How do holding companies decide which agency brands to sunset?

Madison Avenue continues to contract.

As of last month, two more agency brands are gone after 180 and adam&eveDDB NY were subsumed by Lola USA, a new division of the Lola agency brand, as Omnicom continues to give its agency holdings a makeover.

The reduction is the latest in a continually growing list of agency brands to shutter. Late last year, following Omnicom’s acquisition of IPG, creative agencies DDB, FCB, and MullenLowe were among more than a dozen brands that were sunset. Last year, Publicis Groupe created a new network, Leo, and with it cut Leo Burnett and Publicis Worldwide from its agency brands. WPP, meanwhile, recently created WPP Creative—which smells of coming consolidation, although CEO Cindy Rose has reportedly said the company won’t sunset agency brands. (Of course, WPP has already been combining agency brands.) And the recent consolidation from holding companies follows years of combining and contractings.

Madison Avenue may have fewer residents—er, agency brands—as the years go on and holding companies shift to a platform model. As this transformation continues, how do the executives responsible for sunsetting various agency brands decide which ones to keep and which ones should go?

Decisions, decisions

To hear execs say it, holding companies aren’t sunsetting agency brands for the sake of it. Doing so, they suggest, is often a matter of driving efficiencies and cutting costs to boost performance and make shareholders happy.

“Cutting costs is their only strategy,” Michael Farmer, chairman and CEO of strategic consultancy Farmer & Company, told us. “Merging brands gets rid of one whole management [team], for the most part.”

It can also make quarterly earnings seem more impressive with efficiencies. During Omnicom’s Q1 earnings call in April, chairman and CEO John Wren credited the company’s “integration efforts” as part of the reason for its “solid performance” during the quarter, as well as new business wins including IBM, GSK, and John Deere, among others.

When looking at where to cut costs, C-suite execs at holding companies typically take a look at their portfolio and try to find whatever efficiencies they can squeeze out. Those might be back-of-house costs as they look to combine agencies’ finance, HR, real estate, and technology costs, along with reviews of which agencies serve the same or similar clients, or offer the same services with similar approaches.

From there, they’ll likely consider which agency brand is stronger in the market and sunset the one with the weaker brand identity or service offering.

“In theory, each brand in your portfolio should have a different positioning, a different benefit associated,” Allen Adamson, co-founder of brand consultancy Metaforce, told Marketing Brew. “There needs to be a clarity as to what those individual brands stand for, what type of advertising or marketing or communications they do, and who they [are targeting]…the holding companies bought multiple brands, just to get scale, and that’s where they went wrong.”

Years of acquisitions have meant holdcos often have similar agencies under their umbrella, which allowed for scale that can be difficult to manage in the current climate, Adamson noted.

The current push for even more efficiencies with AI, he added, has holding companies looking to cut further.

“Waxing and waning”

The current era of ad agency consolidation reminds Andrew Essex, director of brand in residence at Dow Jones and former Droga5 CEO, of “what happened to the newsstand,” he said, where at one point, it was fine to have more than a dozen magazines targeting the same demographic—until “suddenly you didn’t.”

Agencies, it seems, might be in the midst of the sudden questioning of their need. At least, holding company agencies.

“This is just the endless cycle of waxing and waning,” he said. “There were too many options, too much fragmentation, and now there’s a correction happening. And then, of course, [there’s] the AI of it all.”

While some considerations are out of agency leaders’ hands, finding a way to encourage agency brands to be iconic and responsible for notable work may help avoid the death knell.

Of course, that’s easier said than done—and is no guarantee.

That uncertainty may have swung the pendulum in favor of independent agencies—at least, that’s how Nancy Hill, founder and CEO of Media Sherpas and former CEO of the 4A’s, sees it.

“This is all the more reason why clients are turning more and more to independent agencies,” she said. “There’s too much uncertainty within the holding companies as to who’s going to be around a year from now, two years from now, five years from now.”