Small media firms reply to Ogilvy buyout with mergers

The changing shape of the industry is being seen as opening a window for investors to establish new firms and go for clients with preference for small agencies that exclusively handle their work.

The proposed Scangroup-Ogilvy deal was however not subjected to shareholder discussions during the company’s Annual General Meeting at the Bomas of Kenya yesterday because the matter is pending before the regulators.

That leaves the possibility that should the regulators agree to the buyout deal, Scangroup will call an extra-ordinary general meeting to seek shareholder approval.

Earlier this month, six agencies filed a petition with the commissioner of monopolies opposing the deal between the market leader and the second largest player arguing that it will establish a dominant entity with the potential to dominate the media buying market in the region to the detriment of other players in an industry where there is low differentiation.

They are also seeing risk in the pricing of media units purchased, saying the presence of a big player in the market exposes media buyers to the risk of price manipulation.

“Discounts are calculated using the gross rate card as the base. A big player will have the ability to manipulate discounts on media units purchased to its advantage, since it will contribute to 71 per cent of media owners’ income from advertising and media agencies,” said a petition filed by the six.

Synovate, a consumer market research firm, says the single largest portion of the media buying business – 43 per cent of total sales -- remains outside the agencies and is done through direct sales.

It is in the remaining 57 per cent portion of the market shared by the agencies that Ogilvy and Scangroup control a combined 71 per cent leaving 29 per cent to be shared among the remaining….. small players.

Corporate Talk says the merger with Fireworks should add impetus to its expansion into seven African countries as it races to catch up with the market leaders.

The company intends to open offices in Tanzania, Malawi, Zambia, Congo DR, Uganda and Madagascar with its headquarters in Nairobi.

Merger of Corporate Talk and Fireworks also gives the group the ability to offer both public relations and adverting services for their clients under one roof.

Lenny Nga’ng’a, a director at Saracen OMD backed the Corporate Talk, Fireworks deal, saying the smaller players will have to forge partnerships and also raise awareness among clients of the available alternatives to remain relevant in the market.

“Firms currently dealing exclusively in media buying and advertising should partner with their counterparts in creative to offer clients a one stop shop for media services,” he said. “There is increasing demand from clients to have creative, media buying and advertising services together pressing the case for mergers of small players.”

ZK public relations, which was among the companies that petitioned the Commissioner of Monopolies, said it was awaiting a decision from the group’s board scheduled for next week to decide on its future.

“The board will hold their quarterly meeting early next week and it is from this that we might know what strategy the group wants us to adopt,” said Michael Onyango, PR Director at ZK Advertising.