Ten-Car Pileup in the Ad Industry: Conflict? What Conflict?

(MoneyWatch)  If there's one piece of Interpublic (IPG)'s business that's firing on all cylinders right now, it's cars -- the ad agency holding company has at least four major auto companies as clients right now. And Interpublic is far from the only ad agency that's handling accounts for rival car firms while blissfully oblivious to any potential conflict of interest.

Publicis (PUB), for instance, handles Toyota globally and Honda's media buying in Spain, as well as a couple of Chevrolet (General Motors) models in the U.S. And WPP (WPPGY) counts both Ford and Mercedes as clients in different parts of the globe.

You won't hear any of them suggest that these are conflicts.

A long time ago, before gigantic publicly traded agency networks roamed the earth, most advertisers were careful to choose agencies that didn't already handle competing clients. If Acme Products needed some TV work done, it didn't hire the same agency used by America's Best Products -- no matter how good that agency was -- for the obvious reason that it didn't want any of its marketing plans to leak, through the agency, to its hated rivals.

But time and tide, and mergers and acquisitions, wait for no man. Now, there are probably more car brands than there are independent agencies large enough to handle a car advertising account. (Or a detergent, or a beer, or a soda or... well, you get the picture.) Conflicts are more likely.

In response, the networks have recast their size as an advantage: Hire us, they say, and you have access to our global network of expertise, and the efficiencies of scale that come with it. As Omnicom (OMC) CEO John Wren (pictured) once put it, in reference to the way that holding companies, not their agencies, have begun to direct the way clients are pitched for new business:

It's about Omnicom guaranteeing the resources are going to be there and Omnicom providing navigation for those resources. If you take a look at the way that I pitch business, even so-called holding company pitches, it's with my agency brands. If you look at the way Martin [Sorrell] does it, he cherrypicks a WPP team; he'll go with Y&R's distribution system and Andy Berlin as the creative. There's a huge difference.

But if a network is guaranteeing access to all its resources then that, by definition, will increase the likelihood that client teams stored at separate agencies may accidentally -- or not! -- encounter competitive information about rival clients serviced by different parts of their network.

This approximate scenario happened to former FCB (now DraftFCB) CEO Brendan Ryan back in 2001, when the agency was fired by Pepsi from its Aquafina account. Ryan had promised Pepsi that none of his staff would work on any Coca-Cola brand for two years after Pepsi left FCB -- a promise that was ignored within weeks when Coke hired FCB for its Dasani business.

Not all car clients are relaxed about having their agencies serve the competition too. WPP's Grey Group was forced out of a pitch for Chrysler because Ogilvy & Mather, another WPP agency, works for Ford (and WPP's MEC handles Mercedes in Germany, don't forget).

But enough clients are relaxed about conflicts for IPG CEO Michael Roth to deliver this eye-opening account of his new business wins on his last conference call with Wall Street analysts:

We are seeing positive impact, particularly from General Motors. The other side is we've been winning other clients in the auto sector, the media group in particular with the adding of Chrysler and BMW, and our continuous performance at Meteor [ph] and* in media at Hyundai, very encouraging and of course Deutsch won Volkswagen.

So the auto sector will continue to be an important sector for us.

That's four car accounts inside a single network. A network, clients should know, that has an internal policy of consolidating the number of "legal entities" under its umbrella. It had 1,475 agency brands in 2004. Now there are only 950 (see page 35 of this SEC disclosure).

So you can see the central contradiction here: A network with a vast, fluid and flexible set of global resources is also one that is less likely to have enough inflexible institutional barriers to prevent competitive information moving from A to B. And yet that's the very advantage networks pitch to competing clients.

*IPG says Roth actually said "in media at Hyundai," not what's reflected in the transcript. Image by Flickr user Michael (mx5tx), CC. Related:

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