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Publicis, IPG and Omnicom’s contrasting fortunes illuminate industry struggles

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By Sam Bradley | Senior Reporter

July 21, 2023 | 11 min read

Agency groups are shouldering economic weather, shifting client demands and readying for an AI-led era of advertising. But growth in the second quarter has come much quicker for Publicis than its rivals in the US.

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It's been a mixed week of results for adland's holding companies / Unsplash

Economic woes haven’t held back the agency holding companies as much as was feared earlier in the year. But, between the lines, it’s clear that some advertising firms are faring better than others in the face of a tech sector slowdown, high inflation and high interest rates.

Publicis Groupe’s second quarter results, released this week, defied market expectations. The Paris-headquartered holding company, which owns agencies Saatchi & Saatchi, Le Pub and Zenith, recorded organic growth of 7.1% and updated the guidance it gives to investors and shareholders, predicting that it will achieve annual growth of 5% this year. In the key US market, it posted organic growth of 5%; across the Atlantic, it recorded 17% organic growth in Britain.

In a statement issued to the market, chief executive office Arthur Sadoun said the group had “the best financial KPIs in the industry in [the first half of 2023]… we continue to outperform the market.” Investors would appear to agree with his summary; at the time of writing, Publicis’ share price had risen 2.5%.

Though it experienced some “localized cuts” in demand for creative services in Europe, growth was driven by its data and media businesses, including Epsilon, Publicis Sapient and Zenith. For Greg Paull, co-founder and principal at consultancy R3, “This should come as a wake-up call to the industry on the power of multiple disciplines working well together.

“As Marc Pritchard once said, ‘Your complexity is not my problem’ – and Publicis has managed to harness that to drive growth.”

Competitor results released this week tell a different story. IPG, the parent firm behind Mediabrands, R/GA and Huge, saw net revenues slip 2% in the second quarter, and organic growth of 1.7% compared with the same period in 2022.

In response, the company announced in a statement that it would readjust its revenue expectations for the year downwards. It now predicts that it will only record organic growth of 1-2% for the whole of 2023.

Publicis, IPG and Omnicom – which also posted figures this week – saw revenue from technology clients drop off, though the US groups were much more heavily affected. Omnicom’s share of revenue from the tech sector declined 4%, while Publicis’ fell 3%.

IPG’s chief exec Philippe Krakowski named it as one of the principal factors behind his firm’s negative growth, telling investors its revenue from the sector had fallen from 15% to 12%. ”Tech continued to weigh significantly on growth. In addition, modestly heightened macro uncertainty impacted certain of our specialty assets and traditional consumer agencies... these factors resulted in Q2 organic revenue performance that is inconsistent with our expectations.”

It’s not the first time a rough performance at IPG has been attributed to tech client caution – the restructures and redundancies at R/GA and Huge, still continuing at the latter, were blamed on it earlier this year. But Krakowski said that hesitation among big tech firms was “not abating“; project-based R/GA and Huge had been especially impacted despite efforts to move away from that business model. ”In the long run I think it’s going to return to being a strong growth driver for us,” he offered.

Omnicom’s second quarter figures showed the group managed just 2.4% organic growth in the US and 2.5% in the UK. And at the time of writing, the US-based company’s share price had fallen almost 7.5%.

Joe Hine of strategic advisors SI Partners, tells The Drum that the results show Omnicom is “incredibly stable,” but that “there isn’t a lot of growth where you might expect there should be.”

“The organic growth is pretty modest,” says Hine. “There’s not much coming from the US, which is their core market, though they’re seeing growth elsewhere.”

The agency group’s leaders would probably hope to see much stronger growth in its home market, where inflationary pressures are easing. However, growth in a “changeable” market is still cause for celebration, says Hine.

“These results aren’t really following that, but they’ll be pretty pleased that they’re flat or are growing slightly in a pretty changeable market. They’ll always want more, but there’s some satisfaction they’ll take from this. From a holistic perspective, they’re not going to be unhappy.”

Omnicom acquisitions

Omnicom is working to consolidate its market position through acquisitions and reorganizing key elements of its business, Hine explains.

Recent weeks have seen the group return to the acquisitions table, completing deals for German creative agency Grabarz & Partner (a deal that SI advised on), and for British-headquartered media agency Ptarmigan, which has been added to Omnicom Media Network (OMG).

The latter should expand OMG’s footprint in the south-east Asian region significantly, and its client roster in the financial services sector – an area in which Ptarmigan specializes and which provided about 7% of Omnicom’s revenue in the first half of this year.

OMG chief executive Florian Adamski tells The Drum that the sector holds opportunities for his network. “Financial services is one vertical that is undergoing significant transformation in the way products are being designed and customers, both B2B and end consumer are being addressed. Ptarmigan’s deep expertise in this industry will allow us to double down on creating modern, data-driven solutions and capabilities that will keep OMG’s clients ahead of the curve.”

The company must embrace “deeper specialisms… [and] at the same time operating models that allow for more integration,” he says. Particular focus areas for OMG include retail media performance, influencer marketing and DTC, he adds. “Offering seamless service integration of these future-facing skillsets is at the core of our client promise.”

Hine says the deals, while straightforward, are “more ambitious” than Omnicom’s previously conservative approach.

“The acquisitions they’re doing are about client consolidation,” explains Hine. “They are not huge game-changer deals, but they’re looking for specific holes in client relationships and then bringing those inside the group to reduce any friction, and to ensure they’re not going to lose revenue anywhere else. It’s incredibly targeted.”

The holding company has also rebranded Omnicom Health Group, its healthcare agency business. The pharma and healthcare sector is the largest client cohort by revenue for Omnicom, and an increasingly competitive area. Havas and WPP, for example, have overhauled their healthcare agencies in recent years, and without its own brand positioning, OHG lacked differentiation.

Chief exec Matt McNally boasted in a press release this week that the network had “DE&I and data at the center of everything” and it would “shake up the healthcare marketing industry” with an offer that was “fresh, relevant and differentiating in the industry.”

AI on the horizon

Publicis boss Sadoun claims the French firm is “future-proof” thanks to groundwork in recent years. But the commercial implications of AI hang over all the industry's major players. Omnicom’s executives have been eager to position the company as a leader in the space, forging alliances with Adobe and Google. IPG boss In his remarks to investors today, Krakowski emphasized how the company was “operationalizing“ machine learning tech in its media, data and commerce businesses. Meanwhile, Publicis leaders have been working hard to emphasize the firm’s earlier investments in the tech, unveiling a nose-thumbing outdoor campaign at Cannes Lions this year.

“With our investments in Epsilon, powering creative and media through personalization at scale, Sapient and Marcel, we are uniquely positioned to lead the future of our industry. It will inevitably be shaped by data, tech and AI that are already at the heart of our business model both in how we work for our clients and in the way we operate,” Sadoun told investors.

The acquisition of Ptarmigan can be seen, in its own way, as an expression of Omnicom’s AI strategy. Jim Houghton, a partner at M&A consultancy Waypoint and a one-time Omnicom exec, tells The Drum that the deal might be a means of “buffering” against “what’s coming down the track.”

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Though he doesn’t think any of the holding companies are “panicking” about AI, the kind of value in a company such as Ptarmigan can’t be replicated by AI tools. “Deep financial expertise means expertise held in the heads of people,” he points out.

Omnicom chief John Wren and chief financial officer Phil Angelastro spent plenty of time discussing the topic with investors and made certain to emphasize its potential to cut costs.

“It will make the gathering of data and the refinement of data, which leads to better insights, a much more rapid, and labor-less intensive,” said Wren. He added that better measurement of marketing effectiveness would also increase the group’s organic growth “over the near and long term.”

But Hine suggests that the group will soon come under pressure to pass on those efficiencies – AI and media-enabled – to its customers. “Agencies looking to be at the forefront will demonstrate their AI capability… [but] the next question is: how’s that going to save me money? There’s a lot of client pressure on agencies to make those savings and pass them on, it’s inevitable.”

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