Why the Publicis and Omnicom deal is set to squeeze salaries

One of the key foundations of the Publicis/Omnicom merger will be savings to the tune of $500 million, but Dominic Mills wonders how Levy and Wren are going achieve such a feat. Cutting duplicate jobs is one answer, but holding down the lid on salaries is another…

Let’s say you’re an ambitious, mid-level agency staffer working for one of the myriad agencies in Publicis/Omnicom.

You’re excited by the deal: your prospects for getting ahead, for being a bigger fish in a bigger pond, maybe even running something, are enhanced. And then there’s the concomitant pay rise. Kerching!

Wrong. Think again.

I owe an old contact of mine a drink for pointing out to me one of the side-effects of the Publicis/Omnicom merger: the way it will screw down salaries across the agency landscape. My contact has experience of the network agency world, so they know of what they speak. I must confess that this particular angle had passed me by, such was the excitement about all the other facets of the deal.

Now I’m not sure Messrs Levy and Wren had salary savings down as one of the benefits of the deal, but you can bet one of the bean-counters has figured it out. After all, one of the foundations of the deal is the $500 million in cost savings the two holding companies plan to extract.

How are they going to do that? Cutting duplicate jobs is one answer, but so is holding down the lid on salaries.

How is that possible? Well, the combined agencies will employ 130,000 staff. Combined revenues, according to Ad Age, will be $22.7 billion – or 31.5% of total worldwide ad revenues.

Assuming, in terms of staff per $ of income, Publicis and Omnicom are no more or less efficient than their competitors, then that will give them a similar share of the total worldwide agency employment – let’s say 30% for simplicity’s sake.

When you control 30% of the labour force, you are in a pretty good position to dictate salaries. And the one thing they won’t be doing is splashing out on salaries further down the food chain (although further up the food chain is a different matter).

Ah, you think, you can always work for a competitor, say WPP, IPG or Dentsu/Aegis. You can, but of course they will use salary trends at Publicis/Omnicom as an excuse to drive down their own salaries. If they don’t, Wall Street will soon want to know why their salary/income ratios are out of kilter.

Those who work for the network agencies know their bosses are already pretty skilled at keeping salaries down. The holding companies make it difficult for staff to move between sister agencies in order to get a pay rise.

Some networks funnel all pay reviews through one centralised department, meaning your particular review sits in an enormous pile. By the time they get round to looking at it, you’ve lost the will to live or you’ve moved on.

So what’s the answer? Well, if you can’t get into the magic circle where your pay includes share options and the like, there are a few: move out to the independent sector; do your own thing; or join a tech giant like Google or Facebook – already employing a steady stream of adland refugees.

That means there are other possible consequences of Publicis/Omnicom: an explosion of start-ups and entrepreneurialism; and a haemorrhaging of talent to the other ‘enemy’.

Note: Although the merged Publicis/Omnicom entity will overtake WPP to be the biggest holding company, WPP actually claims to have 165,000 staff including associates. I assume ‘associates’ means staff in companies in which it has a minority stake. Otherwise its staff/income ratio would look spectacularly bad.

AOL bets on the decline of linear TV: the odds are long

I’ve been wondering what to make of AOL’s announcement, earlier this month, about its purchase of Adap.tv, essentially a video ad placing platform, for $400 million.

This is how AOL CEO Tim Armstrong put it: “Two trends in the video space are prevalent right now – the movement from linear TV to video and the shift from manual transactions to programmatic media buying. Adap.tv is positioned squarely in front of the huge opportunity these trends are presenting.

In a nutshell, Adap.tv is a large bet (larger than Huffington Post, at $300 million) on two things: one, that linear TV viewing is on the way out; and two, that programmatic trading is on the rise.
Of the two, I’d put my money on the latter.

However, for AOL, since what it is really interested in is programmatic video trading, as opposed to the much larger programmatic display sector, the two are linked.

And this is where the odds look long. Just last week, Thinkbox produced some stats to show that viewing via devices (laptops/tablets/phones) accounted for just 1.5% of total viewing in January-June this year.

That’s three minutes and 30 seconds a day, or in more concrete terms, just over three half-hour episodes of Corrie a month. Of this, Thinkbox says, most was on-demand but some was live.

The good news for VOD fans, however, is that on-demand viewing is rising – up by 0.3 percentage points in the last six months.

Is this enough growth to sustain a business like Adap.tv? Linear TV is a long way off being a busted flush. Linear viewing in the UK may have dropped by three minutes a day in the last six months (which Thinkbox partly attributes to an improvement in the economy), but we’re still watching 12 minutes more linear TV a day than we did in 2003.

Of course, the AOL bet is more on the US than the UK, but the figures from Nielsen for Q1 this year are broadly the same.

US viewers spent about 185 hours in total a month watching TV or video via a device. Of that, 157 hours, approximately 85% is live TV; of the remainder, about half is timeshifted TV, and the remaining 8% is split between video on the internet and video via a mobile.

Compared with the same quarter in 2102, total viewing is up – but video on the internet is down by two hours per month.

So while it is, broadly speaking, possible to argue that video on demand is growing, it is achingly slow. Live TV retains an iron grip on our viewing habits.

Now those are composite figures, and I have no doubt that video’s share of viewing among the demographics most attractive to advertisers is larger. However, they are unlikely to be large enough to take meaningful budget away from traditional TV, which is really the basis of AOL’s gameplan.

Until that happens, there is at least another string to Adap.tv’s bow, which is doing platform deals with the big media buying networks like IPG’s Magna to become, in essence, their entire automation platform.

Even so, it’s still a big bet for AOL and one, moreover, that may take a good number of years to pay off.