Skip to content Skip to Search
Skip navigation

Ad agency mergers show industry model in flux

Merging brands is seen as the way to service clients in an era of digital specialisation

Advertising billboard Saudi Arabia Reuters/Eric Lafforgue/Hans Lucas
As digital advertising replaces the old-fashioned way of reaching customers, ad agencies are being merged

The Mena advertising world was shaken twice last month, once by the local news that the veteran Dubai PR man Sunil John was stepping down; and more broadly by the global announcement that WPP, the world’s largest advertising agency holding group, was merging two of its biggest brands, Wunderman Thompson and VMLY&R. Both events bring the question: is this the end of an era?

The seismic merger orchestrated by WPP will reverberate in the region and signals that the agency model is changing – or perhaps it is reverting to an earlier form.

Back in the early 1980s, when advertising agencies were first emerging in the GCC, advertising was simple. Agencies made print, billboard, radio and TV ads and bought space for them to run. The model was much the same across the world.

The creativity in Mena could not rival that of New York and London, but the money was in media buying, not artwork.

In the mid-1990s, media buying units (MBUs) began to break away from their creative agencies, within the region and around the world. Their model was to buy lots of space (pages in print or time on air) for a bulk discount, pass some savings on to clients and keep the rest as profit. By operating independently, MBUs could offer their services to more clients for bigger discounts.

Other specialist shops also broke away or spawned outside the traditional creative-media agency model: shopper marketing agencies, PR agencies, direct marketing agencies and more.

Asda’a BCW, founded by Sunil John, was formed in 2000 and is one of the biggest agencies in the region. It was closely partnered with creative agencies including Team Y&R and Intermarkets, and with the MBU Mediaedge CIA.

Grouping agencies together was not unique to the Middle East. Global holding companies formed to buy up agencies, to secure services for their clients and keep them away from rivals.

WPP is perhaps the best-known agency holding group and the largest advertising company in the world. Its competitors are the US-based Omnicom Group and Interpublic Group of Companies, France’s Publicis Groupe and Havas, and Japan’s Dentsu.

Leverage

Holding groups brought MBUs together to leverage even bigger discounts and rebates. They acquired creative shops, for the clients that came with them, the agencies’ expertise and the – advertising-savvy – household names that would bring in more business. WPP bought J. Walter Thompson (JWT) in 1987 and Ogilvy & Mather in 1989.

Around this time, the Middle East was emerging as a consumer market and began to prove its advertising could compete on the world stage. Global agency networks began to invest in home-grown Mena agencies.

They increased their shareholdings throughout the 2000s, eventually taking majority ownership as the local founders stepped back from the companies they had built.

Most major WPP networks now have regional headquarters in Dubai. Asda’a is now the regional network of BCW, a WPP PR company.

The dawn of digital, with its automated and anonymised buying models, undermined the advantages of scale that media agencies had long banked on.

Specialists boomed, first as “digital” agencies (in Mena these included independent agencies such as Flip, which was later bought by Publicis Groupe, and Wunderman itself, which pivoted from direct marketing to digital), then focusing on more esoteric expertise: search marketing, e-commerce, influencer marketing, social content creation and more.

The rise of digital marketing has sown confusion about who is responsible for what. For example, many agencies could lay claim to being best positioned to run a client’s social media strategy: creative, PR, media or specialist. Clients might even choose to keep their Instagram in-house.

For brand-side marketing managers this can be overwhelming. What they basically want is good work at a good price without complications.

Holding groups, of course, are happy to oblige. In a classic up-sell model, clients of one agency can be sold the services of a partner shop for a discount. Both agencies might even work with the same account manager, who can deal with the internal politics and billing.

For major clients, holding groups even set up “super agencies”, such as Team Air, which was created by WPP in 2015 to service the Emirates. It was based in London and drew on WPP agencies from around the world.

Recently, holding groups have been pitching for big clients themselves, with more than one of their agencies represented.

Tight margins

Margins are tightening for clients, agencies and holding groups alike. As cost considerations, efficiencies and new technology are becoming more important, the status of legacy branding among advertising shops is on the wane.

WPP has reacted to this by unsentimentally thinning its agency count through combining even its most established brands. In 2018 it merged the creative agency Young & Rubicam (Y&R) with the digital agency VML to create VMLY&R.

The same year, it merged J. Walter Thompson (JWT), a 154-year-old creative agency, with the digital agency Wunderman to create Wunderman Thompson.

In 2020 it announced it would merge the digital agency AKQA with the 103-year-old creative agency Grey to form AKQA Group. In 2022, two WPP media agencies, Essence and MediaCom, were merged.

In most of these deals, the Mena region was among the last to see the global rollouts, thanks in part to the complexity of shareholding structures where WPP had not yet taken full control of the affected agencies.

Holding groups are starting to look more and more like the ad agencies of old: one-stop shops for all a client’s marketing needs. They have the capabilities to do what needs to be done for an acceptable price, and without the client having to wrestle too many moving parts.

The question is, will we start to see specialists breaking away once again as the cycle repeats itself?

Austyn Allison is an editorial consultant and journalist who has covered Middle East advertising since 2007

Latest articles

FILE PHOTO: United Arab Emirates Minister of State for Foreign Trade Thani Al Zeyoudi gestures during an interview with Reuters in Dubai, United Arab Emirates, June 30, 2022. REUTERS/Abdel Hadi Ramahi/File Photo

UAE and Kenya complete Cepa negotiations

The UAE and Kenya have completed negotiations on a comprehensive economic partnership agreement (Cepa) between the two countries. It is the 12th Cepa deal secured by the UAE and its third in Africa, after agreements were signed last year with Mauritius and the Republic of the Congo (Congo-Brazzaville). “The UAE-Kenya Cepa will not only boost […]

Adnoc has bid for German polymer manufacturer Covestro but its offers €55 and €57 per share were rejected

Adnoc faces hurdles in completing ambitious European deals

Abu Dhabi state oil company Adnoc is facing challenges to a duo of major European deals it is trying to get over the finish line, according to media reports. Talks with Austrian energy group OMV have been put on hold to allow parties to navigate a series of disagreements, the Financial Times reported on Friday. […]

The 450 companies operating at Dubai Science Park include AstraZeneca, and the free zone plans to add 200,000 sq ft of lab and office space

Dubai Science Park reveals expansion plans

Dubai’s biotechnology free zone is adding 60 percent more offices, laboratories and warehouses over the next few years to cater for an influx of new companies, its senior vice-president told AGBI.  Dubai Science Park, part of Dubai-listed Tecom Group, is planning an expansion of 200,000 sq ft of additional storage and logistics facilities at the […]

A worker at a phosphate production plant in Metlaoui, Tunisia. Phosphate accounts for 15% of Tunisia's exports

Saudi Arabia loans $55m for Tunisian rail renewal

Saudi Arabia has signed a $55 million loan deal with Tunisia to finance the renewal of the North African country’s rail network.  The railway is used to transport phosphate, a sector that makes up around 4 percent of Tunisia’s GDP and 15 percent of the country’s exports. Tunisia plans to produce eight million tonnes by […]