Three giant advertising agency companies in Chicago, Paris and Tokyo announced on Thursday that they would form what would be the world's fourth-largest such corporation, with strength in North America, Asia and Europe.
The new axis of advertising would bring together the Bcom3 Group, the American parent of agencies like Leo Burnett, D'Arcy Masius Benton & Bowles and the Starcom MediaVest Group; the Publicis Groupe, the French parent of agencies like Fallon Worldwide, Publicis and Saatchi & Saatchi; and Dentsu, the leading agency company in Japan. It will work for blue-chip marketers like Coca-Cola, Diageo, Walt Disney, General Motors, L'Oreal, McDonald's, Nestle, Philip Morris, Procter & Gamble, Sprint and Toyota.
The companies are eager to elbow their way into the top tier of agency companies now occupied by three other giants that together account for an estimated 40 percent of worldwide agency revenue.
The deal comes as the advertising business struggles to emerge from its worst slump in decades. It reflects how agency companies in the second tier like Bcom3, Dentsu and Publicis are scrambling madly to keep up as the two other industries they work with daily — marketers and media — also consolidate.
"I don't know if biggest is better, but big is better," said Michael J. Russell Jr., an analyst at Morgan Stanley Dean Witter in New York who follows advertising and broadcasting stocks. "The agencies are playing catch-up to what the media and clients have already done."
As the marketers that spend almost $500 billion annually on advertising grow ever larger, they seek to work with agencies that are large, too, with the ability to create campaigns in many countries that will appear in many media, from television to the Internet to signs in stores.
At the same time, media ownership is being concentrated in fewer hands, so agencies want to bulk up to gain more power in buying space and time for clients' campaigns from huge companies like AOL Time Warner, the News Corp., Viacom and Vivendi Universal.
The bigger the agencies get, the theory goes, the more efficiently and effectively they will serve clients because the media companies will be more willing to make deals to lure bigger shares of the bigger ad budgets those agencies control. The media companies, for example, may offer lower prices, more appealing packages of places for ads to appear, and incentives like promotional events. A TV network may offer a giant agency that spends billions of dollars on behalf of top marketers the first crack at buying commercial time in its highest-rated shows, and maybe at attractive prices to boot.
"The big agencies are the best way to serve the big clients," Maurice Levy, chairman and chief executive at Publicis, said in an interview.
"A lot of clients believe in this, and they are ready to consolidate business at the 'super-agencies."' he said. "And we have to be there." Indeed, since 1999, Publicis has made a string of acquisitions that helped it climb from 10th in revenue among the largest agency companies to sixth, and then fifth, and now fourth.
The consequences of the growing concentration of power are a matter of much debate. For each person who would perceive bigger companies — whether advertisers, ad agencies or the media — as better able to serve consumers, another may consider further consolidation a dangerous course because it can make it harder for newcomers to enter the field and encourage oligopolistic behavior like unwarranted price increases.
The deal calls for Publicis to acquire for $3 billion Bcom3 in Chicago. Plans call for Bcom3 to be merged with Publicis by the end of June, to form a new Publicis that would rank fourth worldwide with combined revenue of $4 billion.
That deal would place Publicis behind only the Omnicom Group in New York, No. 1 at $6.9 billion; the Interpublic Group of Cos. in New York, second at $6.7 billion; and the WPP Group in London, No. 3 at $5.8 billion.
Dentsu in Tokyo, the Japanese market leader, which now owns 21 percent of Bcom3, will invest $500 million as part of the deal to buy a 15 percent stake in the new Publicis, which will have 38,000 employees worldwide. Levy will remain chairman and chief executive at Publicis, which will remain based in Paris and continue to operate all the agencies now operated by both Bcom3 and Publicis as separate units.