In a defining moment during the conference's keynote luncheon speech, Viacom President-Chief Operating Officer Mel Karmazin painted a bullish picture of his company's share of the ad market.
Cross-media deals are on the rise and eventually will make up a significant portion of the ad business, he said. Mr. Karmazin also referred to his company's $300 million cross-media pact with Procter & Gamble Co., first reported in Advertising Age (AA, May 7).
`A FREE CASH-FLOW MACHINE'
Mr. Karmazin pointed out that Viacom had the ability and skills to make these cross-platform deals directly with advertisers and clear a tidy profit. "The media business is a free cash-flow machine," he announced. "Advertisers have to spend money, even in this kind of economy."
Mr. Karmazin's optimism was far reaching. He even predicted that the media business would be deregulated. "And then I could buy Disney or NBC," he said, without a trace of irony, as the audience chuckled. "Hey, this is America, you know. There is opportunity in deregulation for us to become a major player."
During a luncheon speech the next day, Gerald Levin, CEO of AOL Time Warner, also said his company has dealt directly with advertisers, explaining that the America Online side of the business has had a long history of working directly with clients.
To some observers, the meeting signaled a change in atmosphere, with media companies flexing their muscles and trying to gain the upper hand, possibly at the expense-eventually-of media buying agencies.
DEALS SPARK DEBATE
There has been vigorous debate in the ad industry this year about the rise of so-called cross-media deals. Much of the debate has centered on the role of the new media-planning units within media companies such as AOL's Advertising Council, Viacom Plus, Walt Disney Co.'s ABC Unlimited and News Corp. One, which develop ad strategies for large marketers such as Unilever and P&G. The mandate of these units is to sell ad space on all or most of the respective media company's properties, which include network TV, cable, radio, magazines, the Internet and newspapers.
Some ad agency executives feel that by talking directly to advertisers, these media companies' cross-media units are intruding on their turf-in short, planning an advertiser's media spending. And brash statements made by media chiefs at investor conferences lend some credence to their suspicions.
But if media companies are attempting a leapfrog over agencies, what would be the benefit? Avoiding the middleman and the middleman's fees is the obvious first answer. But media buying and planning traditionally only consume about 3% of an ad budget, much smaller than the 15% that can be gobbled up by creative agencies.
The more significant benefit is that a handful of big media companies could be in a position to monopolize an advertiser's media spending. As the big media companies continue their acquisitive ways, buying and consolidating smaller media companies, this is an ever more plausible scenario.
Still, most agencies aren't worried. Most agency executives believe that no matter how much contact a media company has with a client, the advertiser still needs to talk to an agency.
AGENCIES TOUT KNOWLEDGE
"Our clients employ us for our advice, and that's what we get paid for," says Rich Hamilton, CEO of Zenith Media Services, New York, owned by Publicis Groupe and Cordiant Communications Group. "Sometimes clients do go directly to the media companies, and we don't have a problem with that. And then our client calls us and asks for our advice."
Mr. Hamilton says Zenith doesn't see a challenge when a media company meets with an advertiser-he sees opportunities.
"Nobody has a monopoly on good ideas," he says. "Brainstorm-ing sessions and communication like that can be productive and lead to good outcomes."
Disney's ESPN/ABC Sports has inked several marketing deals directly with clients in recent months, and though media buying agencies aren't in immediate danger of losing business, Ed Erhardt, president of Customer Marketing & Sales at ESPN/ABC Sports, says the agencies' roles have "absolutely" changed.
"In many cases we initiate a deal with an idea that finds its way to the client, sometimes with and sometimes without a media buying agency's involvement," Mr. Erhardt says. "The best deals are done with media agencies involved, helping us champion the idea to the client, and those agencies that are more concerned with ideas than eyeballs are delivering the best deals for clients."
DIRECT DEALS NOT THE NORM
While acknowledging that media companies do deal directly with clients, media agency executives say this is not the norm, and occurs only under unusual circumstances.
"Usually, media companies go directly to the client when they feel they are not getting paid as much as they would like to get paid or we've rejected something because it is off strategy," says Jon Mandel, co-managing director of Grey Global Group's MediaCom, New York. "Media sellers usually are interested in selling their product, without regard for whether or not it makes sense for the client. So we can help them craft it, to make it right for the client."
On the other hand, clients typically deal directly with media companies on an experimental basis, one in which they shoulder all the risk, says a media agency executive who requested anonymity.
"Media agencies are held accountable to an extreme degree," says the executive. "So when there is a new proposition that has some risk involved, we will take it to the client with all the provisos. We have to cover our asses. No matter how we cover ourselves at the end of the day, if it goes wrong it is our fault.
"In AOL's earliest days, there was a lot of stuff in which they went directly to clients because the media agencies had to quantify everything. By going directly to the client, they got some people to take some risks, which we frankly were not prepared to do. It if blows up and it is the client's deal, it gets hidden. If it blows up and it is our deal, we have to make it all good."
According to the executive, now that AOL is an established medium, "there is far less reason for them to deal directly. There are established protocols."
RISKING LOOKING FOOLISH
Media agency executives say what separates them from media companies is that they're buyers and media companies are sellers. When the seller offers his wares without consulting the agency, the media company risks looking foolish.
"The clients are laughing at them," Mr. Mandel says. "They are saying to media companies, `You are just a solution looking for a problem. Learn what I am trying to do, then come to us.' Mel Karmazin doesn't understand the difference between selling and marketing. He is interested in a one-time sale rather than a longtime partnership. He doesn't understand what that is. And he gets frustrated when you say, `No, this doesn't work. Try this.' Because this is often not what he wants to sell."