Small media firms reply to Ogilvy buyout with mergers

Small media services companies opposed to the planned takeover of Ogilvy Africa by Scangroup have changed tack, opting to merge their operations in response to the looming shift in market realities.

The move is intended to help the small players build muscles to confront the behemoth that is expected to emerge from the Scangroup-Ogilvy merger in the Sh31 billion media services market.

Industry insiders say Scangroup’s bid for Ogilvy, if successful, will shift the dynamics of the media services market bringing into play new realities that existing players will have to absorb to remain in business.

“In the next three years there is a possibility that if small players don’t re-invent themselves the market will be left to one big player who will reap massive profits riding on economies of scale,” Alvas Onguru, the managing director at Fireworks, a media services company. “We are positioning our self as alternative players for clients who will not be happy with the status quo.”

Fireworks is part of a group of smaller players, who have decided not to wait for the new market realities to emerge but have embarked on their own merger plans, setting the stage for a wave of consolidation in the industry with far reaching implications on competition and pricing of media services.

A significant drop in the number of service providers also means that consumers of media services might be forced to share providers with their rivals at the risk of leakages and theft of ideas.

The presence of only a small number of players, for instance, means that Kenya Commercial Bank will share a service provider with rivals such as Equity and National Banks, and telecoms service providers such as Safaricom, Zain and Orange will buy media services from the same source for lack of alternatives.

Managers of the small media services companies however reckon that only consolidation of their operations through mergers could help them survive the new market realities that will emerge should the regulator allow the Scangroup-Ogilvy tie.

On Tuesday, Fireworks and Corporate Talk told the Business Daily that they have joined forces to create a new entity with a pool of resources and skills to provide clients with a more comprehensive service offering.

A similar match-up between ZK Advertising and an unnamed player were also said to be ongoing even as the Tanzanian firm reportedly shops for a buyer for its regional business.

Industry sources said a number of small media firms are looking for strategic partnerships with the deep pocketed international players with the money to finance planned expansions into new markets and shield them against the expected attacks from the big players.

The push for regional footprints largely mirrors the strategy that Ogilvy and Scangroup have adopted to establish a presence in a number of African countries offering a one-stop shop for multi-national clients who prefer to deal with single agencies.

The emergence of Nairobi as a regional services hub has convinced many players that strong companies will always be frontrunners in pitching for business from firms with multi-national footprint.

Mr Onguru said the merger with Corporate Talk not only spreads the two companies’ footprint but also should also enable them to offer personalised services to clients who maybe uncomfortable with the big players.