Will 2016 see pressure from investors to break up the giant marcoms holding companies?

WPP’s Sir Martin Sorrell (below) has been giving his predictions for 2016 to The Drum (he expects to see Hillary Clinton in the White House). On WPP itself he says:

“From a functional point of view, advertising and media investment management continue to be extremely strong, along with digital. Public relations and public affairs has been stronger recently, and we’re seeing a little bit of life on the top line within data investment management. We want to see more but, importantly, the integration opportunities in the areas of technology and data and content with our media investment management business are very strong. Together, media investment management and data investment management are now one half of our revenues: over US$10bn out of US$20bn.”

We’ve remarked before on the sluggish performance of ‘data investment management’ (research to you and me) within WPP and Sorrell seems to be acknowledging that here. His main point is that it helps his giant media business, now the big breadwinner. No doubt it does but couldn’t data benefit this part of WPP as well – better even – if WPP was a customer rather than the owner? It would be a pretty big customer after all and therefore able to drive a hard bargain. Not all the data WPP deploys is proprietary, after all.

For decades now there’s been the assumption that the big marcoms companies can only prosper by becoming remorselessly bigger: expanding their reach in existing territories (product and geographical), moving into new ones and adding new services. Buying new, faster-growth companies is a big part of this.

But, eventually, a point is reached where they’ve got everything. All they’re buying is more of the same. Then it becomes a process of merging and consolidating what they already have, as Publicis has done with its gaggle of expensively-acquired digital agencies, now under the Publicis.Sapient banner.

In just about every other major industry you can name big, rambling conglomerates have been forced to shed businesses investors deem to be peripheral. GE in the US is perhaps the best example of this. At one time it was into to everything from finance to turbines. Now it’s going back to being (just) a huge industrial company.

For marcoms companies the justification has always been that clients want, or may be persuaded to, buy everything under one roof. But actually they don’t. Some of them do it for a while then someone new comes in and says “I don’t want WPP’s (or whomever’s) creative agency just because we’ve got their media agency and some other bits.”

In any other business shareholders would urge management to concentrate on the most profitable bits and sell the others to someone else. Even the giant banks have realised that they don’t need an investment bank to sell wholesale banking services to big clients, and vice versa.

Push may come to shove when the big holding companies start to examine all their agency brands. Do they need them all? Should they be run as ‘white label’ operations, front of house offices for a centralised production operation. They already do this with finance.

Could be one of the big issues of 2016 if holding company organic growth grinds to a halt.

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