Tag Archive: WPP

  1. Are ads an inevitability for Netflix?

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    Netflix – a success story

    It’s fair to say that Netflix is one of the huge tech success stories of the 21stcentury. Having started as a DVD sales and rental business, it expanded its business in 2010 with the introduction of streaming media, whilst initially retaining the DVD side of the business. It now has more than 148 million subscribers in over 190 countries. Its earnings to date have reflected its meteoric rise: in Q1 of 2019, for example, the company reported $4.52bn revenue, compared to the $4.5bn anticipated by Wall Street.

    Competitors on the horizon

    So far, so good. However, Netflix has undoubtedly benefited from first-mover advantage, and that may be coming to an end. Many media companies such as Disney, Apple, Amazon, Sky and traditional broadcasters are launching their own streaming services with established and new content; Disney has already removed all its original movies from Netflix, as well as those it owns the rights to, including Marvel and Star Wars. In the aforementioned Q1 report, Netflix stated that it didn’t expect this new competition to negatively affect its subscriber growth; however, that seems inevitable, and Netflix has already taken steps to mitigate the risk.

    Taking the battle to competitors with original content

    The obvious solution to increased competition has been for Netflix to make substantial financial investment into the creation of its own original content, which can’t be withdrawn by a competitor. However, that’s a huge investment and, as CNN points out, ‘the continuous influx of revenue still falls several steps short of what the company is spending each quarter [on original content]’. The cost has to be covered somehow – but how?

    Running ads to cover costs

    In an IAB panel back in April, execs from YouTube, JPMorgan and two agencies concluded that running ads were an inevitability for Netflix – echoing Sir Martin Sorrell in 2015 when he said that Netflix would inevitably have to build digital ads into its marketing strategy. Hulu has done this successfully with a two-tier subscription option – a more expensive ad-free choice, and a cheaper ad-supported service. Analysts believe that Hulu makes more money per subscriber from its subscription plus ads combination than it does from its more expensive ad-free option. Given Netflix’s scale – it is the third most-watched TV ‘channel’ in the UK, for example – it is an extremely attractive proposition for advertisers – and that makes it attractive for investors and Wall Street. However, Netflix subscribers are vocal in their opposition to this suggestion, and a 2018 trial was not a success: 57% of a control group said they would cancel their subscription. It’s worth noting though that Hulu added more subscribers than Netflix in Q1 the US (3.8m versus 1.74m), even with ads.

    There are alternatives to ads

    What are the alternatives? Netflix could of course increase its subscription prices; even after bumping them up in the last quarter of 2017, it increased its subscriber count by 50% more than Wall Street predictions. There is probably an upper limit to this option though. Another would be to look at the other side of the balance sheet: cut investment in original content and focus on the shows that are sure to be smash hits, which aren’t necessarily original. In 2018, just two of the top ten most watched Netflix shows were Netflix originals.

    What does the future hold for Netflix?

    Netflix is comfortably winning the streaming game at the moment, but it needs to re-examine its model in light of the rise of competitors. A digital ad platform is one option, but there is a risk that that move would lead to the loss of many of its subscribers – which competitors would welcome with open arms. There are other options – increasing subscription prices and cutting costs elsewhere – and Netflix will have to look at all of them in depth in the coming months.

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  2. Conflict of interest means WPP won’t participate in Accenture-led pitches

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    Conflict of Interest means WPP won’t participate in Accenture-led pitches

    In a move unsurprising to many industry insiders, it emerged this week that WPP would henceforth refuse to participate in any Accenture-led audits or reviews. It cited as its reason that Accenture could use the data to which it has privileged access as an auditor to undercut WPP’s prices in other pitches for ad budgets.

    Accenture’s digital arm gives it an unfair advantage

    The concern is rooted in the fact that, last year, Accenture’s digital arm, Accenture Interactive, launched a programmatic services practice, offering programmatic consulting and in-housing; media strategy, planning and activation; and ad tech implementation and support. This placed them in direct competition with specialist programmatic companies but also the major media agencies, including WPP’s GroupM.

    WPP is arguing that, from Accenture’s privileged position, it will be able to offer advertisers cheaper, more effective media rates during pitches, giving it a massive and unfair advantage. Accenture maintains that there are internal barriers in place between its audit and programmatic buying business units, but WPP is evidently unconvinced – as are we.

    The threat from the ‘vanguard of advertising’

    This decision is not out of the blue: there has been growing disquiet amongst the more traditional media agencies who feel, according to an article in the New York Times, “threatened by the ‘vanguard of advertising today’ – consulting firms like Accenture which offer technical wizardry in an age of cord-cutting and ad-blocking.” The fact that Accenture will now potentially be able to take market share from these agencies in an ‘underhand’ way only serves to entrench the tension – the battle has become war.

    WPP needs to persuade clients to follow its lead

    The issue with WPP’s move is that it will need to persuade clients – both current and future – to not work with Accenture as well. That could be extremely difficult: when clients own their data (as opposed to their agency), it is often inextricably entwined with a number of parties, an arrangement that is difficult to move away from; a Digiday article points out that clients will judge whether it’s worth it based on how satisfied they are with their auditor, and not on any gripes the advertiser has with said auditor.

    ECI Media Management: independent and impartial

    At ECI Media Management we fully back WPP’s decision. Impartiality is at the heart of effective auditing and no company which offers media services to a market where it has highly privileged access to the data and financial information of both advertisers and agencies can claim to be impartial. As Paul Bansfair, the Director General of the IPA (the UK ad industry’s trade body) said when Accenture Interactive announced the launch of its programmatic buying branch, “In an era where transparency is under the spotlight, this self-evident conflict of interest is unacceptable.”

    At ECI Media Management, we are 100% director-owned and have no affiliations with any media agencies or owners, so our advice and actions are always based on what is best for the client. We believe that should be the norm across the auditing and media management sector.

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  3. The creation of Wunderman Thompson: is it really the answer?

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    The latest in a series of WPP mergers is that between Wunderman and JWT – but is that really what clients need?

    A difficult year for WPP

    2018 has been a difficult year for communications giant WPP. There was, of course, Sir Martin Sorrell’s sudden and tumultuous departure from the helm of the company, leaving waves of bad feeling in his wake, particularly when he started his new organisation, S4 Capital. Then, in October, it was revealed that WPP was no longer the world’s biggest marketing and advertising services group, slipping below American rival Omnicom for the first time in almost a decade. WPP’s share price has experienced a downward trend over the last year and is languishing at levels not seen since 2011: this is largely blamed on the disrupting influence of Sorrell’s departure and WPP’s struggle to transform the huge group in the face of a rapidly changing media landscape and increasing competition from Google and Facebook.

    Simplicity, accountability and scale

    So Mark Read, Sorrell’s successor, has a lot on his plate. He needs to ‘steady the ship’ and execute the transformation that will make WPP future-ready, in the face of the company’s own challenges and the challenges facing the wider industry. A major criticism of the industry is that it is bafflingly complex, with agencies, units, sub-units and specialist arms presenting clients with an alphabet soup of agency suppliers. Forrester said that WPP needs to ‘dissolve’ its hundreds of agency brands into a few dozen to ‘meet the CMO’s need for simplicity, accountability and scale’.

    Mergers to deliver on the simplification agenda

    Read has continued the process of simplification that started under Sorrell, including a series of mergers, including that of Maxus and MEC to become Wavemaker, and Y&R and VML becoming VMLY&R. The latest and most prominent of these mergers is between digital agency Wunderman and renowned creative shop JWT, which, on January 1st, will become Wunderman Thompson under a single P&L. In WPP’s press release on the matter, Mark Read claimed that Wunderman Thompson will be a new ‘creative, data and technology agency’ which will ‘bring together the capabilities our clients are demanding – award-winning creativity alongside deep expertise in technology, data and commerce – in a single organisation.’ Mel Edwards, the Global CEO of the new entity added, ‘To achieve transformative outcomes, clients today need inspiration that is rooted in data-driven insight. WT offers precisely what clients want – better creativity, expertise in data and sophisticated technology skills.’

    A new set of competitors?

    Interestingly, Wunderman Thompson’s positioning as a provider of end-to-end, data-driven marketing and creative solutions places it in direct competition with not only the traditional media and creative agencies, but with consulting groups such as Accenture and Deloitte who have recently entered the space with an offering that focuses on data, technology and creative.

    The modernisation of a legacy brand

    While the merger marks the end of JWT, one of advertising’s key legacy brands and one of the few agency names that the general public recognised, it does make sense: there had been a feeling that the creative agency was resting on its laurels rather than embracing a more consumer-centric planning approach. With Wunderman’s digital expertise, JWT’s clients will have access to data-driven insights to inform their creative. What’s more, some of those clients also already use Wunderman’s services, so the simplification argument is even more powerful.

    But is it what clients really need?

    This merger is being widely viewed as a demonstration of Read’s determination to change the direction of WPP and create a more streamlined, simplified and easily navigable organisation for the benefit of clients – even if the process is at times painful and difficult. However, at ECI Media Management we would question whether it’s possible to teach an old dog new tricks. Does this internal merger and others like it really make the agencies more customer-centric and produce better outcomes for clients? Or is it just better for the buyers? Furthermore, in this era of data and associated concerns around security breaches, transparency and brand safety, will clients continue to allow agencies to handle their consumer data? Can they be sure that it is they and not their competitors who will profit from the insights generated from the data? ECI believes – and indeed recommends – that clients will increasingly bring their data and ad tech in-house in order to truly understand their customers and drive that all-important consumer-centricity; external consultants can be briefed for support when and where it is needed. WPP and others have nodded towards this new consultancy model, but the need is increasingly urgent and the communications giants need to evolve quickly if they are to succeed in this space.

    Thumbnail image: Shutterstock

  4. New WPP chief hits the ground running

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    WPP has filled its CEO vacancy – and there’s a lot to do.

    A popular choice to fill big shoes

    Since Martin Sorrell’s acrimonious departure from the top job at WPP earlier this year, there has naturally been speculation around who would replace him. Charismatic and combative, and the chief architect of WPP’s growth from a wire and plastics company into the world’s largest advertising company, Sorrell left big shoes to fill.

    WPP announced this week that those shoes have been filled by Mark Read, who had been running the organisation on an interim basis, alongside Andrew Scott, since Sorrell’s departure. Read is a popular choice both within WPP and among shareholders, and was the leading internal candidate for the role. He has a proven track record in running WPP digital agency Wunderman, as well as in digital leadership and as a board member from 2006 to 2015. He is viewed as a steady pair of hands and someone who can hit the ground running – perhaps less charismatic and pugnacious than his predecessor, but that is widely seen as a good thing.

    Read has industry challenges to contend with…

    Read has his work cut out for him. The day after his appointment was announced, WPP suffered a sharp drop in share price, and the company recently announced a somewhat mixed set of results, with a small Q2 global revenue growth of 2.4% but a continued decline in its North American business, which dropped by 2.9%.  WPP is suffering from many of the same problems as its industry peers, including navigating the seismic shifts that the advertising industry is experiencing thanks to rapidly advancing technology. Many clients are looking to take at least some of their marketing activity in-house, forcing agencies and in particular media agencies to re-examine what the future looks like. Those that aren’t yet taking their activity in-house are simultaneously cutting costs and demanding greater transparency in the wake of brand safety scandals and the like. Furthermore, a new generation of competitors is springing up: not just the small boutique and niche agencies, but also in the form of companies such as Accenture and other consultancies, who are establishing capabilities in high margin marketing services such as data and programmatic

    …and in-house problems too

    Read’s challenges aren’t just those faced by the advertising industry at large: WPP has its own set of unique issues to resolve. It is famously huge, with hundreds of agency brands across the world, more than could ever be needed to manage conflict and who indeed often compete with one another. The many P&Ls

    make it unwieldy and, crucially, ‘impenetrable to understand’ for clients, in Read’s words. This is a major cause of concern for some of the group’s key clients such as P&G and Unilever, while Ford – WPP’s biggest client – announced earlier this year a review of its global creative business, currently handled by GTB, the dedicated agency established by WPP for the automotive brand.

    ‘Radical evolution’ is needed

    In response to WPP’s issues and in order to future-proof the organisation, Read has announced a ‘radical evolution’ strategy that will streamline WPP’s structure, consolidating some of the 170,000-strong workforce across 112 countries and 3000 offices. As Read said, “WPP needs to come closer together, not further apart. There are many good things about the business. It is a question of simplifying the offer, refocusing the portfolio and investing more in data and technology alongside creativity.”

    Read has ample experience in the digital side of the WPP business, and his transformation strategy includes turning WPP’s approach to how it works with data and tech on its head. He recognised that, in a world where the likes of Facebook, Amazon, Google and Alibaba own the lion’s share of consumer data, the most realistic way for WPP to monetise its data capabilities is to effectively borrow data from the tech companies and charge clients for data consultancy, rather than execution. GroupM agency MediaCom is already progressing in this area.

    Other elements of Read’s approach include actively helping clients take elements of their marketing in house by consulting on the strategy rather than focusing on the execution; and management of their data investment or research portfolio – it appears likely that Kantar Media could be sold in the not-too-distant future.

    The keys to success: steady hands and an open mind

    Mark Read is stepping to the fore at a time when strong winds are buffeting WPP and the wider advertising industry. However, a combination of steady hands at the helm and a willingness to transform the organisation’s structure and model could well be just what WPP needs to stay on course.

    Thumbnail image: Shutterstock.com

  5. Back to the future with Martin Sorrell

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    From conglomerate overlord to start-up entrepreneur

    A wealth of experience in empire-building

    When Sir Martin Sorrell, founder and Chairman of WPP, left the company a few months ago, his farewell note to employees around the world included the phrase ‘back to the future’. Few could have foreseen how quickly the return of the future would come around.

    Little more than a month later, Sorrell delivered on that promise, announcing the takeover of a small company called Derriston Capital – which is to be renamed S4 Capital in honour of four generations of the Sorrell family. There are distinct echoes here of the purchase back in 1985 of a small UK-based maker of wire baskets, Wire and Plastic Products, which would eventually become the world’s largest communications conglomerate.

    Sorrell spent 33 years building the WPP empire and left it under something of a cloud in mid-April this year, after it was revealed that the company was carrying out investigations into his personal conduct. From its humble beginnings, he left it as a global communications powerhouse worth more than $20bn, with offices in 113 markets. If anyone assumed that, at the age of 73, he would glide quietly into well-earned retirement, they were mistaken – thanks in no small part to the glaring omission of a no-compete clause in his final contract.

    Sorrell is proving himself to be the classic restless entrepreneur, constantly seeking out the next challenge and viewing a quieter existence with a mixture of scorn and horror. He’s invested over $50m of his own money in S4, a communications company focused on driving growth for clients, exploiting the opportunities for development in technology, data and content. So far, so normal – many (if not all) communications companies would claim to do the same, in almost those precise words.  So what’s the point?

    A better way than the holding company model?

    S4’s chances of succeeding in this space are very good thanks to Sorrell’s unparalleled address book, bursting with the contact details of the CEOs of every major company in the world, teamed with his experience in building an industry-leading company from scratch. What’s more, S4 will undoubtedly exploit its ability to be agile compared to the lumbering weight of the global holding companies, which he was so vociferously defending until a few months ago. He now appears to be saying there’s a better way – the S4 way – and he is probably right. Just last week S4 acquired Dutch digital production company MediaMonks, seeing off competition from several rivals, including – you guessed it – WPP; the takeover marks the true start of Sorrell’s renaissance.

    A headache for the holding companies

    Should WPP and the other holding companies be concerned? Yes, they should, especially if S4 and Sir Martin Sorrell attract the right thinkers and doers, who listen to and focus on the needs of clients and harness technology, unhindered by the vast structures so inherent to the model of the communications giants.

    WPP is in good hands and, while they are determined to prevent their former boss getting his exit package as they believe he has breached confidentiality clauses, it seems to be business as usual. However, Sorrell’s activities are happening against a backdrop of uncertainty for media agencies, who are struggling to find their place in a new world where technology and data reign supreme. With Sorrell throwing his hat into the ring anew, things might change a little faster.

    Thumbnail image: Olivier le Moal/Shutterstock.com