Global agency groups trail behind Google and Facebook
The top six global ad agencies had combined revenues of €47.6bn for 2015, writes John McGee, but Google alone had €67bn
With the door now shut on the recent reporting season for the top six global advertising and marketing communications groups, one thing is clear: there's a lot of money to be made in advertising and marketing.
The most recent results for the top six groups - WPP, Omnicom, Publicis, Interpublic, Dentsu and Havas - show that they had a combined turnover of €47.6bn in 2015. If they were to pool their net profits, they would be staring at a pot worth €4.92bn for the year.
Unlike other companies that sell physical goods, like industrial components, oil or FMCG products, these companies sell their services, their ideas and their reputations.
Depending on which side of the executive floor you stand, these services can often be viewed as discretionary or necessary in equal measures. When times are tough, the easiest thing to do for many companies is to slash the advertising budget, hold off on a PR campaign or suspend that piece of market research that might be needed.
Like all other stock-market-listed companies, however, they are also subject to the same merciless scrutiny from the investment community. One slip-up and they can be punished by an unforgiving and often ruthless marketplace.
The financial performance of the big six agency groups is also a bellwether for the wider global economy and their success is often a reflection of the success of their clients.
So how did the big agency groups fare in 2015? Very well for a sector that has borne the brunt of the many cut-backs during the recent global economic meltdown.
The biggest marketing communications group by far is WPP and it recently reported a turnover of €15.77bn for 2015, while it weighed in with a net profit of €1.8bn.
With a staff of over 190,000 and 3,000 offices operating in 112 different countries around the world, its stable of agency brands includes the likes of JWT, Ogilvy & Mather, Grey, Group M, Millward Brown, Y&R and Burson Marsteller, to name but a very small few of the several hundred companies it owns, including a number of leading agency brands in Ireland.
WPP is presided over with a vice-like grip by the 71-year old Sir Martin Sorrell, who was once famously described by David Ogilvy, the godfather of advertising, as an "odious little jerk." Ogilvy, of course, later retracted his remarks when the agency he founded eventually fell into the clutches of WPP.
However, his remarks would later go to colour the judgements people would make about Sorrell, including the many disgruntled shareholders who get hot and bothered every year when details of his remuneration package is published. For 2015, this amounted to a whopping £62.8m in salary and share bonuses, bringing the total amount that he has pocketed over the last five years to £150m.
While such largesse has divided the investment community and raised more than a few eyebrows in boardrooms throughout the UK, Sorrell has done a very good job in steering the WPP ship through plenty of choppy waters in recent years. It started out as a shell company back in 1985, but he has overseen an acquisition-led growth strategy in the intervening years and earlier this week the group's market capitalisation stood at a staggering £20.6bn.
With revenues of €13.65bn and net profits of €986.5m in 2015, the agency group Omnicom is the next largest. With 74,000 staff in over 100 countries, its agency brands include the likes of DDB, TBWA, DAS and BBDO.
It is followed in third position by the Publicis Groupe, which recently reported revenues of €9.6bn and net profits of €901m. Agency brands owned by Publicis include Saatchi & Saatchi, Leo Burnett, Digitas, Sapient, Publicis Worldwide, Starcom, MediaVest and Razorfish. Publicis employs over 78,000 people in 108 different countries.
Next up is the US group Interpublic, which reported revenues of €6.8bn and profits of €409.8m in 2015. It is followed closely by Japanese firm Dentsu, which in 2015 clocked up revenues of €6.4bn and profits of €658m.
Finally, the smallest of the big six is the French group Havas, which recently reported revenues of €2.8bn and profits of €172m.
But here's an interesting and somewhat sobering thought. While the combined €47.6bn turnover of the top six agency groups is indeed impressive, it is in marked contrast to the financial performance of the advertising behemoths that are now Google and Facebook.
Indeed, Google's staggering turnover of €67.17bn in 2015 is considerably greater than the combined turnover of all six agency groups - by €19.5bn, to be precise. For its part, Facebook's 2015 turnover of €16.15bn means that it is now bigger than WPP, while the €3.32bn profit it generated is more than double the comparable figure for the advertising giant.
Ten years ago, nobody in their right mind would have predicted such a scenario.
One of the ironies in all of this is that both Facebook and Google are substantial beneficiaries of the investment in digital advertising that these agency groups make on a daily basis on behalf of their clients.
As these agency groups continue to ramp up their investment in digital over the coming years, the likes of Google and Facebook will continue to get bigger and bigger - and the yawning gap between them and their agency cousins will very soon become a canyon.
Sunday Indo Business