Media Week

Whichever way you cut it, it's been a tough few years for Interpublic Group's two media agencies in the UK.

Universal McCann and, particularly, Initiative have suffered major account losses, often prompted globally, that have had a drastic knock-on effect on their combined billings. Initiative's hold on Unilever's UK and European business was finally taken away from it in 2004, and further major accounts followed, as what seemed like an unstoppable negative momentum built up around the agency. Universal McCann lost the global Nestle account in the same year, and the L'Oreal Golden pan-European work the year after.

It must be incredibly galling to lose a UK account due to a global review when the client over here may be perfectly happy with what you are doing as an agency - but that is the nature of modern global media accounts, unfortunately.

It is very difficult to turn things around in these circumstances and persistent rumours circulated that it was only a matter of time before parent company IPG merged them.

The network has now acted, but it has stopped short of actually combining the two businesses. Initiative will move into Universal McCann's offices and the two agencies will increasingly work together on digital projects, where the host is significantly stronger than its soon-to-arrive lodger.

Former Initiative chief executive Jerry Hill has moved to a global strategic role and is out of the UK picture. It is left to new Initiative chief exec Gary Birtles and Universal McCann's incumbent chief Andy Jones to make the new structure work, reporting to Graham Duff, president of IPG Media Brands.

Universal McCann has suffered less than Initiative, but still recently lost accounts such as Coca-Cola and the Telegraph. To compound matters, Jones was absent for much of last year following a serious road accident, from which he has now thankfully almost fully recovered.

No doubt rumours will continue, and it is inevitable that the agencies will work more closely together and benefit from shared costs savings, but Duff is adamant that a merger is not on the cards. There are many talented people at both agencies, but this must be their last chance to prove that they can co-exist as separate entities and prosper in the long run.

AOL's acquisition of Bebo last week raised eyebrows in some quarters when it was announced that the web services company had laid down $850m (£419m) for the third-largest social network in the US.

Cynics noted that no revenue figures were revealed in any of the deal documentation and pointed to Google's revelation in its last financial results that it was having more difficulty selling advertising on the News Corporation-owned social network MySpace than it originally envisaged, as evidence of the weakness of the social network business model.

But let's get this all in perspective. Back in the heady days of the dotcom boom, AOL executed a reverse takeover of Time Warner for the incredible sum of $165bn. Last week's outlay of $850m seems like small change in that context. Microsoft made its social network play by buying a small part of the Facebook pie for $240m last year. It also sells the ads on Piczo. And News Corp paid $580m for MySpace back in 2005.

For its money, AOL will get another significant social networking string - including 11 million UK users - to add to what it calls its Platform A advertising bow, which includes elements such as ad network Advertising.com, behavioural targeting technology Tacoda, affiliate network Buy.at and contextual advertising technology Quigo.

There will always be cynics who believe social networking will never pay its way and that it's a case of the emperor's new clothes all over again. Media Week's best efforts suggest Bebo brought in revenue of $20m in 2007, which is expected to more than double to $50m this year. Not stunning, but something to work with.

It's also another nail in Yahoo's coffin, which will not hold on to the contract to sell advertising on Bebo now it is part of AOL. So, despite the nay sayers, the Bebo purchase makes a lot of sense and is not a bad deal for AOL.

It has already got rid of its ISP arm in the UK and other parts of Europe and is expected to do so in the US in due course. It has gone through some very tough times, made itself leaner and meaner, and reshaped its business to focus on being an advertising player. It now has a more credible offer to take out to media agencies and clients.

Everyone's talking about '60s US Madison Avenue ad industry series Madmen and other related advertising programmes on TV at the moment - at least, everyone in our industry is.

The business models of regional newspapers have been under the cosh for years and they have long since had to scrutinise the way they operate and generate revenue – often making ruthless decisions along the way.

The most recent regional ABC circulation results painted a predictably downbeat picture, with only one paid-for Monday to Saturday newspaper managing to post an increase - step forward the Swindon Advertiser.

But print circulations tell only part of the story. Cities such as Manchester are proving that converged operations can point to the local newspaper of the future. MEN Media has a newsroom hub comprising ingredients including the Manchester Evening News, Metro, 20 paid-for and free weekly newspapers and Channel M TV - all designed to be more attractive to advertisers. However, the key plank in its strategy was the decision in May 2006 to give the daily paper away in the centre of Manchester, while still charging for it in the suburbs.

The Manchester Evening News posted a paid-for ABC of 81,326 copies for July to December 2007 and 98,455 actively picked up (free) copies, for a total circulation just shy of 180,000. MEN boasts that these combined figures make it the largest regional newspaper. The jury of media buyers Media Week spoke to was still out on whether the hybrid strategy will succeed. It works in tight-knit conurbations, but, for groups such as Northcliffe Media, with a disparate and more rural portfolio, the new model may not be appropriate.

Northcliffe's major title is the Leicester Mercury, but the city of Leicester doesn't have the same commuter and resident profile of Manchester. Manchester has a large percentage of people living in the centre of town. Leicester has a high proportion of people commuting in from relatively rural areas.

Distribution is key to making this model work. Newsagents in Manchester have been won over because they still get paid for distributing the free paper - at a lesser per-copy rate than before - but benefit from increased footfall into their shops.

Every regional newspaper group is looking closely at the Manchester model, but they will have to scrutinise and tweak their own portfolios carefully before assessing whether it is right for them to go hybrid as well.

Trendy magazine Monocle has started including product placement in its Manga cartoons. So characters in the cartoon strip use Prada phones, drink Carlsberg beer and drive an Audi. Watches are also sponsored.

Now Japanese sanitary goods firm Toto is going to pay for a four-part manga advertorial in an upcoming issue of the style-setting title. You can find out more about all this in our profile of iconic Monocle founder Tyler Brule in next week’s print edition of Media Week.

But it reminded me of some work that Unilever has done in the US where its products are incorporated within webisodes. These were facilitated by another icon, post-punk band Gang Of Four’s singer Jon King, who now runs a company called Story Worldwide, which claims to be operating in a "post-advertising age" where brands are turned into stories. They even went as far as commissioning a short story from Elmore Leonard that featured one of their car clients.

It’s all interesting stuff, and something that we haven’t seen much of in the UK yet. But I’m sure we will soon.

WPP's full-year financial results for 2007, released last Friday, provided a robust riposte to the doom-and-gloom merchants who have been talking down the prospects of the media and marketing sectors over the past three months.

They backed up Sir Martin Sorrell's trading update preview last month, in which he pointed to the Beijing Olympics, the US presidential election and the European Football Championships as three reasons why the outlook for 2008 is not as bad as many people fear.