Advertising International

The Privatisation of Public Space

Armand Mattelart

• Publisher: Routledge
• Year: 2005
• eBook ISBN: 9781134942374
• Topic: Social Sciences
• Subtopic: Media Studies
• Index: Social Sciences

A survey of the changes in the advertising industry in the last twenty years including coverage of the emergence of international conglomerates and the diversification of the agencies into public relations and media buying.

1 THE GEOSTRATEGY OF THE NETWORKS

The rise of the global agencies

THE FALL OF A SYMBOL

‘You cannot be a global communications business if you’re not big in the United States’, confided the British magnate Robert Maxwell to Newsweek in November 1987. ¹

Everyone has thought this and many have tried it. Indeed, the second half of the 1980s has seen the arrival of big firms of European, Japanese and Australian provenance on the American scene. Maxwell himself launched no less than three fabulous public takeover bids—two of them shortlived—for three major publishers, and finally carried off Macmillan. The German Bertelsmann has taken over the publisher Doubleday and the record company RCA-Ariola. The Japanese company Sony made a successful bid for the prestigious CBS Records, and has since acquired the Hollywood film company Columbia. The foremost French publisher, the Hachette group, has purchased shares in Grolier (world number one in encyclopaedias) and the magazine publisher Diamandis. As for the Australian Rupert Murdoch, proprietor of News Corporation, he is so convinced that the United States represent the obligatory step in building up a multimedia conglomerate of global vocation that he swapped his own nationality for that of his new properties Twentieth Century Fox and TV Guide. The American reply to this foreign offensive was not long in coming: in 1989, the rapprochement between Time-Warner Communications and the reorientation towards communications of the conglomerate Gulf & Western, owner of Paramount Pictures and the publisher Simon & Schuster, sparked off manoeuvres aimed at a restructuring of the publishing and entertainments industry in the threatened fiefdom.

Advance guard of the media industry, the advertising sector, has shown candidates who wish to capture the New World the way to proceed. In July 1987, the British group Wire & Plastic Products (WPP) spent $566m to absorb the world’s fifth-largest advertising firm, the American company J.Walter Thompson. The deal gave them a diversified group: an advertising enterprise which employs 7,700 people; a public relations firm—the world’s foremost company in this specialisation—Hill & Knowlton, with 1,600 employees; a research company, Market Research Bureau (MRB), which occupies eighth position in commercial research; a specialist agency, namely Lord, Geller, Federico, Einstein, devoted exclusively to up-market products of which the most prestigious are those of IBM. By symbolic coincidence, in that same month of July, the British press and publications group Reed International purchased the American journal Variety, bible of the world of spectacle and audiovisual production, created eighty-two years earlier and widely read outside the US.

The previous year, the agency Saatchi & Saatchi, also British, hoisted itself to top place among large international holdings in the advertising industry through the purchase, for $450m, of the American firm Ted Bates, fourth-largest network in the world. Indeed in three years, Saatchi & Saatchi enriched itself with three large agencies and two public relations firms, all American.

In short, a race was launched in the second half of the 1980s to form a global advertising enterprise. ‘Between now and the year 2000, there will be ten or twelve large global communications groups. In the advertising sector, there will be fewer still…perhaps six’, was the prognostication in 1987 of a financial representative of Saatchis.

Even if a single takeover doesn’t make a summer, the cliché of British decline has been superseded. Stimulated by the deregulation of the London markets which reached its climax with the ‘Big Bang’ of 1986, British investment on American soil has reached a historical record: nearly $32b^*, more than six times that of 1984. The same year, Japan invested $15b.²

‘Reversal of history’, ‘Rebellion of British agencies’, commented the City newspapers, congratulating themselves on these assaults against the stronghold of American advertising, Madison Avenue. During the previous decades, Great Britain had seen the decimation of its own advertising industry. In a way, this dismantling was a symbol of the decline of its film industry which during the post-war years had fallen practically lock, stock and barrel into the hands of the Hollywood majors. This was a very different panorama to that of France, which during the same years succeeded in maintaining the independence of both its film industry and its advertising market. But by 1979, more than 70 per cent of the turnover of the twenty leading London agencies had ended up in the portfolios of American firms.

With control of J.Walter Thompson passing to British capital, that image was smashed. Although created in 1864, this agency cannot claim to be the first. Such paternity is rather to be found in Volney B. Palmer, established in Philadelphia in 1840—where Benjamin Franklin had become famous as a statesman, physician, philosopher and publicist—with subsidiaries later set up in Boston and New York. James Walter Thampson, however, fresh from the Marines where he served on the USS Saratoga, and proprietor of the homonymous agency from the 1870s, was the first to take a special interest in magazine advertising, especially women’s magazines. From a small firm placing announcements mainly in religious publications with an ecumenical profile, he went on to construct by the end of the century one of the first modern agencies: the kind which thinks in terms of precise targets to aim at. In the portrait gallery of the ‘ten men who shaped American advertising’, he can be seen in his Marines’ uniform, and the inscription underneath: ‘He contributed importantly to awareness of the woman consumer and the efforts of media and advertisers to appeal to and sell to her’.³ His pamphlet Advertising as a Selling Force, published in 1909, is still astonishingly up to date.

The first agency to plant itself on foreign soil, J.Walter Thompson, set up shop in London in 1899. At this time, when American capital was still far from boasting the industrial power of the major European countries, the objective of this first ‘sales bureau’ was ‘to urge businessmen of the Old Continent to sell in America and advertise their products there’. In 1888, the American agency had already published the first bilingual (French-English) annual, 440 pages thick, in order to initiate Europeans into the mysteries of the US market and its press. It was also at this time that a ‘Latin American Department’ began to explore the markets and media of the subcontinent, while in 1923 JWT signed its first campaign in England for the account of its Chicago client, the food canners Libby, McNeill & Libby.

In 1927, the London office was transformed into a true subsidiary when General Motors invited JWT to represent them throughout the world and to install themselves in particular wherever they were in the process of constructing factories or automobile assembly plants. Thus the history of this first phase of the agency’s internationalisation parallels more closely than any other the worldwide expansion of the great American enterprises: Chesebrough-Ponds, Eastman-Kodak, Kraft, Kellogg, IBM, Ford, RCA and all the others. Year by year, in step with its clients, JWT set up office in some forty countries: in Antwerp and Madrid in 1927; Paris and Berlin in 1928; Montreal, Bombay, São Paulo, Buenos Aires, Stockholm and Copenhagen in 1929; Sydney, Melbourne and the Cape in 1930; Toronto and Rio de Janeiro in 1931; Calcutta in 1935; Mexico in 1943; Santiago de Chile and New Delhi in 1944; Milan in 1951; Frankfurt in 1952; Madras and Puerto Rico in 1955; Tokyo, Karachi, Colombo and Manila in 1956; Lima, Porto Alegre and Recife in 1957; Amsterdam in 1958; Belo Horizonte in 1960; Osaka and Vienna in 1961; Vancouver and Caracas in 1964, etc.

The successive foundation of subsidiaries in the great regional capitals of India and Brazil indicates how intimately the American firm has been associated with the establishment of the apparatus of advertising in each of these environments. In countries like Brazil, which in those years did not possess a press, radio or television of national scale, the advertising network laid the foundations for the integration of the market. And by the late 1960s, by means of telecommunications, the technological network of commercial television was in place.

PATRIOTISM STARTLED

Of the founding firms of the modern advertising industry in the United States, the agency of JWT is one of the few to have celebrated its centenary under the same flag as its earliest days. An astonishingly stable company, in a hundred years JWT has only had three presidents. Since 1878, when James Walter Thompson acquired the firm which had engaged him ten years earlier, its growth has been achieved almost without incorporating any other agencies.

Proud of this historical tradition, JWT continued to defend the doctrine which had guided its expansion until just before its purchase by the British group WPP. Four months before the murderous takeover, in what would be its last annual report to its shareholders, the president of JWT reaffirmed:

The year 1986 was peppered with news of megamergers…. What all this loses sight of is the essence of an advertising agency, which is a service business, a business that prospers or fails based on how effectively it services its clients. In all the megamerger frenzy and excitement, there is very little that is of benefit to clients…. In fact, megamergers have raised in many clients’ minds profound questions about the loyalty and professional commitment of their agencies…. The Thompson Company has no intention of participating in this mating of giants. It doesn’t need to. Thompson has grown over the course of 122 years, one account at a time, one office at a time, one country at a time. Today it operates full-service offices in 40 countries. In terms of geographic growth there’s not a lot more you could ask for. Rather than attempting to grow via megamerger, we intend to maintain Thompson’s identity as ‘advertising’s leading brand’ with all that means in terms of a coherent professional philosophy and a distinct corporate culture.⁴

This founding code of the expansionist strategy of its advertising network allowed JWT to be considered by its peers as the paragon of the ‘imperial model’ of internationalisation, or according to a British advertising man, the ‘colonial model’.

It is precisely this policy which in July 1987 was to founder with all hands. Victim of bad management and repeatedly poor performance, what London-based professionals nicknamed ‘the university of advertising’ and New Yorkers ‘the old lady of Madison Avenue’ became the subsidiary of a group with a history which dated back no further than June 1985. Nevertheless the founder of this group, Martin Sorrell, alumnus of Cambridge and Harvard, is not an unknown figure in the milieu. In scarcely ten years he had forged a solid reputation as a specialist in financial packaging—what the Financial Times baptised ‘financial engineering’ but a Wall Street expert, simultaneously irritated and fascinated by this new race of arrogant predators, preferred to call an ‘exercise in trick-riding’.

Sorrell served his apprenticeship as financial director of acquisitions at Saatchi & Saatchi. He then put together his own group in a mere twenty-four months. The first enterprise he acquired was a manufacturer of supermarket trollies, which cost him $600,000, followed by sixteen more companies, most of them linked with the highly fragmented sector of ‘marketing services’ and closely related to media and advertising (design, graphics, sales promotion).

One sector of the American business community took it badly that such a tiny European group should snap at their own legendary terrain. The negotiations which preceded the purchase of JWT show the tone. Scarcely a month before the merger, the American advertising weekly Advertising Age recognised that in moving against JWT, WPP ‘has launched the first unfriendly takeover battle in advertising agency history, and it is likely to be a bloody one’.⁵ This is a perfect example of what has come to be called a ‘hostile takeover bid’ or raid: an operation aimed at taking control of a target company, against the opposition of its directors, by offering shareholders a price for their shares higher than their market value.

Some of JWT’s clients themselves took up battle-stations. At their heads were Kodak and Goodyear, who had been using JWT’s services for fifty-six and twelve years respectively. Still smarting from an attempted takeover of Goodyear by the British businessman James Goldsmith a few months earlier, a spokesman for the tyre company went so far as to affirm publicly that Goodyear ‘would not feel comfortable working with a firm controlled by interests outside this country’.⁶

In one last attempt by the business community to prevent the ancestor of advertising falling into the hands of British capital, the multimedia conglomerate MCA made a last-minute bid of its own. Proprietor of the film company Universal, a chain of television stations, a publishing house (Putnam), and also well established in the record industry, MCA saw the acquisition of JWT as a valuable complement to its cultural industries. But it was already too late and the bid was only a gesture. In 1990, MCA-Universal was taken over by the Japanese electronics group Matsushita. This, on top of Sony’s merger with Columbia, gave the Japanese control of 25 per cent of the Hollywood industry.)

When WPP took possession of JWT, several big advertisers like Pepsi Cola, Burger King, and Goodyear cancelled their contracts with the new owners. The cost of restructuring the agency was the sack for 17.4 per cent of the personnel. In 1988 there was a rebellion in the up-market division of Lord, Geller, Federico, Einstein, when WPP was done out of one of its most prestigious accounts, IBM, by the American network Lintas. Sorrell took the rebels to court and accused them of conspiracy.

The following year, Sorrell again returned to the game of finance with the takeover of another giant American advertising agency, Ogilvy & Mather, founded in 1948. At a cost of $864m this was the largest sum ever paid for such a network. A leading company in the field of direct marketing and with a strong presence in Europe, Ogilvy brought to WPP-JWT an international network covering fifty-two countries (55 per cent of its total revenues were generated outside the US). This operation put the new group constituted by WPP, JWT and Ogilvy practically on a par with Saatchi & Saatchi, and in 1990, as Saatchis’ fortunes failed, Sorrell’s WPP overtook them as the world’s largest advertising network.

DOUBLE NETWORKS

The process of merger-concentration and the construction of megagroups did not begin yesterday, and its first protagonists were not the British. The first such regrouping, which dates from 1978, was the merger of a Madison Avenue star, McCann-Erickson, and the London agency Lintas, under the umbrella of the American Interpublic Group.

Lintas, a flower of British pre-war advertising, was born to serve the old soaps and detergents giant Lever Bros, which subsequently became the Anglo-Dutch group Unilever. (In 1970, Lintas had already been partly taken over by another American agency, SSC & B, founded in New York in 1946.) McCann-Erickson made its debut back in 1912 in the shadow of the Standard Oil Company. It was only in 1930, however, that it got its full name through the merger of the two agencies of McCann and Erickson. It launched itself in London and Paris in 1927, and in 1928 in Berlin, in the service of a single brand-name: Esso. During the 1930s, subsidiaries multiplied. Latin America became its preferred terrain. The eternal rival of J.Walter Thompson, the two networks have long since shared the monopoly position of first and second places in the international market.

In fact it was in the 1960s when McCann-Erickson started restructuring, to result eighteen years later, thanks to the Lintas takeover, in the formation of the premier world advertising conglomerate. In 1960, Marion Harper, the youngest president in McCann-Erickson’s history, decided to create a federation around Interpublic Group, with his own agency as the leading light and an ensemble of recent acquisitions of lesser brilliance; thus transforming the group into a diversified advertising enterprise, and reinforcing its presence abroad— especially in Asia (Japan, Hong Kong, Popular China and India).

Ten years later and thanks to a flood of acquisitions, Interpublic possessed a double network: the first centred on McCann-Erickson with New York as its general headquarters, the second based on a long-established London agency, Quadrant International. The purchase by Lintas completed what became a new model of organisation. All the candidates for megamergers in the 1980s adopted it. The double network makes it possible to anticipate eventual conflict between two competing clients who share the same agency. Partitioned ...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• AUTHOR’S PREFACE
• TRANSLATOR’S PREFACE
• 1 THE GEOSTRATEGY OF THE NETWORKS
• 2 CULTURE SHOCK
• 3 THE LIMITS OF THE GLOBAL SCENARIO
• 4 MEDIA WORLDS
• 5 THE VANGUARD OF DEREGULATION
• 6 THE NEW FRONTIER OF THE OLD CONTINENT
• 7 CHANGING ROLES
• 8 AUDIENCE MEASUREMENT
• 9 THINK TANKS
• 10 THE SPIRIT OF ENTERPRISE
• 11 TOTAL COMMUNICATION
• 12 THE WEAPONS OF CRITICISM AND THE CRITICISM OF WEAPONS
• NOTES