BUSINESS/ECONOMY

Ragtime in the ad biz

PATRICIA CHISHOLM September 5 1988
BUSINESS/ECONOMY

Ragtime in the ad biz

PATRICIA CHISHOLM September 5 1988

Ragtime in the ad biz

BUSINESS

ECONOMY

They were irresistible targets. In a single steamy Toronto week in mid-August, Canadian-owned MacLaren Advertising and Foster Advertising Ltd. were both sold to companies owned by an American industry giant, Interpublic Group of Companies Inc. of New York City. The deals vaulted Interpublic to the top of the Canadian advertising industry, with combined annual billings of $400 million. Now, rumors of further purchases continue to swirl around the few remaining large Canadian independents. James Anderson, president of fifth-ranked McKim Advertising Ltd. of Toronto, said that he neither confirms nor denies that his company is in the market for a buyer, but industry insiders repeatedly mention McKim’s name as the next Canadian agency likely to go to a foreign buyer. Said Anderson: “The question is, what is good for the client? I don’t see any special benefits to Canadian ownership.”

Anderson’s pragmatic sentiments are echoed by many of his colleagues in the $3.5-billion Canadian advertising industry. They say that both MacLaren and Foster made enviable business deals. By selling at the height of their success, the partners who built those private agencies are assured of handsome payouts that recognize both the time and money that they have invested in their firms. They have also guaranteed their agencies a place in the intensely competitive and increasingly globalized advertising industry. And without an international connection, future growth of Canadianbased firms could be seriously inhibited. The trend may also help smalland mediumsized Canadian-owned agencies: some clients, especially government departments, insist on dealing with Canadianowned firms, and more of that business is now likely to flow downward to less-established competitors.

Officials at both MacLaren and Foster say

that no jobs will be lost and it will be business as usual. But for some members of the firm, more than jobs and a thriving business is at stake.

For owners and employees alike, the twin deals were a matter of the heart, a chilling reminder that large, Canadianowned agencies are agonizingly difficult to build and perilously easy to lose. The sale of MacLaren, a 66-year-old firm synonymous with such Canadian institutions as Molson Co. Ltd. and the Liberal party of Canada, was especially difficult for those involved. Senior vice-president Patricia Bowles, one of MacLaren’s 10 partners, said that she fully supported the sale on business grounds but found it emotionally difficult because of MacLaren’s strong Canadian roots. She added, “It was hard for those of us here who are heart-beating nationalists.”

As Canadian agencies grow and become well established, they are frequently scooped up by conglomerates intent on building an international network of agencies for clients who advertise in several markets. Britain’s Saatchi and Saatchi PLC bought Toronto-based Hayhurst Advertising Ltd. in 1985, and last year, Chicagobased Foote Cone & Belding Advertising Ltd. took over RonaldsReynolds & Co. Ltd., also of Toronto. And after last month’s sales, only two of the top seven Canadian-owned agencies that once dominated the industry in

the 1970s remain—McKim and Vickers & Benson Cos. Ltd. Fully 70 per cent of agency billings are now being collected by American companies operating in Canada.

But the sales of MacLaren and Foster were different, industry insiders say. They were larger, more identifiably Canadian and had resisted takeover attempts longer. For many, the transfer of their ownership represents the end of an era. Said James Hayhurst, former chairman and chief executive officer of Hayhurst Advertising: “I always thought there would be at least one or two big independents, but now maybe there won’t. The remaining ones are all being pressed hard by international buyers—there will be at least one more sale.”

The pressure on agencies to sell is strong. In recent years, some advertisers have relied less on traditional but increasingly expensive media outlets, including newspapers, magazines and television, and more on such alternatives as point-of-sale promotions and direct marketing, services that adver-

tising agencies have traditionally not provided. Clients are also turning to integrated global selling strategies. One of Interpublic’s largest clients, Coca-Cola Inc., sells its product in more than 80 countries. By restricting the number of agencies it uses to three or four, its global campaigns are easier to manage, according to Interpublic chief financial officer Eugene Beard.

Those trends have made profits in the advertising business harder to generate. Agencies have to provide more services in more countries, at higher costs to themselves. And agencies that cannot meet their clients’ pressing new demands, or that fail to expand internationally, are likely to face difficulties. MacLaren president Anthony Miller has traditionally argued that Canadian agencies are as good as any in New York or London and that Canadians produce, the most effective advertising for their own market. But he defended last month’s sale as a necessity in a changing business environment. Announcing the transaction, he said, “In the medium-to-long term, we would be crazy if we didn’t realize that there are some broader values in an association with a worldwide company.”

But being part of an international advertising group

could also result in strategies and campaigns that are conceived abroad, gradually dominating Canadian advertising, with less emphasis on the creative efforts of Canadian ad firms. Still, Foster president Michel Frappier claims that “what drives us is not ownership but who does the best work.”

Yet some of his competitors have sharply different views on the selloff of Canadian advertising companies. Independents, said Vickers & Benson president and executive creative director Terrence O’Malley, can remain more sensitive to the pulse of their own marketplace. Members of groups, however, have to give priority to their parents’ fiscal expectations. Said O’Malley: “It’s like the difference between six guys with nylon masks and a nuclear army. The independents are more | flexible.” Said Hugh á Segal, chairman of

1 TACT Inc., owner of g Camp Associates Ad> vertising Ltd.: “Adx vertising focused on g elites, like consumers

2 of financial informaI tion, is very different

in the United States and Canada.” The more bullish, promotional style of American advertising will not work in Canada, Segal said.

Some advertisers say that they are reluctant to deal with Canadian agencies that have become part of a much larger, foreign-controlled conglomer-

ate. And that attitude could create lucrative new opportunities for the smalland medium-sized independents. John Dalla Costa, president of Toronto agency Miller Myers Bruce Dalla Costa Inc., said that some of his clients have already expressed their aversion to dealing with agencies where decisions are made in distant New York or London. He said that his clients are reassured because advertising decisions at his agency are made in Canada. Said Dalla Costa: “At our firm, it’s in my office, down the hall.” He adds that when multinationals try to trim costs in the future, branch offices in Canada will be among the first to feel the painful squeeze of job losses.

Already, the potential benefits to nonaligned firms are becoming apparent. McCann-Erickson Advertising of Canada Ltd. has resigned its account for the Ontario advertising of Blue Light and Double Blue for John Labatt Ltd. McCann Canada is owned by McCann Erickson Worldwide, the Interpublic subsidiary that purchased Foster. The Labatt account, which was seen to conflict with Foster’s account with Carling O’Keefe Breweries of Canada Ltd., will now be up for grabs. That is the case as well with Ontario Hydro’s account, also held by Foster. Hydro, like many other Crown corporations and government departments, is obliged by its own policies to retain only Canadian-owned agencies. And MacLaren, purchased by Interpublic subsidiary Lintas: Worldwide, will

have to relinquish its account with the Ontario Lottery Corp., a $14-million advertising jackpot that it shares with two other agencies.

Although many firms claim that they no longer rely on rich government contracts, government is still by far the largest advertiser in Canada. The federal government and affiliated agencies such as Air Canada, Canada Post and the Canadian Broadcasting Corp. spent $66.4 million on advertising in 1987. General Motors of Canada Ltd., the largest private advertiser, spent $39.7 million. Indeed, government preference for homegrown advertising has helped nurture the growth of an independent Canadian industry. The continued existence of that policy, together with a healthy roster of private-sector clients who still believe that local decisions are the best decisions, will be all that it takes to ensure that a new crop of Canadian advertising talent emerges.

PATRICIA CHISHOLM