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Agencies face fight to survive

Leading CEO stays positive

Things are slowing up, even in the fast-paced world of advertising. But not by so much that media agency OMD boss Kath Watson is down in the dumps.

Cautious, certainly. She’s no newcomer to the ad business, but for the first time she says she can’t be sure of her revenue forecasts.

“Media owners aren’t getting bookings from us because we are not getting commitments from clients,” she says.

Advertising business through television, newspapers and magazines was based on annual contracts which came with a discount. “But the market has gone short. Our clients are just not prepared to commit for that long,” says Watson.

“So yes, business is probably harder than it has ever been.”

But just as the nasty edge to any recession begins to bite hardest, Watson and her colleagues at the OMD offices in College Hill, Ponsonby, have been buoyed by good news.
OMD won media agency of the year award in the 2009 Fairfax AdMedia awards and Watson became the first media agency CEO to win the agency CEO of the year award. Recessions can be contrary beasts. Many get burnt, some to extinction. Others with size, clout and stability can find themselves in the right position to pick up the inevitable spoils of the battle.

So all ad agencies, struggling along with their clients, are pitching the same line: Advertise your way out of a recession! Yeah, right.

But Watson insists: “It might be tough selling luxury cars right now, and some of our finance company clients have disappeared.

“But it’s also the time for surviving businesses to keep their brand image and offers up. There are some very good deals out there now, and those still in the market can do very well.”

That OMD New Zealand might be the ad agency to help recession survivors first hold, and then increase market share, was not so clear-cut one year ago.

Then it was a new creation, the result of a merger of three entities – OMD and Media Directions, both in Auckland, and Clemenger BBDO in Wellington – which created New Zealand’s largest media agency. Or super-agency, as the industry called it.

Certainly the new OMD, owned locally and jointly by DDB (NZ) and Clemenger Communications, and managed by global Omnicom Media Group, had size and clout on its side. Turnover last year totalled $305 million, nearly twice the size of its nearest competitor.

But questions remained over stability for OMD. Clients are wary of ad agency mergers. They worry the person handling their account might now be sitting at a desk next to someone handling their competitor’s. One of the challenges for OMD was to handle potential conflict issues well, and not to unnecessarily lose business.

As a result of the merger, OMD found itself handling the business of two TV companies, Sky TV and TV3. In the event, OMD saw its TV3 business go to Spark PHD, but the departure was without rancour. More significantly, OMD won 18-20 new clients in 2008, said Watson.

Most significant was the business of the combined banking operation ANZ-National. National was OMD’s biggest client, while ANZ was competitor Mitchell & Partners’ client. The new bank wanted to deal with one media agency and held a winner-takes all pitch. “We could have lost our largest client, but we won new business instead,” said Watson. And that in a year when so much else was happening in and around the new media agency.

An apparently seamless job in bringing the three groups together impressed the judges, who also made the point that for the first time in a decade the CEO award had been won by the head of a media agency and not a traditional ‘creative’ agency. Watson bridles at suggestions media agencies (which place ads in various media) are any less creative than traditional agencies, which come up with the bright ad ideas and clever lines.

“Twenty years ago there was little choice where ads were placed – not so today,” said Watson. What was once a straight-forward back-room operation was now all about engaging customers and helping clients make informed choices about the right media and how to communicate through them.

And when business is hunkering down and waiting for better times to arrive, ensuring every advertising dollar is spent where it is most effective become more important than ever.

Traditional big players newspapers and television were finding the going hard in the current climate, especially print media, she said. A silver lining for newspapers were the “excellent websites which continues to drive revenue”.

In 2008, combined newspaper advertising turnover totalled $760 million, 32.8% of the total media ad spend – down from $826m at 35.4% the year previous. Television’s ad spend was $647m for 27.9% of the total spend, down from $645m at 28% of the total spend.

Interactive media, meanwhile, have continued their spiralling upward march, through good times and bad – so far, at least. With an ad spend of $8m in 2004 for 0.4% of the market, the interactive spend last year totalled $193m for 8.3% market share. And Watson can only see that growing further.

Only recently Reckitt & Colman, wholesalers of dish washing powder, toilet rolls and cleansing fluids indicated it would be shifting $20m of TV advertising over to interactive media.

“When a client with a range of products that are a mile away from clients in digital space make a switch like that, then I know digital is fully-fledged as an advertising medium,” says Watson.

It’s only in the last six weeks that OMD has really felt the heat says Watson.

“We have a diverse client base, some of whom are in a good spot through recession – like fast food businesses,” she says. Among OMD’s big clients is McDonald’s.

There are some clients who have gone – for good. The finance company debacle saw to that. And others who show some interesting adjustments to hard times.

She has an intuition – yet to be proved – that women’s beauty products will exhibit classic recession-proof tendencies.

“Women may not be paying $100 for a jar of moisturiser, but that re certainly still buying $30 jars from supermarkets, being sold by companies who are also clients of ours.”


December 2008 Year End*

 

2000

2001

2002

2003

2004

2005

2006

2007

2008

 

$M

%

$M

%

$M

%

$M

%

$M

%

$M

%

$M

%

$M

%

$M

%

Newspapers

 596

40.1 

 606

40.7 

 628

40.1 

689

37.1 

790

38.1

830

37.2

810 

36.4

826

35.4

760

32.8

Television

 501

 33.7

 479

32.2

 516

 33.0

592

31.9

643

31.0

666

 29.9

641 

28.8 

654

28.0

647

27.9

Radio

 190

 12.8

 196

13.2

 203

 13.0

224

12.1

247

11.9

256

 11.5

269

12.1

274

11.7

268

11.6

Magazines

 157

 10.6

 166

11.1

173 

 11.0

194 

10.4

223 

10.7

260 

 11.7

251 

11.3

257

11.0

249

10.7

Interactive

 -

 -

 -

-

 8 

 0.4

15 

0.7

 44 

2.0

65 

2.9

135

5.8

193

8.3

*Includes all cash advertising revenue, inclusive of commission when sold via agencies

 


(Source: Advertising Standards Authority)
(Article Source: Sunday Star Times)