Do Clients Lose as Holding Companies Push In-House Production?

I’m not one to say the sky is falling, as I tend to be an optimist when it comes to business evolution. However, I do know when there is reason for concern and will call out unfair business manoeuvres that could lead to a colossal rearrangement of resources, in turn forcing an intricate and valuable constellation into a vast black hole. 

Marketers need to pay close attention to the offerings of their agencies; entities that previously existed solely to look after the well-being of their brands are now putting their own business interests first. Many of these self-serving actions are doing irreparable harm to an ecosystem that is absolutely vital for the delivery of high quality ad content for brands, and jeopardises their continued availability to marketers. 

I’m referring specifically to how the major holding companies (WPP, Publicis, Omnicom and Interpublic) are in an arms race of sorts to build and consolidate production and post production units under their own corporate umbrellas – driven, it seems, by lucrative schemes. Their pitch is that they’re embracing the future and are uniquely qualified to be doing so, based on access to client data and the use of AI and other innovations to aid swift turnarounds for multiplatform output and trafficking. 

While there may be elements of merit to that reasoning, they’re conflating the practical application of emerging tech and the unique ecosystem of the collaborative production and post crafts that it takes to make outstanding ads. And it’s a seismic gamble for them to sacrifice a long-established business model based on an industry of independent vendors that have consistently delivered value, quality and accountability to clients. 

On the line are, 1) the creative diversity that comes from vast independent production and post players in the marketplace, and 2) the healthy competition that exists in the open market, versus single source consolidation. This money grab is driven primarily to boost bottom lines for the holding companies’ financially-challenged agency businesses, by trying to keep as much of the currently managed pass-through funds in their own coffers – at the expense of quality and efficiency for their clients.

Indeed, holding company leaders have pretty much come out and said so. In a recent Capital Markets Day presentation hosted by Mark Reed, CEO of WPP, Richard Glasson, CEO of Hogarth, WPP’s global in-house production arm, spoke of Hogarth’s growth potential for WPP, and the goal of adding $1 billion dollars to their bottom line (2% of what they estimate to be the global spend on production and post).  

In these remarks, Richard  gives short shrift to the independent production and post production community and glosses over the inherent value that exists from nimble small businesses specialising in the production crafts. These companies have historically tapped diverse creative talents to meet agency and client demands, often working under various extremes of budget pressure. These sectors are simply dismissed as “highly fragmented,” with this area ripe for “consolidation.” (For more details, see the LBB piece on the event here.)

Viewed from one perspective, the concept of “consolidation” suggests a focus to merely bolster holding companies’ ailing bottom lines. From another, less benign perspective, “fragmentation” is code for challenging what is actually a healthy, creative competition in the production and post production arena. 

Either interpretation effectively deprives marketers of the checks and balances of a competitive marketplace, all while eliminating access to the massive creative production and post production talent resources from an array of artistic backgrounds and craft disciplines.

While technology creates new distribution opportunities and applications, talent is still the most coveted attribute of any success in the communication arts. The core business of production and post companies is to discover, nurture, train and develop such talent needed to execute the demanding marketing projects presented to them. 

Further, the role of advertising agency production departments that had once developed relationships with production and post companies has been greatly diminished, in many cases reduced to mere facilitators. Previously, the producer managed projects, bringing resources and talent, which allowed agency creative teams a wide array of varied opportunities to realise their vision. Unfortunately, this valuable role will continue to lose creative and operational significance when turned into nothing more than conduits to feed the vast in-house “creative factories” as envisioned by holding companies. 

Ironically, in today’s emerging models, even while the ad agency’s production departments are driven to make sure their corporate quotas to in-house production and post production entities are being met, they still maintain (if only for optics) a position in the decision-making process as a “trusted agent” for the marketer regarding the “best” production or post production entity recommended to execute a project. 

These cross purposes of overseeing the “competitive bidding process” are in direct conflict to why they’re required by the marketer and their production consultants in the first place; namely, the purpose of keeping some semblance of an open and competitive market. 

With this deck stacked in favour of pushing work to the in-house entities, the marketer is robbed of the true value of engaging the skilled budget management of the independent production and post businesses that vie for their work. Normally, the natural laws of competition align so that the production business polices itself; the best and smartest bids win. 

The question marketers must ask themselves is whether these massively staffed organisations – the Hogarths, PXPs, Crafts and eg+s of the world – can make the most out of executing their work and matching tight budgets. Or are they just a convenient part of the machine designed to keep the holding company’s employees actively billing and busy in the engine room, keeping a chunk of the production budgets in their bank accounts and their stock prices up?

Another question: Are holding companies ready to work in a world that carries huge risk and is normally run on a single-digit profit margin? Independent production companies keep overhead low by approaching each project with a largely freelance employee base that expands and contracts as the project calls for; this is how they succeed, even thrive, on razor-thin margins. Doesn’t the reported 7,500 global headcount of Hogarth sound a lot like the bloated, overhead-burdened organisations we’ve grown used to seeing assembled by the holding companies? 

While many things in our universe are shifting, there are certain technological applications related to media trafficking that may be well served by having resources readily available to agencies. But in this quest to cut independent production and post out of the process, the holding companies are making it clear that their own growth is primary, and their role as agents best serving the needs of their clients is now secondary.