HOLDING COMPANIES - FULL-SERVICE GIANTS
The plight of the ad industry in 2004 had much in common with that of the traveller lost in rural Ireland who asks a yokel for directions.
"Well," the old boy answers after much thought. "If I was you, I wouldn't be starting from here." Almost half way through the first decade of the new millennium, agencies seem trapped in their traditional models.
The ideal, if wholly impractical, answer would be to tear up the old road map and begin again. Particularly now that the silver bullet capable of smashing a communications problem is as likely to come from a direct marketing company or a media planning consultancy as a mainstream agency.
And, to reflect the status of each of these disciplines in clients' search for integrated solutions, Campaign has, for the first time, not split agencies by speciality in the Top 300 School Reports.
But, if a Utopian solution didn't appear in 2004, the year did see communications supergroups, networks and agencies of all shapes and sizes seriously questioning existing ways of working and exploring new methods of adding value to what they do.
At Sir Martin Sorrell's WPP, newly enlarged by the addition of Grey Global Group, the result has been to transform the holding company into the modern equivalent of the full-service agency.
The idea of allowing clients to mix and match marketing services from a range of WPP companies is at odds with the concept pioneered by Interpublic in the 60s, of bringing networks together under one parent in order to overcome conflict problems.
And there are obvious drawbacks. Some believe that in spreading the Samsung global brand business among a number of its operating companies, WPP has cut itself off from too much other lucrative business.
But Sorrell says what's happening is no fad. "People are going to continue to want to take costs out of the system," he says. "Which is going to force the industry to consolidate even more."
He may be right. At the end of last year, reports emerged of attempts to replicate the holding-company model on a smaller scale and allow independent agencies to come together to compete for consolidated business.
If the industry can't change where it comes from, 2004 has at least shed some light on where it might be going.
CREATIVE AGENCIES - A BUYER'S MARKET
Colin Millward died last year and there was much sadness at the news.
Not just because of his contribution to the creative revolution that triggered the golden age of advertising in the UK. But also because his passing was a poignant reminder of how much of the industry's breezy self-confidence has been eroded during the four decades since he was the overlord of the Collett Dickenson Pearce creative department.
The year of 2004, in which creative shops scrambled for scant new UK business and saw their margins screwed to the floor by client procurement people when they won it, seems a world away from those heady days.
Millward was a throwback to a time when the best agencies behaved with a swagger born of being at the top of their game. What creative director today would echo his famous put-down of the account man who told him that Harveys didn't like CDP's latest ads? "Well, lad," Millward replied, "off you go back to Bristol and tell them we do the ads and they make the sherry."
Such assertiveness would have seemed misplaced last year. All the talk was about greater collaboration between agencies and clients and of how to reach consumers at a time of media fragmentation and less emphasis on the 30-second TV spots upon which CDP built its reputation.
And how would Millward's relentless quest for perfection, whatever the cost, have survived in what is now predominately a buyers' market? This was underscored last year when, despite some returning stability in adland, increased spends by agencies' existing clients failed to translate into more new-business activity and big UK reviews remained rare.
It was a similar story on the global stage where cost-conscious multinationals such as HSBC and Samsung made economies of scale by consolidating more than $1 billion of business into WPP rather than cherry-picking its marketing suppliers. All the signs are that this kind of consolidation for global marketers is set to grow, with Cadbury already pitting WPP, IPG, Havas and Publicis against each other for its $450 million budget this year.
Conversely, in the UK the action in 2004 was among the smaller independent agencies. Many of the network shops could only stand by and watch as big-billing establishment clients flocked to the likes of Delaney Lund Knox Warren & Partners, Clemmow Hornby Inge, WCRS, Miles Calcraft Briginshaw Duffy and Vallance Carruthers Coleman Priest. CHI's billings rose by 43 per cent, while VCCP put on 41 per cent.
It's no coincidence that all of these agencies have invested in a new model, launching affiliated direct, media, interactive and PR divisions.
Mini holding companies the lot of them, they have built themselves into a position where their income will be protected no matter what their clients' preferred medium might be.
Start-ups were uncommon. One, though, may be a telling sign of the times.
HOW was set up in April by Ken Hoggins, Chris O'Shea and Mark Wilson, a trio of fiftysomethings who say that they want to do business in a civilised but less formal fashion than working within a large network allows. Millward would have approved.
MEDIA AGENCIES - PREMIUM ON PLANNING
Phil Georgiadis, a partner at Walker Media and the chair of the judges for Campaign's 2004 Media Awards, put a few cats among the pigeons on the awards night by suggesting that the awards "confirm the emergence of the media owner as media planner".
Indeed, the role of the media agency is now truly under the spotlight.
Some would disagree that media owners are a source of good planning, but the ability of agencies to work closely with media owners to create great media ideas is a key issue.
Many of the top-ten media agencies spent the year building their planning resources, perhaps as a reaction to the success of smaller communications planning agencies such as Naked. ZenithOptimedia was a notable example, bringing in Derek Morris as its vice-chairman.
The most successful were MindShare and MediaCom, both now owned by WPP.
MindShare won the £200 million Unilever account, and was also one of the most creative, winning gold at the Campaign Media Awards for its Nike freestyle campaign. MediaCom was also very successful in new-business terms, bringing in close to £100 million in billings from the likes of Sky, Churchill Insurance and T-Mobile.
In fact, 2004 seemed to be a year for the networks, with the majority of big pitches run on an international basis (Unilever, General Motors, T-Mobile). However, there were signs of health at some of the independent UK agencies such as BLM Media and John Ayling & Associates.
The communications planning sector, led by Naked, grew with the launch of Good Stuff from the former Manning Gottlieb OMD directors Ben Hayes and Andrew Stephens and Tonic, set up by the former Vizeum director Tim Elton.
On a larger level, consolidation continued unabated, not least with WPP's acquisition of MediaCom to sit alongside MindShare and Mediaedge:cia.
Omnicom launched a joint buying unit, OPera, to rival WPP's GroupM and Interpublic's Magna, by bringing together the buying bulk of OMD UK, Manning Gottlieb OMD and PHD.
Finally, 2004 saw the media legend John Perriss step down from his role as the worldwide chief executive of ZenithOptimedia, 16 years after he created the first media specialist for an ad agency with Zenith Media.
Perriss was replaced by Steve King, previously ZenithOptimedia's head of Europe. Meanwhile, Perriss' old Zenith sparring partner Christine Walker (along with Georgiadis) made millions when Walker Media was part of the M&C Saatchi flotation.
It seemed ironic that Perriss, a prime mover in the breakaway of media from creative, should depart just as the debate on a possible return to the full-service model began to hot up. Most seem to agree that this will never happen but it's clear that agencies need to evolve if media owners aren't to overtake them in the planning stakes.
DIRECT MARKETING AGENCIES - COST-CUTTER'S DARLINGS
A review of the year in direct marketing provides a picture of an industry blossoming into a vibrant and competitive marketplace. Pitches were big and plentiful, and a number of new and credible agencies sprung into life. The sector posted its fifth consecutive quarter of growth and its position as the favourite discipline of cost-conscious marketing directors looked unshakeable.
Churchill, The RAC, the Post Office and Powergen were just a handful of £10 million accounts that came up for grabs in 2004. One of the year's biggest, Egg, was worth £30 million. All of them were of a size to challenge above-the-line spends.
There was more good news though, because it was the strong creatively led agencies - among them EHS Brann, Partners Andrews Aldridge, Draft London and Publicis Dialog - that triumphed. The signs are that the popularity of mass-volume, crass mailings is waning. Even among financial services clients.
Be that as it may, there was some genuine cause for concern for direct marketing agencies in 2004. The relentless downward pressure on client budgets continued as the trend for roster shake-ups carried on. General Motors combined Saab and Vauxhall's direct marketing into Draft London, and Masterfoods Petcare kicked off a roster review, as did both GlaxoSmithKline and BSkyB.
The word "procurement" was too often heard from agency chiefs as clients came down hard on fees and margins were squeezed. But, despite pressures on price, direct marketing was an attractive business to be in, as credible advertising agencies such as Clemmow Hornby Inge, Vallance Carruthers Coleman Priest and WCRS forged below-the-line ties.
And perhaps it is only just and fair that, as direct has mopped up above-the-line budgets, digital has begun to demand an increasing slice of below-the-line spend. Although direct marketing's growth continued, it has slowed, as the popularity of digital - an even more efficient way of generating responses - accelerated.
In the case of Egg, which placed its £30 million account with the Omnicom stablemates Claydon Heeley Jones Mason and Agency Republic, digital and direct won equal shares of the budget. As advertising agencies move into direct, there has never been a more pertinent time for direct agencies to boost their digital capabilities.
Going into 2005, many agencies are already strengthening their digital credentials. Although the challenge for most will be the problem of maintaining healthy revenues based on the services agencies provide now that additional charges, such as mark-ups on production and print, have been stripped out.
The benefit of this focus on price, according to Red Cell Response's European chief executive, Martin Troughton, is that it will highlight the value of effective direct marketing.
"Clients want to know their budget is having a demonstrable effect on revenue/bottom line and that's good for the sector. Procurement drove down costs - now clients are looking for the value," he says.
Chris Thomas, the chief executive of Proximity, believes that the pressure is on agencies to demonstrate the discipline's value with good creative to enable it to grow further. "We need to get better at managing the performance of what we do and make sure we are rewarded for that. There is growth in marketing services whether it's return on investment or value. I don't see a boom but I'm confident in steady growth," he says.
Although 2004 might have seen the pinnacle of the direct boom, there is still plenty of room for growth in the sector as it improves its offering to give clients the best value for their budgets.
DIGITAL AGENCIES - THE ACQUISITIONS BEGIN
Digital's share of adspend cracked 3 per cent for the first time in 2004 on the back of spectacular 76 per cent growth in the first half of the year, according to the Internet Advertising Bureau.
All the indications are for further growth in 2005 and beyond - a 3 per cent share of market doesn't come anywhere near to the internet's share of media consumption. The Advertising Association forecasts 38 per cent growth in 2005 in the UK, while Carat predicts global growth of 20 per cent and that the medium will become "an essential part of the marketer's armoury" over the next few years.
There's no doubt digital has broken through some significant barriers, but the year in which the medium overtook cinema in terms of adspend was surprisingly quiet when it came to big account pitches.
Dare won the hotly contested Wanadoo business and Agency Republic and its sister agency Claydon Heeley Jones Mason picked up the lucrative Egg direct and digital account. But otherwise, big-budget account wins were few and far between.
Spend from existing clients in the market did increase significantly.
BT's spend grew by 50 per cent across the year, Parcelforce switched its entire £3 million budget into digital in September and O2 now spends almost a third of its marketing budget online.
Creatively, digital still lags behind other media - partly because of the dearth of good senior creatives, but mainly because too many digital campaigns are still poorly executed versions of TV work. Not all digital agencies are prepared to invest the time and money to convince a client that the medium needs to be given some creative freedom of its own.
The independent digital specialists produced the best creative work in 2004, and set the creative agenda. The MSN European Creative Social, an annual gathering of the top digital creative talent, is remarkable by the absence of people from the major networks. But the independents are all too aware of the avaricious eye the networks are casting over their sector.
In December, M&C Saatchi joined forces with the ex-itraffic directors Jon Sharpe, Ethan Segal and Matt Gorzkowski to set up its own digital offering, while Aegis launched a digital network in July, making significant acquisitions in Asia and the US.
Closer to home, there was still a place for independent start-ups, with the launch in February of the creative hotshop Lean Mean Fighting Machine, from four irreverent but undeniably talented ex-Tribal DDB staff.
By the end of the year, there were plenty of European and US groups sniffing around in the market for acquisition targets - Wheel was the first to make a match, selling up to the European consultancy LB Icon.
Acquisition activity looks set to be a big feature of 2005, while agencies will be looking to increase their client base by convincing more FMCG clients to move some budget online.
Rank Holding company Billings year Billings year Year-on-year
2004 ending ending % change
Dec 04 (pounds m) Dec 03 (pounds m)
1 WPP 1,089.6 1,034.0 5.4
2 Omnicom 938.4 926.0 1.3
3 Publicis Groupe 869.1 812.4 7.0
4 Interpublic 513.8 532.6 -3.5
5 Havas 253.7 269.7 -5.9
Rank Holding company Key UK advertising and DM agency assets
2004 (largest first)
1 WPP JWT, Ogilvy & Mather, Grey, RKCR/Y&R,
HHCL/Red Cell, CheethambellJWT, Joshua, HTW,
2 Omnicom AMV BBDO, DDB London, TBWA\London, BDH\TBWA,
Burkitt DDB, Minerva, WWAV Rapp Collins
3 Publicis Groupe Publicis, Saatchi & Saatchi, BBH (49 per
cent), Leo Burnett, Fallon London, Arc
4 Interpublic McCann Erickson, Lowe, Draft
5 Havas Euro RSCG, EHS Brann
Note: This table was compiled by Campaign. Nielsen Media Research is not
responsible for its accuracy.