Alex Chesbro's Blog

Divorces and Advertising | May 6, 2009

How much would it cost an agency to divorce themselves from an advertising holding company?  It’s a financial conundrum.  What is the agency worth to the holding company (HC)?  Is that dependent on the cost of their billings?  The amount of their returns?  The revenue that they generate for their clients?  Or is it dependent on earning plus the debt load of the agency, or even a shared portion of the debt load of the holding company?


I ask because it bothers me that WPP is planning on eliminating around 6% of its workforce over the course of this year.  That’s around 7,200 people, according to the Financial Times article.  This new round of layoffs will occur mainly in the USA and Europe.  The 1st round of layoffs that happened in the first quarter of the year eliminated around 10% of WPP’s workforce across the board, while the upper management continues to shovel in the dough.  JWT even closed its Chicago office completely in the wake of the recession.


So what would it take?  More than a few people have their reservations about Ogilvy & Mather head Miles Young, but the man can make the big decisions.  How ballsy would he have to get to go to Martin Sorrell, the head of WPP, and tell him, “Hey, shove it up your ass, we’re going to go back to do what we used to do: Great Advertising.”  


Large agencies like Ogilvy have more than somewhat declined in their output since being acquired by holding companies like WPP.  It’s not that their output hasn’t decreased, or that they’re not winning awards (self-congratulating industry glitz), but many believe that large agencies are tending towards somewhat ineffective advertising.  


Isn’t that the reason ad agencies get hired in the 1st place?  To drive sales for their clients.  Isn’t that why we’re in this business? Because we have an inherent desire to be creative and helpful at the same time?  Or is it to make big money while producing mediocre work?


It’s not something to be taken lightly.  Clients can dispose of their agency whenever they want to, really.  It’s rare, yet not unheard of, for an agency to get rid of a client when they’re less than agreeable.  But an agency cutting itself off from a holding company?  That’d be something to watch.  





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1 Comment »

  1. Alex…
    I think the Poisoned Dwarf might be glad to cut loose some of the clunkers currently in his stable… But, I would make a bet that a combination of pride and his army of lawyers would make it very hard to achieve. Also he pays all the bills for Chateau TouFoo, so that Davids widow can live out the rest of her life in comfort.

    Comment by George Parker — May 6, 2009 @ 4:21 pm

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