Universal McCann Gains Wall Street Recognition for Media-Centric Reorganization

Interpublic Group, which has been struggling to regain Wall Street credibility with its stock price hovering around half its 52-week high of $10.47, is offering a model for recovery through its Mediabrands media operation, which has surprised industry observers with impressive new business gains at media agency Universal McCann, on the heels of sister agency Initiative being named by Ad Age as 2008 Media Agency of the Year. Over the past few months, Nick Brien, CEO of IPG's umbrella media operation and his newly installed team at U-M have successfully defended the Home Depot and Nationwide Insurance business, and won the Charles Schwab and BMW accounts, both from Omnicom, Combined, the accounts represent more than $500 million. What's behind the success at Universal McCann? A completely new approach to industry relationships spear-headed by Global CEO Matt Seiler, North America president Jacki Kelley and SVP New Business Jen Hohman.

You are receiving this e-mail as a corporate subscriber to Jack Myers Media Business Report. Re-distribution in any form, except among approved individuals within your company, is prohibited.

Even the hot new business streaks at U-M and Initiative have not alleviated investor disappointment in Interpublic Group's overall second quarter performance. Credit Suisse analyst Peter Stabler (peter.stabler@credit-suisse.com) advises that IPG's "organic growth for the quarter was surprisingly weak at -14.5%, substantially below our -8.3% estimate and IPG competitors Publicis (-8.6%) and Omnicom (-10.8%)." Stabler believes that "organic growth for the remainder of the year will be weaker than previously thought," and he adds, "for IPG shares to regain momentum over the next 6 to 12 months, IPG must address its anemic growth outlook, which reflects reduced scopes of work generally and loss of business from key McCann Worldgroup clients like GM and Microsoft specifically."

Media agencies and their parent companies are confronted with a damned-if-you-do and damned-if-you-don't challenge in convincing Wall Street analysts that new business models are viable. As Credit Suisse's Stabler recently commented, "We still believe that the media planning and buying assignments currently in play have become increasingly price sensitive and that pricing pressure from procurement departments has the potential to weigh on media assignment profitability. Ironically, at a time when media planning and execution has arguably never been more strategically important, we continue to hear of commodity-like fee pricing battles across holding company media companies."

Seiler, who came up through the ranks of ad agency account management primarily at Omnicom, rather than media planning and buying ranks, has refocused the agency's core differentiation away from the typical emphasis on strategy, buying systems, analytics and competitive pricing negotiation. While obviously important, Seiler considers these capabilities to be fundamental and commoditized, and instead has reorganized to put strategic relationships with media companies front and center as the agency's priority.

In addition to organizing his team around traditional client services, Seiler and Kelley have developed a unique approach to managing relationships with media sellers, proactively providing insights and recommendations to assist them in developing custom tools and resources for U-M clients. For media companies that are investing millions in innovation, new media advances, promotional initiatives, research, integrated marketing programs, cross-platform opportunities and an almost endless array of enhanced capabilities, Seiler's approach is a potential blessing.

Advancing this model and hiring Kelley, who joined U-M after serving in executive positions at media companies Gannett and Martha Stewart Living Omnimedia, represented a risk for Seiler that appears to be paying off and could herald a significant shift in media, agency and client relationships. If clients, who have traditionally based media agency reviews heavily on media cost negotiation performance, are willing to engage agencies based on the depth and quality of their relationships with media content organizations, it reflects a deep and dramatic shift in corporate hierarchies.

If Universal McCann ultimately satisfies clients that can be competitive in delivering parity media costs and negotiating competence plus deliver qualitative superiority through enhanced media relationships, it will offer encouragement to those media sellers that are actively investing in support services and brand equity.

A year ago, in an interview with JackMyers Media Business Report, Mediabrands' Brien commented "It is not subject to debate that the economics of the media industry are more complex. Our traditional models are broken. There is an appetite for change although there is concern about how we move to new models. [The debate is about] how we make money and what we make money on. What is the business model? There will be new opportunities for those who introduce new models and if we don't do it, new players will. Let's land the plane," he urged. "We have to challenge our own beliefs and experiences, which are encumbrances to introducing new models. We need to look for new opportunities, institutionalize new models and make serious investments."

Wall Street analysts are not only taking note of the successes at U-M and Initiative, but they also credit Brien for hiring John Ross to the new position of president of its Emerging Media Lab. Ross joins IPG from client Home Depot, where he served as interim CMO following a 12 year career managing Home Depot's advertising, marketing and consumer incentives. Credit Suisse's Peter Stabler points out "adding John Ross to the mix is a great move. While the Emerging Media Lab is not a meaningful revenue generator (nor is likely to ever be one), we think this is a great hire that demonstrates the direction Nick Brien is taking Mediabrands. It's rare across the media agency landscape to see clients join agencies; more often, the reverse is true. Client side professionals bring invaluable practical experience often lacking in the media agency ranks, where understanding client decision making can be a perplexing task. Ross is slated to helm Mediabrands' "Retail 3.0" solution. Retail media is enormously important, and the rapidly evolving landscape of close to purchase media types and the overlap with customer relationship marketing tactics makes this a compelling area for investment."

Jack Myers consults with media, agencies and marketers on transformative business models and revenue growth strategies. He can be contacted at jm@jackmyers.com.