Media operations pump up volume

Media-only giants are at their most vulnerable in a landscape of big-volume operations. But it is smaller clients who will lose out.

Global communications network Omnicom is set to launch its own TV negotiation shop codenamed “Genesis” after severing its ties with Carat’s Eurospace and buying Manning Gottlieb Media for an estimated 3.5m.

Genesis would be a new TV negotiation centre pooling the buying power of all Omnicom agencies, MGM, BMP Optimum and New PHD, into a single brand, and would have buying power in excess of the current biggest buying point, Zenith, which has total billings of 554m. It would also consolidate backroom operations such as finance and supplier relations.

The separate media agencies would exist as strategic media planning brands and non-broadcast buying outfits.

The model is similar to the way Carat and CIA operate, but on a bigger scale. And it is the same model CIA uses for affiliates CDP Media and BJK&E Media, which combine TV buying in The Negotiation Centre. The media brands are kept separate but come together for the TV deal.

However, if the thought of such a large-scale operation is daunting, one senior WPP source claims bigger plans are being hatched.

The source says The Media Partnership (TMP), the buying club set up eight years ago to service WPP and Omnicom agencies in Europe that needed extra strength in individual markets by combining buying clout, will also be involved. The ultimate aim is to create a fully-fledged buying operation combining the strengths of the enlarged Omnicom with the merged JWT/O&M operation to buy TV.

The WPP source says if the Omnicom plan goes through it will not mean the end of TMP across Europe. “Quite the contrary,” he says. “You are more likely to see Omnicom and WPP using TMP to create a single TV negotiation centre.”

Such a fearsome force could control 30 per cent of the TV buying market overnight. It would transform the media landscape and force the creation of similar alliances.

This scenario leaves the media-only giants, Carat and CIA, at their most vulnerable. They are becoming the most likely candidates for takeover or merger. WPP and Omnicom are understood to be involved in a bidding war for CIA. If one or other is successful, CIA would also be included in the TV negotiation operation.

At the same time, the other players are not sitting on their chequebooks. Zenith Worldwide chief executive John Perris is busy talking to other media networks, including Carat, D’Arcy Masius Benton & Bowles, Leo Burnett and Grey, about combining volume.

In this new scenario, TV buying in the UK will be controlled by two or three “media mandarins” (MW July 10). Previous barriers to such large volume operations are coming down in order to deal with TV inflation.

Clients are more willing to forego client conflict issues in TV negotiations in order to get the best deals, so long as strategic media decisions are made separately.

Several major advertisers, including Procter and Gamble (MW March 4) and now Unilever, are understood to have come round to the idea of a single ITV sales operation.

These big-volume operations may give power to achieve enormous discounts from TV companies, but problems may arise over the relationship between the volume-led buying operations and the strategic planning companies.

Real power will not reside in the big-volume operation but within, and between, the different strategic planning brands. TV volume will be bought en bloc and the different planning brands will argue about which clients will get the best spots.

“The agencies will switch from arguing with the media owners to arguing among themselves,” says one senior media buyer.

The big-volume media operations will operate an internal market with their clients. The biggest and strongest brands tend to get the best volume discount and gain priority in terms of placings, while the less highly-regarded will not.

The more forward-thinking clients, such as Kellogg, have already begun to take their media in-house. Kellogg recently reduced its roster of media agencies across Europe from six to one – J Walter Thompson. It formed its own media company, Kellogg Europe Media (KEM).

Kellogg European market development manager Jeffrey Merrihue says the company wanted to achieve greater control over media on a country-by-country basis and have its own media resource that could support local operations across markets.

However, this does not conflict with the need for volume. “Kellogg welcomes the merger of O&M and JWT’s media operations as a way of gaining greater cost efficiency. KEM will work alongside,” says Merrihue. “We will maintain our independence as a standalone operation and have the collective clout of WPP Media when and if it is needed.”

These big-volume operations will also inevitably squeeze out those media agencies that buy media on a client-by-client basis, rather than as an agency. They will not be able to guarantee to clients coverage of major sporting events, for instance.

BBJ Media Services has produced research which shows that brands are scrambling for a decreasing number of live sports events and blockbuster movie premieres.

BBJ indicates that between 1982 and 1996, television ratings (TVRs) for Coronation Street have fallen from 42 to 28. And it says that since 1982 the same number of advertisers use TV, but the number of programmes delivering over 20 TVRs has fallen by more than 50 per cent.

BBJ marketing director Nigel Morris says that fragmentation will continue rapidly: “We will get US-style event programming – the really big events will be the domain of only five or six global advertisers.”

As the media agency world restructures, smaller and medium-sized clients will have fewer opportunities to reach consumers.

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