The French Connection: Publicis Reports 2Q23 While Vivendi Moves On Viaplay
Thursday saw significant news out of France today with global read-throughs for the advertising industry.
Firstly, Publicis reported what will likely be industry-leading results within the agency industry by posting 7.1% organic revenue growth for the second quarter. The number is clearly a sign of share gains within the industry, as it’s unlikely other peers or smaller agencies will collectively match or exceed this figure. Guidance was raised to “close” to 5% for the full year from a range of 3-5% previously. Although conservatism may be embedded in this figure, it’s important to note that Publicis faces hard comparables in the second half given around 10% growth in the second part of 2022.
Following on last year’s 10.1% growth rate for the second quarter, the company expanded despite a relatively difficult comparison, as many parts of the business performed well, if unspectacularly, demonstrating relatively even growth across the company. Epsilon was up 6.8% for the first period without double digit growth since the first quarter of 2022, while Publicis Sapient was up 5.5% for the first non-double digit growth rate in several years. As a factor behind this outcome, management cited clients’ slower “decision-making processes in digital business transformation” while noting that clients are not cutting. Media was up by double digits, and the creative business was up by low single digits.
By geography, North America came in with 4.9% organic growth. This can be viewed as solid, considering the year-ago 10.3% growth rate, as media continued to expand by double digit levels, Epsilon rose by 6.9% and Publicis Sapient rose by 6.9%. Creative agencies were a relative drag, posting only “stable” results. Europe was a standout region, as the company with a 15.2% organic growth rate there, or 11.6% excluding the French businesses most heavily exposed to pandemic-era factors (the retail Drugstore and outdoor businesses in particular). The UK was up 17% organically and France’s underlying growth was 5.0% while Germany grew by 9.5%. Media expanded by double digit levels everywhere, and Publicis Sapient did the same in the UK and France. Creative was “solid” in the UK, “stable” in France and “positive” in Germany. APAC was weak only 2.6% organic growth, continuing a trend of underperformance observed in the first quarter. However, as with Omnicom, China performed relatively well, rising by 7.0% organically in 2Q23.
Additional disclosures as part of the half year results showed that profit margins were down in North America year-over-year in the first half, but up in Europe. Interestingly, while North America margins were 18.6% during the first half of 2023 vs. 18.2% in the first half of 2019 (a pre-pandemic comparison, albeit one without the impact of Epsilon), Europe was up from 10.3% to 16.3% over that same period, driving much of the company’s improvement (headline operating income margins across the company were 17.3% in the first half of 2023 as they were during the first half of 2022, although this compares with 14.1% during the first half of 2019).
One other interesting comment from the earnings call included a reference to the company’s creative production business accounting for “roughly” 20% of creative revenue, or around 6-7% of total revenue, with growth in the double digits for the second quarter in a row. Although this type of activity faces the greatest risks from the availability of improved generative AI tools, it also represents an ongoing opportunity for agencies who continue to invest in related competencies.
Separately, fellow French semi-competitor (via Havas) and occasionally-rumored acquiror Vivendi took a noteworthy action of its own on Thursday, as news emerged that the company’s Canal+ unit has acquired a 12% stake in Sweden-based Viaplay. This has potential significance for the broader media industry in Europe.
For context, Sweden-based Viaplay is a company which in its current form and previously as a unit of Modern Times Group has long been one of biggest owners of traditional TV broadcasting assets in the Nordic region. Several years ago they embarked on an aggressive plan to build out a global streaming service featuring original entertainment programming and top-tier sports rights. The company was arguably the only one outside of those based in the US who was pursuing anything of comparable scale on a relative basis, which included a recent launch in the United States.
This effort was particularly noteworthy in context of massive investments in local language programming and direct-to-consumer distribution from American-based streaming services across Europe, as most legacy broadcasters on the continent appeared content to focus on consolidating their positions within their home countries and limiting investments in streaming activities. Only the much larger Vivendi and Italy’s MediaForEurope (formerly Mediaset) attempted to pursue anything resembling a regional strategy within Europe, although neither made significant moves in this direction in recent years.
However, at the beginning of June, Viaplay announced a reduction in growth expectations for this year and the company’s CEO resigned. Future guidance was subsequently withdrawn and only this morning it announced a complete reversal of strategy, scaling operations back to the Nordics and the Netherlands and meaningfully altering its product offer. Given payment commitments for content the company has, it “will need to reach agreement with…lenders on how best to navigate the period ahead… while exploring capital raising alternatives.”
With a stock price down by 85% since May and an equity value now only in the hundreds of millions of USD, Vivendi has clearly seen an opportunity for relatively limited cost, and now has economic exposure to a much bigger share of the European media industry than it did previously. Where they go from here remains to be seen and will be well worth watching.