Iain Jacob
Iain Jacob
A view from Iain Jacob

Time for a creative bounce

What’s the real story behind the holding companies' first half bounce-backs?

“Bounce back better”, if you will excuse the bastardisation of an already annoying phrase, summarises the sentiment coming from the listed holding company first-half results presentations.

Have the listed groups finally found their get out of jail card as they raise their growth forecasts?

Ian Whittaker, the ex-Liberum analyst writing in this very organ, rightly noted that while the bounce looked fine, comparative growth rates against the likes of S4Capital’s MediaMonks and some of the private groups suggest a continued erosion of listed group market share leading to relatively dull share valuations.

The real story is, of course, more nuanced. 

Both WPP and Publicis showed strong growth in major business areas – Group M, digital, Xaxis, ecommerce media, Epsilon, PMX digital – all growing at comparable rates to their adtech cousins – 30%, 40% 50% and beyond.

With global reach and extensive workforces, the groups have leveraged their reach to effectively scale in these disciplines. They are also making great margins.

All good? Well, deploying my rudimentary maths tells me that if you have grown 10% overall and half your business is growing at 30%, 40%, 50%, then somebody in the group could be down 20%, 30%, 40%. The groups hinted at the underperformers, without, of course, giving the corresponding numbers. 

Damned by faint praise springs to mind. Publicis described its US creative operation performance as ‘“continued sequential improvement driven by production”, WPP lauded the fact that it had reduced its creative agency operating units by 42% since 2019. Hardly the stories to get the creative juices running. The creative operations, CRM and specialist service units, among others are weighing heavy it would seem.

Remarkably the same old question still remains in 2021 – why can’t the underperforming divisions expedite the same transformation as their sisters in the same group?

The fact is that this failure continues to put the listed group models at risk. In combination, the group results look average – not bad, not great. The group construct of end-to-end service capability does not appear to have solved the growth challenge. To gain the expected shareholder value, the groups can either break up and attract the value that their media, data, ecommerce operations deserve – witness S4Capital, adtech and recent IPO valuations – or more rapidly transform the laggard divisions, assuming your shareholders give you the time.

The good news is that the groups have the playbook within their very own operations.

Media transformed into a data business some years ago and the group’s media operations responded rapidly and continue to benefit from this shift. They may have made the mistake of relying too much on “rented” tech, rather than also developing their own, feeding the likes of Teads and Trade Desk, without benefitting from their enormous valuations. However the development of Xaxis in WPP and Publicis’ purchase of Epsilon suggest this lesson has been learned, albeit there is more to be done in both building, co-developing and acquiring adtech in the groups.

Creative and experience/CRM capabilities continue to disappoint. They remain project-led, and campaign-led businesses, without the repeat business of a good tech firm.

These laggard units need to be much smarter in tech. Many have great stories of innovation and tech deployment, but few are wholeheartedly, from leader down, committed to scaling tech and fundamentally shifting from a service model to a tech enabled, SaaS driven solution company.

To do this, requires a combination of renting tech, co-developing tech with partners and investing in new tech. This is a new-business model that will be successfully executed only by experienced leadership with a track record in tech. 

Just as the adtech revolution of 10 years ago fundamentally changed and secured a good future for media, we now need to see the createch revolution.

The growth of CTV, premium video services, streaming and so forth is calling for a higher level of longer-form rich media and video creativity from advertising. Creatively boring, standard display, is in decline; never has there been such a need for creative revolution, and technology gives us the tools to deliver at scale.

Venture capital has already spotted this with nearly £1bn invested in createch in 2020, despite Covid. This was an increase of 22% versus the previous year.

If groups don’t transform these divisions by deploying scaled, enterprise level createch, they will continue to lose market share, investors will get fed up and eventually demand a break-up to achieve the value that their patience deserves.

Covid didn’t stop the clock, it sped it up.

Iain Jacob is chair of UKOM and Cinema First and a former EMEA chief executive of Publicis Media

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