Ad Agencies Target Cannes Festival Amid Broader Cost-Cutting
May 25 2017 - 2:12PM
Dow Jones News
By Alexandra Bruell
Earlier this year, an executive at advertising giant WPP sent an
internal email asking agencies at the company to cut about 25% of
their expenses for the Cannes Lions International Festival of
Creativity, and to send a list of the people going to the week-long
event in June.
More recently, he sent another note reminding agencies that "our
quest remains to be the leader at Cannes, with focused creative
efforts, albeit with a smaller number of people physically in
attendance," according to a copy of the memos reviewed by The Wall
Street Journal.
Madison Avenue has historically been known for its lavish ways,
but agencies are looking to trim costs, from hiring to spending on
Cannes, as the ad business runs into headwinds. The belt-tightening
comes as most ad holding companies are facing political and
economic uncertainties, soft first-quarter earnings results and
spending cuts by their clients.
Dentsu Aegis is the latest agency group to issue new
cost-cutting mandates in an effort to "mitigate against market
weakness," according to a memo reviewed by the Journal. The holding
company is delaying pay reviews in most markets, implementing
hiring controls -- there will be no net new hires "unless directly
linked to revenue" -- and banning business travel with some
exceptions.
The company also expects that its Cannes delegation will be
"significantly reduced" from the 350 people it sent last year.
In an email to employees, Dentsu Aegis Americas Chief Executive
Nigel Morris noted that the company had hit a rough stretch, with a
decline in organic revenue of 3.4% in April. He added that despite
robust new business performance, the company "cannot ignore the
clear signs of a slowdown."
Global ad spending is expected to grow 3.6% in 2017, compared
with 5.7% in 2016, according to a December forecast from Magna
Global, the ad-buying agency owned by Interpublic Group of Cos.
WPP, the largest global ad holding company, in March reported
its slowest quarter of revenue growth since 2012, forecasting only
2% growth this year. WPP Chief Executive Martin Sorrell said
advertisers are struggling with a low-growth, low-inflation
environment, including challenges such as activist investors and
industry-changing technological disruptions.
"Obviously there's pressure on fees and it's important for us to
watch our cost profile," said Interpublic Group of Cos' Chief
Executive Michael Roth, during the company's earnings call in
April.
Interpublic is targeting a 10% reduction in what it originally
intended to spend on Cannes this year, according to a person
familiar with the matter.
Cannes is a logical cost-cutting target. The festival can cost
large agencies $8,000 to $20,000 per person, including festival
passes, housing and expenses, as well as up to $3 million for each
submission of work to be considered for awards, according to an
agency staffer from a large creative agency network. That doesn't
include the cost of throwing a party or event.
Andrew Swinand, the new North America chief executive of
Publicis Groupe shop Leo Burnett, said the company is submitting a
lot of work at Cannes, but thinking hard about how to best use the
festival.
"The idea of investment implies return," Mr. Swinand said.
"Investing and sending creative talent to learn from some of the
best in the industry" might make sense, he said, but investing
thousands "to send someone to a party on a yacht for a week, what's
the return?"
One top WPP agency executive said his shop would cut back on
award entries and only submit campaigns "we thought had a very
legit chance of winning."
Like the other holding companies, Havas sent a memo to
executives asking them to "be very conscious of the cost
implications of Cannes," according to a Havas staffer. The person
noted that clients' budgets are moving and consumer behavior is
shifting, putting more pressure on agencies to perform.
Agencies are grappling with zero-based budgeting, in which
budgets are redone from scratch, while marketing procurement teams
looking for cost-savings, said Brian Wieser, a senior analyst at
Pivotal Research.
"It's not widely appreciated how weak the U.S. agency business
is right now," he said.
Write to Alexandra Bruell at alexandra.bruell@wsj.com
(END) Dow Jones Newswires
May 25, 2017 13:57 ET (17:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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