PROFITS OF BOOM

A lot of advertising people are careful not to attribute Interpublic’s success to chairman Phil Geier. They’ll tell you that the real brains behind the giant which owns the world’s biggest advertising agency, McCann-Erickson, as well as Lintas and The Lowe Group, is executive vice president of finance and operations Eugene Beard. And Phil isn’t an advertising man, they’ll say; he knows about profit and loss but that’s as creative as he gets.

Envy aside, whoever is really responsible has done a fine job because IPG can make a reasonable claim to being the most successful advertising group of them all.

Its latest set of results shows IPG’s agency networks won net new business during the first nine months of the year worth nearly $700m (454.5m), compared with just over $400m (259.7m) in the same period last year, while the group’s third quarter net income rose by nearly 30 per cent to more than $22m (14.28m).

All this while the agency world had relished the slow torture that the world’s biggest brand – Coca-Cola – continues to inflict on McCann-Erickson. Over the past two years Coke has reduced the agency’s role to one of media buying on its core account and given its main account business to up start agencies whose founders weren’t born when Interpublic was creating the mould for WPP, Omnicom and Cordiant to pour into.

McCann dominates the network, contributing almost 50 per cent of IPG’s total revenue, and was home to Geier before he moved up to the holding company.

Critics say that Geier is a McCann man through and through and McCann is not known for creativity or for taking risks but for conservative, slick advertising and, above all, client service. The same description could now be applied to IPG, say observers.

Network rivals recognise this as a strength and a weakness. They see the group as financially conservative, pointing out that it has stuck to what has served it well – advertising – rather than follow the path taken by Omnicom which, as well as owning the DDB Needham and BBDO and TBWA networks, also has Diversified Agency Services, an umbrella group which includes all kinds of “communications” businesses.

Beard says although IPG is the second largest advertising holding company behind WPP, if below-the-line revenue is removed, IPG is “the largest pure ad agency in the world” with more than 3,000 clients.

Observers and insiders say its age – established in 1961, it’s the oldest of the agency holding companies – and set-up, along with the “autocratic” rule of Geier, means it is the model for handling international accounts – including General Motors, which encompasses the Vauxhall business, and Nestlé.

“IPG has been handling worldwide accounts for a long time so there is an acceptance among its agency networks of some of the constraints necessary to deal with them. It’s the sort of understanding which can make other networks appear a little flat-footed and cumbersome even if they might be more creative,” says a rival network’s senior source.

The same source recounts with envy IPG’s ability to keep accounts within the group, moving them from one agency to another if the first client/agency relationship is looking a little stale.

This brings us on to the running sore that is Coca-Cola. McCann had been Coke’s agency of record since the Forties before work on the flagship brand was handed to the Creative Artists Agency in 1993. Since then McCann has been reduced to the role of Coke’s media buyer with some creative work on relatively minor brands around the world. IPG has, however, managed to retain another part of the business, Diet Coke, within The Lowe Group.

Though the loss of the main Coke creative account was a tremendous psychological and financial blow, the fact that IPG manages to continue to work on the business after Coke’s deliberate splintering of its agency roster – it now uses about 30 different agencies where is used to use one – could, admittedly in the rosiest of lights, be seen as evidence of its client servicing skills which are acknowledged as about as good as you get in advertising.

Certainly they’re fundamental to IPG’s undoubted success as a business: since it became publicly owned in 1971, IPG’s gross income has risen by more than a thousand per cent to almost $2bn (1.3bn) in with worldwide ad billings last year in excess of $15bn (9.7bn). The stock has risen more than 15 fold since 1980 – an enviable record.

IPG’s success with acquisitions is one of the areas which marks it out from at least one of the other agency networks – Cordiant. The agency, when it was still Saatchi & Saatchi, bought Bates Worldwide and with it an intractable conflict of business between Procter & Gamble and Colgate. IPG’s acquisitions have never brought with them conflicts of this nature.

Most impressive of all, of course, was probably the Lowe Group which it bought 14 years ago. More recent have been its purchases of another creative hot shop Ammirati & Puris (last year), which it has merged with Lintas Worldwide and then this year there was the deal which gave it joint ownership of Campbell Mithun Esty with its management. Probably its most significant foray outside advertising agencies was its purchase last year of Western International Media (see box).

“I cannot think of a deal we’d like to have done which we’ve not done. IPG works very well; for us it’s like having a good bank manager. We have done enough deals to know the kind of thing they’ll find sensible,” says chairman of the Lowe Group Frank Lowe.

IPG has also long been rumoured to be wooing another US creative hot shop – Wieden & Kennedy – while it is also understood to be engaged in a tussle for the Cordiant-owned Cliff Freeman & Partners – the agency some consider that group’s creative spearhead in the US. If IPG is successful, it will reinforce its image as a consummate deal maker capable of attracting agencies with a strong creative reputation into the fold.

“If the group has a weakness then that’s it: it finds it difficult to attract talent, especially creative talent, and that’s a lot to do with the way it’s perceived within the industry,” says Richard Humphreys, president of advertising conglomerate Adcom.

IPG is undoubtedly aware of the reputation for creative shortcomings among its two main networks, McCann and Lintas: each is seen as slick and professional but also soulless and safe. The Lowe Group which, as it is quick to point out, has won more awards per $1bn billing than any other agency in the world, is not tarred with the same brush and indeed its creative nous was one of the key reasons behind its purchase.

It’s difficult to see any distinct attempt to change the mood at McCann, though one of the agency’s stated goals is to become the world’s best agency in creativity. Given the undoubted financial success of the agency this is understandable. “It’s very effective advertising but it would never win the luvvies’ vote,” says one senior executive at a rival group who points out that McCann has a great reputation for retaining people who have been persuaded to join but conversely finds it difficult to attract creative talent in the first place.

Lintas is another matter: last year IPG bought Ammirati & Puris, an agency with a formidable creative reputation, for an estimated $56m (36m) and merged it with Lintas’s 140 offices worldwide. It also rechristened Lintas New York as Ammirati & Puris/Lintas, in what was seen as a bid to graft A&P creative values onto the flagship Lintas agency. Lintas, observers say, is still steeped in its Unilever past. Now London is getting the A&P treatment.

Lintas Worldwide is headed by A&P founder Martin Puris and most observers think he has a big task on his hands. Not surprisingly Lintas senior executives say in public that the transformation can already be seen in the New York office and, with the hiring of highly-rated creative Andrew Cracknell to the London office, things are on course for success.

Privately, IPG sources are less optimistic claiming that New York was a mess and was at best stabilised by the addition of A&P. They point to the difficulties of changing Lintas when its client list, still with a large proportion of Unilever business, is renowned for being so resolutely cautious.

IPG can move swiftly and with considerable deftness on a large scale because it manages its two bigger networks, McCann and Lintas, as twins rather than rivals. However, it’s not a view that IPG publicly subscribes to. Beard refutes the suggestion that IPG behaves with its agencies rather like a father supervising his children and says the agencies have complete autonomy.

This is where Geier’s influence becomes significant. Insiders says IPG does interfere with its agencies when it shouldn’t.

“The danger with the structure as long as Phil’s at the helm is that if you have a weak agency head, Phil will be able to trample all over them,” says one source.

So who is likely to succeed him? Puris seems a long-shot; observers suggest he’s not quite in the IPG mould; Frank Lowe is seen as even more of an outsider, partly because of his avowed determination to remain close to the advertising. So, from the agency network heads, that leaves only John Dooner of McCann-Erickson of whom it was said: “He’s the sort of hard-nosed, bull-headed kind of guy IPG seems to go for.”

There is, however, no suggestion that Geier is on his way out yet. “In the US, being chairman of the board carries a lot of weight in society; being ex-chairman carries none,” says one US ad man – and as long as IPG continues to keep its shareholders happy there’ll be no pressure on him to speed his exit.