Media Forum: Do group buying points work?

Are the big buying groups forcing discounts from media owners?

According to its new chief executive, Stephen Allan, Group M UK has already started leveraging the combined £1.8 billion billings might of its constituent agencies. Well, he would say that, wouldn't he? That, after all, is Group M's whole raison d'etre.

Launched in 2004 to handle joint negotiations on behalf of WPP's MindShare and Mediaedge:cia agencies, Group M has recently been absorbing the billings of MediaCom - an asset WPP acquired when it completed the acquisition of Grey Group earlier this year. And the enlargement has triggered a personnel reshuffle too, with former MediaCom staff well to the fore. Hardly surprising, you might think, given that Allan was previously MediaCom's chief executive.

This is a seriously big resource, staffed by genuine heavy-hitters. They will be keen to show they can justify their salaries. As will their counterparts at the other group negotiating units, OPera on behalf of Omnicom group media agencies, and Magna for the Interpublic stable.

The proposition is, on the face of it, quite simple: the bigger the buying point, the greater the negotiating leverage - and leverage, so the story goes, equals cheaper rates for clients. But over the summer there was plenty of evidence to suggest that media owners were not exactly preparing to cave in.

Some pointed out it was actually easy to stand your ground - because, in effect, the big buying units cancelled each other out. One pre-eminent big buyer can, in theory, demand preferential treatment, while four can't, by definition, get uniquely good rates. And the market, especially in its fragile state, cannot bear a period of across-the-board media deflation.

The buyers, in turn, keep arguing that history is on their side. So, as Group M swells even further, are they right? Are media owners really being forced to change the way they trade?

Gary Digby, the managing director of ITV Sales, says he is relaxed about the prospects for 2006: "While ITV1 is tied to CRR (Contract Rights Renewal), ITV2 and ITV3 are the fastest-growing channels in the digital market and are offering audiences you can't get elsewhere. So I don't know how they (the big buying groups) expect to use their position in the market. We have a mutual interest." He says smaller sales houses may see the world differently - and they may be the ones to come under horrendous price pressure.

Perhaps. But there are potential flaws in that argument too. Take the IDS sales house. Its inventory represents 10 per cent of commercial audience delivery yet it takes around 5 per cent of UK commercial TV revenue. So it is already half-price TV. There is not much more discount you can squeeze out of it.

James Wildman, the executive sales director of IDS, comments: "I'm a firm believer that negotiations in business should not create a winner and a loser. Our approach is based on partnership and we are more interested in selling the audience and the environment that we are able to offer. If people try to commoditise this business, they are setting everyone up for a fall. In a situation where there is ever-greater pressure on price, there comes a point when there is no more value left in the market. But we don't see that happening."

And what of other media? There were stories back in the summer that the big buying points (especially, as it happens, Group M) were trying to bully parts of Associated Newspapers into dropping its "no discounts" policy. They clearly failed. But Dave King, an executive director of the Telegraph Group, concedes the existence of the big buying groups has to be acknowledged.

He states: " We have a good working relationship with the big groups and we have structured ourselves to meet the requirements of today's market. There are always pressures and it is up to us to find solutions - and it is not just about price, it is about value too."

The outdoor media market may have pertinent experience here too - after all, it went through this consolidation process more than a decade ago.

What lessons can be learned from it? Stevie Spring, the chief executive of Clear Channel UK, says in outdoor, consolidation on the buying side coincided with media owner consolidation, so the process was well balanced.

But, she says, the experience has been largely positive. "When you have fewer people to deal with, you can have much more wide-ranging commercial conversations about your medium," she says.

MAYBE - Gary Digby, managing director, ITV Sales

"I don't think it will make any difference whether we do three agency deals or one big one. We take the view that if you have a good product, people will want to do business with you. But I can imagine there will be some under pressure."

NO - James Wildman, executive sales director, IDS

"Agencies looking for competitive advantage may feel size gives them that - but their size does not affect the (commercial impact) supply that media owners have. I'm not at all sure pressures on price are greater than normal this year."

MAYBE - Dave King, executive director, Telegraph Group

"It's not a question of being forced. We have been aware of consolidation and potential changes in the way the marketplace is traded. But it's to do with structure, not price. That's why we have sales teams but also a trading director."

NO - Stevie Spring, chief executive, Clear Channel UK

"The experience (in the outdoor sector) has been generally positive and buying muscle is only one side of the coin. The other side is that it allows you the potential of creating much closer business partnerships."

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