Thursday, February 12, 2015

12506: Ominous Omnicom.

Adweek reported on 2014 net income gains for Omnicom, ultimately displaying how the advertising industry has devolved under the rule of holding companies. This excerpt makes the point:

At a global macroeconomic level, Omnicom chief John Wren largely attributed the strong organic growth to recent declines in oil and commodity prices which are boosting consumer spending. North America, he noted, has been the biggest beneficiary of that trend.

On the downside, Wren underscored the divergence in Central Bank actions across the globe where they have been lowering borrowing costs to try to kick-start growth in their economies. The result has been the decline in currencies versus the dollar in all of the operating regions for the U.S.-based company, which derives 46 percent of its revenue outside the states. That shift in exchange rates resulted in a 3 percent reduction in fourth-quarter revenue and will continue to hit Omnicom’s reported results. Wren estimated a foreign exchange impact of 5.5 percent in the current quarter and estimated a possible 5 percent hit for the entire year.

Net income in Q4 jumped nearly 10 percent to $329.5 million. Results in the period include $13.3 million of pre-tax charges reflecting professional fees related to the company’s proposed merger with Publicis Groupe. (That deal was terminated last May.) In the 2013 fourth quarter, Omnicom’s net income declined 2 percent after results were impacted by professional fees related to the Publicis merger.

Remember when advertising leaders were focused on the work? No more. Wren’s discussion of oil and commodity prices, Central Bank actions and pre-tax charges tied to the failed marriage with Publicis Groupe seem to indicate the actual strategic and creative efforts of advertising agencies have little impact on the overall business. Billable hours trump big ideas. Of course, everything trumps diversity.

Wren should change his honorary title of Pioneer of Diversity to Pioneer of Diversion—or Prisoner of Profitability.

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