In parallel with this short-term weakness, other pressures persist. Consolidation continues apace, albeit with a sharp deceleration of activity because of the credit crisis. Among clients, Procter takes Wella and Gillette, Interbrew takes AmBev, Telefonica takes Bell South's Latin American interests, Cingular takes AT&T Wireless, MCI chooses Verizon, Pernod Ricard takes Allied Domecq and Absolut (with French banks lending 6 times EBITDA), AT&T takes Bell South, NewsCorp takes Dow Jones, Google takes DoubleClick, Microsoft takes aQuantive, Yahoo takes Right Media, Microsoft goes for Yahoo!, Thomson takes Reuters.
Consolidation among media owners also continues unabated. NewsCorp takes and disposes of DirecTV, Comcast tried to take Disney, Carlton and Granada merge to monopolise ITV, and BSkyB takes a blocking stake.
Legislation favours more consolidation in the US and the UK. Even in Brazil, which has been fiercely protectionist, you can buy 30% of Globo or Editora Abril. And in Australia, recently introduced legislation relaxing media ownership rules has triggered a media asset bidding frenzy. Germany allows foreign ownership of TV channels.
Italy concentrates further through the Gasparri Bill. Clients and media owners are not alone. Retail consolidates, too: Morrison takes Safeway; Boots and Alliance merge and privatise shortly thereafter. In Latin America, Wal-Mart enters the North East of Brazil by acquiring part of Ahold's interests, Lider consumes Carrefour's Chilean interests, and Jumbo buys Disco in Argentina. Rumours surround Wal-Mart and Carrefour, Home Depot and Kingfisher, and Best Buy and Carphone Warehouse.
In line with the laws of big numbers, the challenge to Wal-Mart, Tesco and Home Depot will be how they can successfully manage expansion outside their home markets. Tesco already has over half its square footage outside Britain (but much less of its profits) and has sent its UK managing director to the West Coast to manage its US expansion as Fresh 'n Easy. It will not be simple; the demands are different and the model will be significantly based on rehabilitating blighted areas on the West Coast. It has recently been announced that the initial expansion is being consolidated. As a result, it is no surprise that agencies are also consolidating. Certainly in the one area where there are big economies of scale – media buying – consolidation is significant. To negotiate with a Rupert Murdoch, Sumner Redstone, Bob Iger or Jeff Zucker, larger scale is essential.
Media planning or buying, or what we call Media Investment Management, is one of WPP's fastest-growing businesses, driven by clients looking for media-buying efficiencies – rather than reductions in agency's commissions. Like-for-like growth for the last four years has remained around 14%, against overall WPP like-for-like growth of 5-6%. Often savings on gross media budgets of 5-10% are achievable on consolidation.
Media savings are driving client centralisations and are a quick kill in showing efficiencies, as Nestlé and Unilever have shown. The traditional media owners are not only having to fend off disintermediation by new technologies, but the pricing pressure from significant consolidation of media budgets.
But even on the creative side, voracious procurement departments and ill-judged price competition by agencies themselves are driving consolidation (the $100 million pitch win headline in AdAge or Campaign is more satisfying than real revenue). We have seen two of our competitors desperately write cheques or subsidise account pitches to the tune of $20 to $28 million to retain accounts globally or in the UK.
Top 10 M&As: technology, media and entertainment
Deals announced/completed in 2007
|BCE Inc||Madison Dearborn Partners; Providence Equity Partners;|
|Teachers' Private Capital; Merrill Lynch Capital||46.3|
|Alltel Corporation||Goldman Sachs; TPG||27.8|
|Reuters Group Plc||Thomson Corp||19.1|
|Affiliated Computer Services Inc||Cerberus Capital Management||8.5|
|Avaya Inc||Silver Lake; TPG||8.1|
|Alliance Data Systems Corp||The Blackstone Group; Private Equity Group||8.1|
|NAVTEQ Corp||Nokia Inc||8.0|
|Thomson Corp, Thomson Learning and
Thomson Nelson Learning
|Apax Partners Worldwide; OMERS Capital Partners||7.8|
|Leap Wireless International Inc||MetroPCS Communications Inc||7.2|
|Business Objects SA||SAP AG||7.1|
Sources: CapitalQ, PricewaterhouseCoopers, WPP