Conventions cast off in a media marriage

The marriage of an emerging Australian advertising star with one of the world's most accomplished talent agencies speaks volumes of a media industry in flux.

The partnership of Australian owned advertising agency Droga5 and global talent agency powerhouse William Morris Endeavor may seem like an unusual one but, when you look deeper, it really isn’t.

The similarities between the companies are striking in two critical ways. Both are helmed by widely regarded leaders who have seen the future direction of their industries better than most – David Droga at Droga5 and Ari Emanuel and Patrick Whitesell at WME. And both companies are relentless in their pursuit to rewrite the established and accepted rules in which their companies are expected to operate within.

The deal, which sees WME take a 49 per cent stake in Droga5, is reportedly worth $225 million. This values the company presently at roughly $460 million. A 12 to 15-times earnings multiple – which is common for high growth advertising agency businesses – would imply Droga5 is a highly profitable business earning around $30-$35 million in profit per year across its global operations.

WME is one of the top talent representation businesses in the world and has grown at a rate of knots since Emanuel and Whitesell manoeuvred the deal to merge their Endeavor agency with William Morris – in addition to representing talent across film, TV, music and publishing, it represents the commercial interests of brands such as Pitchfork, Vice and The Onion, as well as partnering with numerous media and digital businesses.

The partnership between Droga5 and WME is indicative of the importance of each company to the other. Droga5 partnering with WME gives it direct, preferential access to the roster of one of the two power agency groups (the other being Creative Artists Agency). WME brings Droga5 direct access to large scale talent in all key markets – agents control most commercial deals for an act from appearance, licensing, sync and endorsements. Droga5 brings WME direct access to large scale brands and, most importantly, can find smart ways to fit brands and talent together.

The array of talent within WME could be used in partnership with Droga5 in numerous ways. For music acts there are opportunities with branded performance deals, 360 degree sponsorships, commercial sync and licencing and brand/artist tie-ups such as Jay-Z’s deal with Samsung. For TV and movie acting talent there’s commercial appearances, endorsements and branded series. For literary talent there’s opportunities around branded funded entertainment from short form video to books and print. Ultimately, an ad agency is looking to connect its clients brands with consumers, and the power of celebrity talent is an increasingly effective way of doing this.

We are seeing this in Australia right now – Coles partnership with One Direction has been a powerful, multichannel one. Kmart have smartly used Sam and The Womp’s ‘Bom Bom’ across their TV commercials to breathe life into the brand and Target, in an attempt to reinvent itself, has partnered with fashion stylist Gok Wan to get consumers to reconsider their perception of the retailer. You can be sure a talent agent has played a role in all three of these deals.

And the benefits are a two-way street. For talent, brand tie-ups are now a more important part of the revenue pie and no longer something talent resorts to as the sun sets on their relevance.

The tie-up with WME opens up to Droga5 an impressive network – global event promotion powerhouse Live Nation (Emanuel serves on Live Nation’s board of directors), venture capital firm Silver Lake (who via their investment in WME are now investors in Droga5), social media company theAudience, Vice Media (WME is involved via its Raine investment fund) and a huge pool of A-list talent – including the likes of Facebook chief operating officer Sheryl Sandberg, Oprah Winfrey, Lady Gaga, Family Guy creator Seth MacFarlane, Adele, Michael Bay and Quentin Tarantino. Not a bad list of people to have in your contacts file.

It also aligns one of the most energetic and intelligent business forces in the US with the agency in Emanuel.

And best of all, David Droga has avoided selling equity to a holding company. Most Australian advertising agencies sell to one of the big boys – WPP, Omnicom, IPG or Publicis – and most don’t see much more than eight figures. In this deal, David Droga gets not only a handsome pay day, but retains control and emerges with a partner who will make his business significantly stronger creatively.

It’s been said David Droga wants Droga5 to be the first billion dollar ad agency. You never know, this tie-up with WME might be the partnership that allows that to happen.

Ben Shepherd is a media and technology consultant. He can be found on LinkedIn and on Twitter.

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