The Real Reason Why Publicis and Omnicom are Merging

Publicis chief executive Maurice Levy (left), and Omnicom boss John Wren plan a merger to create the world's biggest advertising group.

Publicis chief executive Maurice Levy (left), and Omnicom boss John Wren. Photo: AP

The merger of Publicis and Omnicom is yet another sign that the traditional media and advertising business is being disrupted. When this wave of consolidation is over there will be just a few major holding companies left. At that point there will be a holding company for each of the top two or three brands in each category (auto, telecom, CPG, beauty, etc.) and then a roiling, vibrant economy of emerging brands, independent agencies and new technologies.

The driving force behind holding company consolidation is not the desire to align to the needs of mega brand clients or to stop the downward pressure on agency fees. If that were the case holding company shareholders would have demanded this merger years ago. The real reason Publicis and Omnicom are merging is because of us.

Anyone who has used Facebook, done a search on Google, or watched Netflix instead of buying a local newspaper, used the telephone book or watched broadcast television has contributed to this merger. Omnicom CEO John Wren alluded to this when he spoke to journalists yesterday.

“We have many new competitors,” he said.

The feud between Publicis CEO Maurice Levy and WPP CEO Martin Sorrell looks like an old timey, media industry version of the Hatfield and the McCoys when viewed against the backdrop of what consumer behavior and technology are doing to the media and advertising business.

For years, offline media people—especially the TV guys—have lived in relative ignorance of the coming changes to the industry. This was because even as broadcast television audiences were shrinking, the prices for advertising continued to go up. The simple economic principle of supply and demand has extended careers in TV advertising far longer than anyone imagined.

But the future has finally arrived. The massive Millennial generation, those born after 1980, are now entering the workforce and have increasing buying power. Other than tent pole events like the Superbowl, broadcast television has much less relevance to this generation. These are the kids who popularized Facebook, Twitter, Pinterest, Snapchat and god knows what else is coming next. As a result, it’s not surprising that traditional mass marketers like McDonalds now have a “Millennial” problem.

Of course, it’s not just the Millennials who are to blame. Netflix hooked Gen X’ers like myself on occasional DVD movie watching, and then mainlined us with their streaming, on demand video service. Netflix is now a nightly and a completely ad-free habit. As a result we are part of Netflix’s data set, not Nielsen’s. And that’s exactly what worries Publicis CEO Levy.

“The explosion of Big Data,” is how Levy described the threat from new media giants.

With this in mind, agency holding companies are finally waking up and circling the wagons. They have come to see what many of us have known for a decade: digital media and big data are going to change everything.

The only question now is if this merger will make a difference.