About the smartest thing Interpublic Group, still the world’s third-largest marketing services business, has done recently is to bury its truly staggering third-quarter losses in the backwash of the US presidential election result.
By now, we’re all too familiar with the barrage of difficulties assaulting the stumbling giant. They range from a disastrous investment in motor sport, chronic account leakage at Lowe and the dark cloud of an accounting scandal which still hangs over McCann Erickson. But all these issues arose quite some time ago, under a different IPG regime, and industry observers (including increasingly exasperated stock analysts) might be excused for having expected a very much better result than the one they got.
Instead, they were confronted with the seventh consecutive quarter of net losses. That makes, by one industry calculation, $3bn (&£1.6bn) of accumulated losses, or well over half of IPG’s market capitalisation. This at a time when all IPG’s significant rivals are basking in the reflected glory of their best results for years. What is going on at IPG and, more concretely, when will the losses be stopped?
Stripping away the clotted gobbledegook of self-exculpating management, there is one interesting feature of the results. Call it a silver lining if you like. It appears there was a small growth in organic revenue (that is, revenue minus the complications of acquisitions/disposals and currency fluctuations). However, at 1.8 per cent, this was well below the industry benchmark and does not hold out great hope for the future.
The solution, as IPG president and chief executive David Bell magnificently described it, is to spend ‘more of my time on business development’. If only matters were that simple. Down the line, there are other account losses likely to stem any nascent tide of optimism. In a world where advertising pitches are becoming bigger but rarer, IPG has recently suffered some statistically improbable bad luck. To begin with, there is the rest of the colossal HSBC loss to kick in. More recently, Samsung – another global review – does not seem to be going Foote Cone Belding’s way (MW last week), while revenue from that evergreen IPG client General Motors is being badly affected by the car-maker’s flailing performance.
Turning to media buying, the situation is, if anything, grimmer. At a time when a new round of indsutry consolidation is creating a super league, IPG’s key brand, Initiative, does not look well-placed to benefit. In two bruising international consolidations, the &£800m Nestlé and &£680m Unilever pitches, it has been the loser to WPP Group’s MindShare. It’s possible, of course, that Initiative is simply going through a bad patch, as all agencies tend to. Equally, it can be speculated that something more profound is at work: namely that only the biggest and most robust agency structures will survive the continuing downward pressure on costs. Those with patchy networks, or severe network morale problems, need not apply for membership of the super league.
Stuart Smith, EditorCover Story, page 24