The Age of Holding Companies — Acquisitions and Globalization

In the 1980s, a quiet but decisive tectonic shift took place in the world of advertising. Until then, an advertising firm typically carried its founder’s name on its sign and grew rooted in a single city, a single country. McCann, J. Walter Thompson, Ogilvy — all were storied houses born of one individual’s talent and trust.

Yet over this single decade, many of those storied houses were bundled under larger entities while keeping their own names intact. The name on the door stayed the same; only the owner changed. The age of the holding company had begun — companies that bought up advertising firms and cast a net across the globe. Why was such bundling necessary? The story begins, surprisingly, in a single small factory.

How a shopping-basket company became the world’s largest

One of the central figures was Martin Sorrell, a Briton with a background in finance. Having handled finances at Saatchi & Saatchi, he set out to build his own empire and fixed his eye on a small company. That company was Wire and Plastic Products (WPP), an unremarkable manufacturer that made wire mesh for shopping baskets and the like.

Sorrell invested in the company in 1985 and took control of its management the following year, in 1986. He kept only the initials ‘WPP’ and replaced its contents wholesale. The method he chose was a ‘roll-up’ — buying up companies involved in advertising and sales promotion one after another and stacking them together.

The finishing touch stunned the world. In 1987, WPP took the storied American house J. Walter Thompson in a hostile takeover, without the target’s consent. A shopping-basket company had swallowed a venerable firm that symbolized the history of advertising. Then, in 1989, it acquired another distinguished house, Ogilvy & Mather.

The giant born of a three-way merger — Omnicom

It was not only WPP. In the United States of the same 1980s, a major movement to reshape the industry was also under way.

In 1986, three large advertising firms merged in New York: BBDO, Doyle Dane Bernbach (DDB), and Needham Harper. DDB, led by Bernbach, the standard-bearer of the ‘Creative Revolution’ touched on in Episode 5, joined as one of its pillars. The three-way merger gave birth to the Omnicom Group. The merger is recorded as having been completed in April of that year.

Why did rivals who had competed for years join hands? The background, it is said, lay in a sense of crisis over Britain’s Saatchi & Saatchi, which had been expanding rapidly through repeated acquisitions. As multinational clients sought worldwide service, no firm could stand alone — and so, judging this to be the case, each merged to gain scale.

What is worth noting is how things were run after the merger. Rather than melt the three into one, Omnicom chose to keep each as an independent company. BBDO, DDB, and later TBWA stood side by side under the same holding company while retaining their separate names and cultures. Why keep them apart? One reason lay in a circumstance peculiar to the advertising industry.

Why keep the names, and keep them separate

Advertising firms operate under a distinctive constraint called ‘conflict of interest.’ For instance, a firm handling one automaker generally cannot handle a competing automaker. Advertising strategy is a treasure trove of corporate secrets.

Here lay the cleverness of the holding-company model. By keeping its subsidiaries separate, the group could simultaneously hold competing clients that would normally fight over each other — Company A handling Toyota, Company B handling Nissan. Splitting the signs led directly to expanded revenue. Keeping the founders’ names served both to inherit clients’ trust and to secure this practical benefit.

Paris-based Publicis also joined this current. Founded in 1926 by Marcel Bleustein-Blanchet, this French company pursued internationalization for a long time under the direction of Maurice Lévy. Around the year 2000 it brought Saatchi & Saatchi into its fold, and in 2002 it acquired America’s Bcom3. This gave it storied houses such as Leo Burnett and propelled it into the ranks of the world’s top groups. In this way, the giant holding companies — WPP, Omnicom, Publicis, and Interpublic (IPG) — came to divide the world’s advertising among themselves.

Creative and media drift apart

The age of holding companies also remade the very internal structure of advertising firms. Its symbol was the separation of ‘creative’ and ‘media.’

Once, a single advertising firm handled both the work of making the advertisement (creative) and the work of buying space in the media that carried it (media buying) as a single bundle. Yet from the late 1980s into the 1990s, independent companies emerged that specialized in buying media space in bulk. Zenith, born in London in 1987, is known as one of the pioneers. In France, Carat had already been achieving results in large-scale media trading.

Why split them? The key was ‘economies of scale.’ By pooling the media budgets of multiple advertising firms in one place, one could buy in volumes of a different order entirely and draw favorable terms from media owners. This trend, known as ‘unbundling,’ spread widely across the industry, and holding companies came to hold giant media specialists among their subsidiaries. The power to make advertising and the power to buy media — two functions that had once been one came to be divided among separate specialists.

This separation cast a new shadow in exchange for the light of efficiency. With creativity and media strategy moving separately, might the overall coherence of advertising be lost? Might the opacity of media trading invite clients’ distrust? The seeds of such questions, which would surface in a later era, had already been sown at this moment.

At the close of the twentieth century, the advertising industry converged into a handful of giant holding companies. The founders’ distinctive signs remained, while behind them the logic of finance quietly extended its rule. The giants’ empires looked unshakable. Yet at this very moment, a small technology sprouting in a research lab across the sea was about to shake this whole structure to its foundations. A technology would appear that would shake those giants overnight.