Time for 'Super Indies' to emerge, collaborate, exploit global groups demise but 'stop holding out for one big pay day’
Jack Watts, CEO of Bastion Collective, one of Australia’s largest independent advertising groups, says the age of the holding group dominance has peaked – if indies are willing to work together. But he claims too many agencies believe they have the ‘silver bullet’ to solve client problems and hold off selling or integrating their businesses until it’s too late.
“If the independents don't act now, the multinationals will have solved their problems and reclaimed market share.”
What you need to know:
- Bastion Collective boss Jack Watts says five years ago it was “almost impossible” to pull a brand out of a global communications holding group: today many are actively looking for alternatives, fuelled by a growing recognition that many of the holding groups run a “competitive not complimentary” business model.
- Watts says the dominance of WPP, Dentsu, Publicis, IPG, OMG and Havas has peaked.
- But he says any hit to to the holding groups won't be from a series of mid-size, 20-to-50 people independent firms who offer one service - be it creative, media, comms or digital.
- The agency sector is currently too fragmented; marketers don't want to "deal with five different independents to get the service they need.”
- He says not every agency can have the “silver bullet” that makes them stand out from the rest and need to recognise one “specialty done well” isn’t enough to survive.
- Indy players, he says, must take advantage of changing client needs, especially as COVID has heightened the need for “stronger agency partners”.
- The independent sector hasn’t been able to capitalise on this, however, because they are unsure about adopting a collaborative or “collective” approach to survive.
- Watts says too many indies sell on the way down, rather than at the top, meaning there is less value to extract from them.
- If independents don't act now, Watts says multinationals will have solved their problems and reclaimed market share.
“Those agencies with under 50 staff do one thing really well and that’s provide core expertise in their service offering but they have no scale or breadth, leaving a massive gap between those 100 people indies and the holding groups,”
The ‘long-awaited’ window opens
This year, an often-heard mantra in media and marketing circles is that COVID has accelerated trends like the rise of e-commerce, flexible working structures and shifts in media audiences.
For Jack Watts, CEO of one of Australia’s largest independent agency groups Bastion Collective, COVID will also hasten the “demise” of international holding groups.
Watts admits it's not a new argument. He says in the 10 years since starting Bastion Collective, the trend has been slowly unfolding and has really picked up pace in the past couple of years. COVID, he says, is firmly proving the “cracks” in their models.
“The multinationals are often weighed down by significant debt, heavy corporate overheads – typically running at 25% of revenue – and an out-of-date model that was built in the 1970s and 1980s,” Watts tells Mi3.
Scale, he says, is the primary reason holding groups still maintain some relevance.
“If you’re a big, multinational, million-dollar client, then you base the decision on scale, reputation and name,” he says.
“Now the [holding groups] are caught up trying to link many of their offerings, from traditional through to digital, together.” He points to the mergers of WPP agencies Wunderman Thompson and JWT, becoming Wunderman Thompson, and VML and Y&R to become VMLY&R as examples.
Watts claims that such moves highlight how agencies in holding companies are often competitive, not complementary, and while they are merging to create less competition, those that remain are still battling one another.
“Those groups still rely on multi-million production budgets and media kickbacks to be profitable and competing internal agencies very rarely work together for the benefit of the client,” Watts says.
“WPP Australasia’s market cap has spent a lot of time in the last few months well below $200 million [it is currently $280M]. They would have spent two to three times that on acquisitions alone, buying the businesses that now form that group.”
Watts says five years ago it was almost impossible to pull a client out of a multinational, but today many are actively looking for alternatives.
He says this is because marketers have started to recognise many of the holding groups’ faults and have become frustrated with slow approval processes from global “powers that be”, especially at a time where rapid and effective execution is needed for brands to survive.
Now the indy group CEO is calling for the return of a “golden era of local Australia powerhouses”, alluding to the likes of Mojo, The Campaign Palace, Mitchell & Partners and John Singleton Advertising.
“Don’t be fooled, a rise of great independent agencies hasn’t caused this, it has been done by the multinationals themselves,” Watts says.
“I don't think the damage [to the holding groups] will be done by a series of mid-size, 20 to 50 people independents who offer one service - be it creative, media, comms, digital.
“The agency space at the moment is too fragmented and clients don't want to deal with five different independents to get the service they need.”
Stop holding out, sell at the top
Watts says there needs to be significant M&A activity in the independent sector to create a number of “super-indies” that have 100 or more specialists or 100 people offering a variety and “breadth of communication services”.
He says currently there are probably only three or four independent agencies in this country with over 100 staff and less than 20 indies with more than 50 staff.
“Those [with under 50 staff] do one thing really well and that’s provide core expertise in their service offering but they have no scale or breadth, leaving a massive gap between those 100 people indies and the holding groups,” Watts says.
“In that gap there has always been ‘the great Australian agency’, with 200 or so people, offering scale. Now there are too few, so the question has to be ‘how do we come out the otherside stronger?’.”
Enero Group, which last month reported a 6.6% rise in net profit to $12.9 million for FY20 on a revenue rise of 4.9% to $135.8m, and his own business are key to taking on global agency groups, he says.
While agencies such as Simon Ryan’s new venture RyanCap and Ben Lilley’s organisation are growing, Watts says there are still too many smaller agencies that believe they hold the “silver bullet” for client problems.
“If the independents don't act now, the multinationals will have solved their problems and reclaimed market share,” Watts says.
Watts says most independent agencies are failing to capitalise on the problems in the holding groups because they are failing to adopt a collaborative or “collective” approach to survive.
“Too many indies sell on the way down, rather than at the top, meaning there is less value to extract from them,” Watts says.
“So often you hear about holding groups buying agencies who have a self-inflated valuation of themselves and fade into obscurity once earn-outs are completed.”
Watts compares most independent agencies to Scottish clans during the battle for independence against the English in the 13th Century.
“They spent as much time fighting themselves as they did the English, whereas fighting together with a unified approach would have yielded the right result,” Watts says.
“Clients won’t want to pull together eight different indie shops to service them, but they will sign up for a great integrated and specialist offering,” Watts says.
“That’s why I say ‘Join us’ or anyone willing to combine to create scale. Drop the concerns over one big pay day and recognise the opportunity.
“A simplified structure and locally driven results are all possible if indies are willing to join forces and give clients what they actually want: scale, expertise, and breadth of offering and service.”
Watts’ final message to all indies is “get your head out of the sand” and put scale at the top of the agenda, because the “time to strike is now”.
“The race is on to knock the holding groups back and give the Australian media, marketing and advertising landscape a new and independently-led offering, so stop wasting time,” he says.
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