By ALASDAIR REID, campaignlive.co.uk, Friday, 08 December 2000 12:00AM
Size matters. Everyone knows that, even if they're a little coy about just exactly how and why. Some in the business remain surprisingly reticent about how you go about making big billings really talk in the media market. But we all know that they do. Zenith Media's formation more than ten years ago was all about size. On both the buying and the selling sides, the market has been consolidating ever since.
So last week's announcement by Carat that it intends to pool its billings at a group level is hardly a major earthquake, is it? Well, actually, this is a departure in many respects. For a start, Carat wants to retain its individual operating units so that it can continue to handle conflict issues while acting as one consolidated bloc when it comes to media negotiations.
It will be interesting, to say the least, to see how it works. And, if it does, other holding companies with several media brands (Interpublic and Omnicom to name but two) will surely look very closely at following suit. Last and by no means least, it puts the whole issue of agency deals under the microscope once again.
Agency deals remain one of the media industry's great taboo subjects - largely because, although the practice is widespread (at least 70 per cent of the TV market is traded under agency deals), many media buyers believe it to be illegal. An agent can only represent clients and can't trade on its own behalf, so an agency deal looks suspiciously like media broking, which is clearly illegal. But many lawyers (and the Office of Fair Trading has taken a passing interest on more than one occasion) maintain that the issue is not clear cut, especially given the subtle wording of contracts.
But the fundamental principles are clear. The media agency negotiates deals on behalf of all of its clients individually, and then, when that's all tied up, it goes back and gets an extra slug of discount that recognises the whole agency's commitment. This extra discount is, in theory, then divvied up among all of the agency's clients. Again, in theory, it's all pretty much above board because broadcasters monitor the divvying up process to ensure that certain clients aren't excessively rewarded (they don't want to set dangerous precedents now, do they?), and in any case, media auditors have a pretty comprehensive picture of the market and would blow the whistle on any outrageously jiggery bits of pokery. Even if the goodies aren't shared equally, no client of a big buying point is going to lose out. Carat, in fact, is one of the few agencies that boasts about its agency deal-making ability in new-business pitches. Now it has taken this latest initiative, the gloves will really be off, won't they?
That would be a terribly cynical way of looking at this, Ray Kelly, the chief executive of Carat Northern Europe, says. 'It is about providing better value in whatever way is of service to our customers.
It's not just about discount, it's about negotiating your relationship with a media owner in whatever way meets the needs of each individual customer - and that includes things like access to programming and access to data as well as discount,' he explains.
Perhaps, unsurprisingly, discount isn't one of Steve Platt's favourite words, either. Platt, the managing director of Carlton Sales, reckons this is a purely defensive move. It's certainly not about discount, because there is no more discount to be had. He comments: 'I think Carat has been very clear about the reasons. It's because on the broadcast side we're coming down to the final round of consolidation and it wants to respond.
We have created bigger sales operations and, in order to maintain its equivalent position, it is creating a bigger buying block. Let's face it, it wants better terms. We want better terms. By moving to the position we've occupied in the market, it might look as if we've gained the upper hand. This sort of move creates a more sensible negotiation. We've almost moved to the point that we need each other. Neither party can get too aggressive.'
Other, less powerful broadcasters may take a less charitable view. Carat is one of a handful of buying points that plays real hardball, to the extent of pulling all of its clients off a station if it doesn't get exactly want it wants.
And what do other agencies in a similar position think? Sources at Omnicom say that they are sceptical about whether Carat can make it work, arguing that the whole thing could backfire, especially if client expectations have been raised. There's a limited number of times it can threaten to pull off TV channels, for instance.
What about Interpublic? Chris Shaw, of Universal McCann, says that he's not clamouring for this sort of set-up. 'Obviously we look at this regularly, but the problem we have is that it's difficult to demonstrate client benefits.
There are clearly agency benefits in terms of savings and efficiencies, but the truth is that there are limited negotiation benefits because there is a limited amount of discount in the market. It clearly believes there are other advantages to be had, but I can't imagine it will make all that much difference. The real reason that Carat is doing this is that it wants to call itself number one in the market. Size is clearly an issue for some buyers, but it's not an issue we're ever worried about. In general, volume is most likely to be a big issue for buying points that have started to go backwards and that are struggling to keep their billings. But I can't imagine any of Carat's units having that problem.'
John Storey, the UK managing director of Media Audits, says that Carat manages its deals very well considering its size, yet it wins business because it is extremely good, not just because it has great deals. However, if we end up with five or so enormous buying clubs and five huge agency deals, then will that be good for the media market as a whole?
Storey has some doubts. 'The commercial pressures are taking us down a road that is in danger of becoming preoccupied with volume and value.
My own company and our clients are partly responsible for that. As that trend is unlikely to be reversed, we have to ensure that the best value can be delivered to our clients with enough flexibility of media choice to let the advertising work,' he says.
'As media consumption evolves and fragments the last framework, we need, as an industry, is one that supports past performance and protects those in decline. Large-scale agency deals tend to do that, they are not very forward-looking. Who will finance the new media, as they attract the audiences and readers on which our businesses are built? Agency deals aren't designed to encourage flexibility.'
This article was first published on campaignlive.co.uk