Amid industry warnings of more news media job losses and cutbacks, the Commerce Commission clears the way for two ad agencies to merge to form the world’s biggest advertising company.
New Zealand’s competition watchdog has cleared the way for two of the world’s biggest advertising companies to merge, despite warnings of further job cuts and closures in the local media industry.
The Commerce Commission has granted clearance to Omnicom Group (OMG) to acquire Interpublic (IPG) - one of the first jurisdictions in the world to give the thumbs up to what will become the world’s biggest advertising agency.
The clearance comes at a “defining moment” for the New Zealand media industry, says one independent agency leader, with concerns of more news media cutbacks and job losses as a result of the move.
The OMG-IPG giant would become the world’s biggest advertising holding company, surpassing Publicis and WPP. OMG and IPG have also made no secret of the estimated cost savings - up to NZ$1.22 billion globally - including reduced roles.
Sources have said OMG agencies already lay claim to more than 50% of media spend in New Zealand and that the new mega-merger will only reinforce that dominance.
However, in a statement on Tuesday, Commerce Commission deputy chair Anne Callinan said the commission was satisfied that the OMG-IPG acquisition was unlikely “to substantially lessen competition in any New Zealand market”.
“Our investigation found that, while Omnicom and Interpublic compete to supply marketing and communications services (MCS) and media buying services (MBS) to advertiser clients throughout New Zealand, the merged entity is likely to continue to face strong competitive constraint from other large MCS and MBS agencies, as well as local independent agencies supplying these services, following the acquisition.
“The merged entity is also likely to continue to face a degree of competitive constraint from advertiser clients and their ability to in-house some MCS and procure media directly from media owners.
“On the buy side, rival media buyers are likely to continue to constrain the merged entity in the procurement of media inventory.”
Given this, Callinan said, the commission believed that there would not be a substantial loss of competitive constraint on Omnicom.
The commission has yet to release a full written decision.
OMG’s application to the Commerce Commission is one of 19 applications to competition agencies across the globe.
It is understood New Zealand is one of the first jurisdictions to give clearance, with Australia’s ACCC expected to announce the outcome of its own review on July 24.
Earlier, OMG outlined to the commission why it believed it was important to buy Interpublic (IPG), saying the advertising sector was intensively competitive and smaller New Zealand agencies would always have the talent and ability to successfully pitch for work against what would become the biggest advertising agency in the world.
As reported in December, OMG’s planned US$13 billion acquisition of IPG is a seismic shift in the advertising landscape.
In New Zealand, major OMG brands such as PHD, OMD, Colenso, DDB, Clemenger, TBWA, Hearts & Science and Dynamo are now set to be housed under the same umbrella as IPG agencies such as FCB and Initiative.
In its 49-page application to the commission, OMG said the advertising, marketing and communications sector was “characterised by intense competition, fragmentation and continuous evolution, particularly with the rise of digital media... and emerging communication channels, which challenge traditional agencies”.
It said the industry was “evolving rapidly”, driven by changing consumer behaviour and technological advancements that presented opportunities and challenges to existing industry players.
It argued that a merged company could integrate its technology and “will be better positioned to meet the demands of modern consumer media usage habits”.
One source told Media Insider in December that if the merger went ahead, “OMG will command significant buying power which may place pressure on both media owners, who will likely be pushed to deliver the best price and value to OMG clients, and independent agencies, who may struggle to compete with these pressures”.
“Managing conflict will be OMG’s main priority as clients may have concerns at how their businesses will be managed. At an initial glance, a newly consolidated OMG would have the three main telco clients [Spark, One NZ and 2degrees] almost all of the major banks and various other clashing clients.”
In the latest NZ Marketing magazine, independent agency D3 partner and co-founder Alex Radford outlined his concerns about the proposed merger, describing it as a “defining moment”.
“While the standard competition narrative examines agency-to-agency competition, the real concern lies with media owners. In our uniquely concentrated ecosystem, small shifts in negotiating power can have an outsized effect.
“Media owners, unlike agencies, can’t quickly diversify their customer base if one dominant buyer flexes its muscles. They operate with high fixed costs and limited pricing flexibility, already navigating stormy seas thanks to tech giants.”
Before the commission’s announcement yesterday that it had granted clearance, Radford encouraged it to assess longer-term structural impacts rather than immediate competitive effects.
“Once clearance is granted, few mechanisms exist to address harmful post-merger conduct that might emerge over time,” he wrote.
“Let’s be clear: if a TV, radio, or news network goes under a year or two down the line, this will be a causality, not just a correlation. Beyond commercial concerns, this concentration level could fundamentally reshape the stories and voices told and heard in Aotearoa’s public discourse.”
Independent agency Lassoo Media, backed by seven other agencies, also raised the spectre of more media industry cutbacks and concerns of anti-competitive behaviour if the marriage was allowed to proceed.
In its submission to the commission, Lassoo Media highlighted the business practice of “principal trading”.
Principal trading allows big advertising agencies to buy media inventory - such as TV and website advertising slots, newspaper space, and radio spots - in bulk and in advance at a cut-price rate.
The agencies then resell the inventory to clients for an undisclosed mark-up.
“While principal trading is not illegal, the holding companies (OMG & IPG etc) who collectively hold a dominant share in the market, require local media transact on these terms by providing the media inventory for purchase upfront and, it is believed, by requesting better rates for purchasing large amounts of inventory,” said Lassoo.
“Those local media are companies like TVNZ, NZME, Stuff, Warner Bros Discovery, MediaWorks, JC Decaux and Ooh!Media. Most of these companies have been headline news over the last few years due to the need to severely cut costs and reshape their business.”
Lassoo cited Australian trade media coverage of principal trading “with the goal for their local media landscape to ‘not turn out like New Zealand’.”
“The industry commentary suggests that the holding groups threaten to move huge amounts of money away from local media if they do not adhere to their desire to trade on their terms,” says the Lassoo submission.
“Not because of merit, but because they rely on these deals to be profitable ...”
Lassoo said principal trading might be beneficial to agencies’ largest clients, but many others “remain oblivious to the practice”.
“What is clear, however, is that there is a huge amount of revenue being made by global companies that is contributing to the challenges local media companies are facing.
“The amount of money being transacted through principals in New Zealand could be as high as 40%, however this amount is a closely guarded secret and is not disclosed in [the] financial reporting of public companies like NZME.
“There are significant barriers to entry in implementing a principal trading model. An agency would need significant volume and working capital to undertake and fund this form of trading.
“Without the ability to do so, agencies who do not partake in principal trading can be disadvantaged, forcing them to operate below their cost-of-service, severely limiting the number of players able to sustainably compete in market.
“Principal trading margins are undisclosed, but reports suggest they can be up to 100% above the media purchase price.”
Lassoo said its submission was supported by seven other agencies: YoungShand Ltd, Conductor Ltd, Thompson Spencer Group Ltd, Sneakers Digital Ltd, Stanley Street Agency, Rascal Media Ltd and Hemisphere Ltd.
Following the Commerce Commission’s clearance, OMG representatives have said it is “business as usual” while it awaits regulatory approvals in other markets.
Editor-at-Large Shayne Currie is one of New Zealand’s most experienced senior journalists and media leaders. He has held executive and senior editorial roles at NZME including Managing Editor, NZ Herald Editor and Herald on Sunday Editor and has a small shareholding in NZME.
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