A month ago, when it became apparent that Publicis was considering the option of consolidating its clients' outdoor media planning and buying into a new Publicis-owned outdoor specialist operation across Europe, we predicted that this could be the trigger for more realignment in the poster buying market.
It was a good bet - outdoor consolidation tends to be a cyclical phenomenon that goes into spasm every three or four years - and, indeed, we were not disappointed. Last week came reports that IPM, Interpublic Group's specialist, had been talking to the Aegis-owned Posterscope about forming a pooled buying operation.
The leak sent both organisations into mild panic as they sought to regain control of the news agenda - and, on one level, you can see why. True, the outdoor market in the UK has long been noted for the casual manner in which it throws together odd bedfellows. After all, it is already dominated by what are effectively two "buying clubs" - an arrangement reminiscent of French media practices in those dark old days before the Loi Sapin, when the market was carved up between three consortia.
We already have a situation where Posterscope buys for the clients of Carat, Vizeum and Omnicom, plus one half of the Publicis media family - ZenithOptimedia. The other half, Starcom MediaVest Group, plugs into Posterscope's rival, the WPP-backed Kinetic, which mainly represents the WPP media agencies Mindshare, Mediaedge:cia and MediaCom.
But IPM holds the balance of power - and its disappearance would have implications for the outdoor market as a whole. Also, from an IPG point of view, it is an important asset - particularly at a time when, if Publicis does create its own consolidated outdoor specialist, the market is realigning along holding company lines.
That's why the proposal on the table is for IPM to maintain its identity (and planning function) while setting up a joint venture buying unit with Posterscope.
1. Posterscope, led by Annie Rickard, has claimed billings in excess of £380 million. IPM, headed by Roy Jeans, plans and buys for Initiative and Universal McCann advertisers and has a significant number of clients that have appointed it directly, including BSkyB, which spends about £18 million a year on outdoor media.
2. From the point of view of both IPM and Posterscope, the possible benefits of pooled buying could seem very attractive. Although IPM managers have always had to live with the reality that they command a small slice of the market - somewhere just over 12 per cent - and have always argued that size isn't everything, life becomes a lot easier when you're big and strong as well as clever. On the other hand, a pooled buying arrangement could lead to IPM losing some of its direct clients.
3. For Posterscope, the principal issue is not size reckoned as an absolute. A couple of percentage points here or there won't materially affect leverage - though it remains true that the discount levels offered by contractors are highly sensitive to changes in absolute levels in spend. No - the more pressing issue for Posterscope is size as measured against Kinetic. Since Kinetic's formation in 2004, it's been nip and tuck between the two, with Posterscope managing to stay just ahead, on 42 per cent of the market currently, as compared to Kinetic's 40 per cent.
4. Posterscope puts a huge store on being able to call itself the market leader and will worry about the big-picture impact of a possible Publicis consolidation. It will also fret about shrinking levels of spend among existing clients. Outdoor has already been hit by a sharp downturn - some contractors estimate that, in some important product categories, the year-on-year reversal in spend across the past couple of months has been as steep as 20 per cent.
5. If the venture went ahead, buying would probably be channelled through a joint venture company. In the 90s, the poster specialist Concord (owned by Alban Communications) had a pooled buying joint venture with Outdoor Connection, which represented Omnicom's media agencies. Called Blade, this venture was disbanded in June 2003. Alban almost immediately set up a new joint venture buying arrangement, Helix, in partnership with IPM. Helix was disbanded when Alban was acquired by Posterscope in 2005.
WHAT IT MEANS FOR ...
- To date, this episode has left IPG looking rather flat-footed. True, Aegis and Posterscope have been making all the running, but IPG's response has seemed confusing.
- Long term, it wants to keep IPM, but it can also see the benefits of a tie-up to help trim costs in the short term. It now wants this story to go away. It probably won't.
- Posterscope may regret getting what it wishes for. If it were to acquire more than 50 per cent of this market, a competition inquiry would almost inevitably result.
- Over the years, advertisers have learned not to ask too many troublesome questions about the workings of the outdoor medium. Even ISBA, in its guidance on such matters, seems to hold to the time-honoured philosophy that "what you don't know can't hurt you".
- Advertisers are vaguely aware that outdoor contractors pay higher rates of commission (not to mention additional volume discounts) than other media owners; and they are also mildly diverted (though they are not entirely sure if these two notions are related) by the understanding that outdoor specialists operate on higher margins than any other companies in the marketing services sector.
- They restrict themselves to the odd idle daydream that it would be nice if some of the benefits of buying leverage (if material benefits there are) could occasionally be passed on to them. Further than that, they'd rather not speculate.