Earlier this year, an executive at advertising giant WPP sent an internal email asking agencies at the company to cut about 25% of their expenses for the Cannes Lions International Festival of Creativity, and to send a list of the people going to the week-long event in June.
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More recently, he sent another note reminding agencies that "our quest remains to be the leader at Cannes, with focused creative efforts, albeit with a smaller number of people physically in attendance," according to a copy of the memos reviewed by The Wall Street Journal.
Madison Avenue has historically been known for its lavish ways, but agencies are looking to trim costs, from hiring to spending on Cannes, as the ad business runs into headwinds. The belt-tightening comes as most ad holding companies are facing political and economic uncertainties, soft first-quarter earnings results and spending cuts by their clients.
Dentsu Aegis is the latest agency group to issue new cost-cutting mandates in an effort to "mitigate against market weakness," according to a memo reviewed by the Journal. The holding company is delaying pay reviews in most markets, implementing hiring controls -- there will be no net new hires "unless directly linked to revenue" -- and banning business travel with some exceptions.
The company also expects that its Cannes delegation will be "significantly reduced" from the 350 people it sent last year.
In an email to employees, Dentsu Aegis Americas Chief Executive Nigel Morris noted that the company had hit a rough stretch, with a decline in organic revenue of 3.4% in April. He added that despite robust new business performance, the company "cannot ignore the clear signs of a slowdown."
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Global ad spending is expected to grow 3.6% in 2017, compared with 5.7% in 2016, according to a December forecast from Magna Global, the ad-buying agency owned by Interpublic Group of Cos.
WPP, the largest global ad holding company, in March reported its slowest quarter of revenue growth since 2012, forecasting only 2% growth this year. WPP Chief Executive Martin Sorrell said advertisers are struggling with a low-growth, low-inflation environment, including challenges such as activist investors and industry-changing technological disruptions.
"Obviously there's pressure on fees and it's important for us to watch our cost profile," said Interpublic Group of Cos' Chief Executive Michael Roth, during the company's earnings call in April.
Interpublic is targeting a 10% reduction in what it originally intended to spend on Cannes this year, according to a person familiar with the matter.
Cannes is a logical cost-cutting target. The festival can cost large agencies $8,000 to $20,000 per person, including festival passes, housing and expenses, as well as up to $3 million for each submission of work to be considered for awards, according to an agency staffer from a large creative agency network. That doesn't include the cost of throwing a party or event.
Andrew Swinand, the new North America chief executive of Publicis Groupe shop Leo Burnett, said the company is submitting a lot of work at Cannes, but thinking hard about how to best use the festival.
"The idea of investment implies return," Mr. Swinand said. "Investing and sending creative talent to learn from some of the best in the industry" might make sense, he said, but investing thousands "to send someone to a party on a yacht for a week, what's the return?"
One top WPP agency executive said his shop would cut back on award entries and only submit campaigns "we thought had a very legit chance of winning."
Like the other holding companies, Havas sent a memo to executives asking them to "be very conscious of the cost implications of Cannes," according to a Havas staffer. The person noted that clients' budgets are moving and consumer behavior is shifting, putting more pressure on agencies to perform.
Agencies are grappling with zero-based budgeting, in which budgets are redone from scratch, while marketing procurement teams looking for cost-savings, said Brian Wieser, a senior analyst at Pivotal Research.
"It's not widely appreciated how weak the U.S. agency business is right now," he said.
Write to Alexandra Bruell at firstname.lastname@example.org
(END) Dow Jones Newswires
May 25, 2017 13:57 ET (17:57 GMT)