I’ve been fascinated watching the ad industry circle its wagons (look no further than the Publicis/Omnicom deal) in response to a move made this spring by several global advertisers, including P&G and Modelez. These giants, which spend billions on advertising, decided to extend their payment deadline to agencies from an average of 30 to 45 days to up to 120 days. This extended payment philosophy has the potential to transform the agency business in a dramatic way — and I’m not sure that’s bad.
Martin Sorrell, WPP’s CEO, was talking about deferred payments in Cannes recently and announced, “We are not a bank.” I was a bit surprised. One of the things I’ve respected and admired most about Sorrell, and WPP, is the financial rigor he has brought to the industry. He’s been brilliant in his willingness to slay the sacred cows of the industry and make bold decisions – whether it’s been pulling the media practices out of creative agencies to build media agencies or building specific agencies from a collection of folks from across the network around clients. As an entrepreneur, I’ve been in awe of Sorrell’s ability to look at the very inefficient ad agency business and, by using a bit of financial engineering, make it much more efficient. It’s a skill that only a Wall Street banker could exert.
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