Through a cracked rear-view mirror

This year end piece is not about campaigns or awards. Because advertising folks usually only love to talk about campaigns and awards – which is why I don’t want to. It is about real issues that face the advertising business today in India. Some are linked to the global picture – but my take here today is completely Indian, completely local.

I would like to focus on three very important issues that confront the advertising industry today:

1. Will global mergers affect us in India?
2. Will small agencies survive?
3. Will AI kill the advertising business?

I was speaking to an expert on M&As the other day. We got discussing the Omnicom-Interpublic merger. The M&A expert had a very interesting perspective to share. He said mergers are a sign of either a growing industry or a dying one. In the former, the growing industry, the objective of mergers is inorganic growth to rapidly achieve size and scale – which then positions oneself for leadership. And, invariably, leadership positions you for cartelization and market abuse – both of which are boons for business.

In the dying industry scenario, a merger is really a fight for survival. The main consideration is to save costs and aggregate the few paying customers still left. The merger only downsizes – reduces headcount, shuts offices, sheds peripheral businesses, shrinks geographies and generally the axe and the scissor are liberally used. In the end, despite all the cost-cutting and enhanced financial prudence, the biggest player in the industry invariably files for bankruptcy and the rest, or whatever is left of the rest, follow suit.

It doesn’t take any guesses on which end of the continuum the advertising industry is positioned today. The expert said he was willing to wager a bet that WPP would file for bankruptcy in the next 36 months, or earlier. I must emphatically state here that I do not entirely agree with the said expert – things are bad, but not that bad right now. But we’ve all been witness to WPP on the ascendant – an ex-CFO of Saatchi & Saatchi called Martin Sorrell buying up JWT, Ogilvy & Mather, Grey, Young & Rubicam and more through a company called Wire & Plastic Products, then de-merging their media components to forge Group M, which in India at least is an unabashed monopoly. But even on the way up, WPP accounted for the demise of the iconic ad agency Clarion (once India’s second largest in billings), and also the death of Bates, Enterprise, Nexus and Equity. And in the recent past ad-giants JWT and Y&R have just been erased from public memory.

Dentsu tried at one time tried to acquire Y&R in the early 2000s but WPP stole that deal. Dentsu on the rebound picked up a minority stake in Publicis with the intent of growing its global footprint, but that experiment failed and 10-years later Dentsu exited the French group. Its investment in Aegis also turned out to be pretty lukewarm. Omnicom’s 2013 merger with Publicis also made little headway and was abandoned a year later.

So how will the Omnicom merger pan-out in India?

1. Most decidedly there will be serious pruning of manpower – so expect a large number of pink slips, going forward – Omnicom is looking for $750 million in savings – well most of it will come from employee exits.
2. A number of CXOs are likely to face strong headwinds. There could be atleast 3-4 agency brands that could just vanish – as per insider rumours, Lintas being a very weak brand globally (though strong in India) could well face extinction. DDB Mudra is also likely to be on the endangered list – within Omnicom, it is a comparatively lightweight The likes of FCB Interface could well have to prove their usefulness in a crowded portfolio of bigger, stronger agency brands.

So the merger really is not really good news at the ground level, atleast in India.

 My old friend Pratap Suthan put out a very despondent post a few weeks ago on the sad plight of small agencies. Suthan pointed out abusive practices by clients, including forcing agencies to sign lopsided contracts, demanding additional work beyond agreed-upon terms, and treating pitches as casual contests to extract free ideas. Verbal abuse, threats, and disrespect are also rampant, creating a toxic and unsustainable working environment, he said. I agree with Suthan that the fallout from this exploitation by clients is severe. Talented professionals are leaving the industry, disillusioned by its realities and low financial returns. Suthan lamented that advertising is no longer seen as a viable career choice for newcomers, with many opting for alternate paths. “We’re watching the good ones leave,” he said, warning that without immediate reform, the industry could face an existential crisis.

Pratap Suthan’s views are very close to the market reality. Small agencies are dying – they can neither attract good talent, nor retain it. Clients, knowing the helplessness of most small shops are squeezing more and more out of these hapless entities. It sometimes makes me want to cry. This used to be a healthy 15% business which attracted talent from the top IIMs – from Diwan Arun Nanda to Ajit Balakrishnan to Ambi Parmeswaran to Ashok Bijapurkar to Avi Bhojani to Harsha Bhogle to Sanjeev Chaddha to Santosh Desai to Partha Sinha to Vishnu Mohan all were IIM alumni – today recruiting for advertising from an A+ institution is completely impossible.  Advertising gets (I didn’t deliberately use the word attract) the bottom-of-the-barrel crowd from unknown campuses. The famine on the talent front becomes an additional reason for clients to reduce remuneration.

Will an Independent Advertising Agencies Association help? Well, I seriously doubt any such industry body could discipline clients or reduce the exploitation. The small agencies have no bargaining power, and clients are fully aware of that.

Does that mean that the larger agencies are any better off? To be brutally honest, no. Clients treat the bigger agencies no better – only there is a veneer of respectability where global relationships exist. Remuneration is still a scratchy 3% most times and this is today insufficient to even cover costs – WFH is one of the cost saving measures at large agencies as it saves on real estate cost. The big networks used to invest a lot in the past on employee training, seminars and workshops – post Covid all that has been seriously curtailed.  

Nett net, agencies are faced with a grim future – moreso since their lives are no longer governed by the CMO, but controlled by Supply Chain heads who couldn’t care less for creativity, or the lack of it.

Which brings me to the use and deployment of artificial intelligence (AI). The truth is that the advertising business in India is still largely in denial on emerging technologies. We at Rediffusion decided some months ago to shake-off the inertia, and the antipathy, and pro-actively embrace AI. It obviously faced some resistance initially but the enthusiastic support of some clients flattened the opposition to change. Our Rediffusion AI Design (RAID) Studio has this festive season churned out some exceptional campaigns for Tata Power, Kansai Nerolac, Parle and Taj Hotels in AI. Our AI creative work even received wholesome praise from no less than the legendary Mohammed Khan.

Will all agencies wake upto the boon and benefits of AI? I doubt it. Agencies got left behind in the digital race a decade ago, allowing specialist digital outfits to steal business from the mainline ones. AI is most likely headed in the same direction. Agencies are loathe to invest in good (sometimes expensive) softwares. Current copywriters and art directors across agencies exhibit very little enthusiasm to learn new tricks – there is no visible gain from enhancing skill sets. Worse, most agency heads have little or no understanding of AI. They are either too old, or just not interested in exploring new apertures of opportunity. It may look absolutely myopic to any bystander but the reality is inescapable.

Atleast one industry leader – my friend Abhishek Karnani, the new IAA President, is trying to launch an industry initiative: he is planning a series of learning workshops on AI for all in the advertising business, across hierarchical levels, and across all agencies. I hope, for the sake of all of us, that he succeeds.

So where does that leave us?

1. Mergers are euphemisms for downsizing and lead inevitably to a tsunami of pink slips.
2. Small agencies are currently no-hopers. Clients are happily killing them.
3. AI is easy to adopt and benefit from but most agencies lack the leadership to make the transformation happen.

Que sera sera – what will be will be!

Dr. Sandeep Goyal has worked for over 40 years in advertising & media across JWT, Grey, DDB, DY&R, Zee and Dentsu. He is currently owner-Chairman of Rediffusion and Everest.