familiar with
the call.
As the industry grapples with the shift to digital ads,
advertisers are creating fewer traditional ads and are demanding a
wider suite of services from creative agencies such as influencer
marketing campaigns, new product development, data science and
content for social-media channels that needs to be crafted in
real-time.
Part of the reason traditional creative agencies have been slow
to adapt is that they are weighed down with globe-spanning
operations. Clients signed up for "agency of record" relationships,
paying a retainer to a single agency that is then responsible for
most of its projects.
Now, marketers are switching agencies more often for various
reasons, including the need to make sure their agency is keeping
pace with the changes taking place in advertising. Many are also
looking to save money and often pressure ad firms to reduce their
rates to win or retain the business.
--
Alexandra Bruell
contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com and Suzanne Vranica
at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
September 23, 2018 20:55 ET (00:55 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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