An Advertising Age analysis that tracked spending after the deals were signed to the corresponding pre-deal periods shows that AOL Time Warner succeeded in generating incremental advertising-and advertisers generally appear to be pleased with the results. In Ad Age's study, the advertisers increased measured spending by $90.7 million to $388.3 million.
The analysis reviews spending on 27 deals promoted in press releases from January 2001-when America Online bought Time Warner-to March 2002. AOL Time Warner, its reputation rocked by questionable accounting, a stock implosion and management tumult, has now stopped hyping ad deals and is pursuing smaller, more contained packages along with incremental increases in existing multifaceted deals.
AOL Time Warner, the world's largest media company, hasn't issued a release about a major cross-media deal since March. But agreements go on, quietly. Kraft Foods, for example, has reupped for 2003 on an ad agreement it signed with AOL Time Warner a year ago.
"We have scores of things in development as we speak," said Michael J. Kelly, president of Global Marketing Solutions, AOL Time Warner's cross-media operation. "Many have closed, and we didn't send out a press release."
Cross-media deals allow marketers and agencies a way to draw on a media company's diverse holdings to assemble a package of advertising and promotions. Ad Age's analysis covered U.S. measured spending in traditional media, namely AOL Time Warner's magazines (such as People and Time), cable (TNT, CNN) and broadcast (the WB); data exclude Web sites and AOL. Measured spending is not the same as revenue; some advertisers confirmed the obvious-that AOL Time Warner gave discounts to snare big deals.
While AOL Time Warner wouldn't comment on spending specifics, Mr. Kelly said major clients' online growth has been similar to the offline growth. Indeed, more than half of AOL's third-quarter ad and commerce revenue came from long-term ad contracts (though AOL is rapidly depleting that ad backlog).
Among the deals reviewed, 18 advertisers increased their advertising in the months that followed announcements, with gains from 8% to eightfold-strong results in a depressed ad market. The biggest increase was for eBay, which in 2001 expanded an AOL relationship to include more advertising on Time Warner properties.
The study and interviews with advertisers signal good news for AOL Time Warner: The embattled company is capable of packaging its assets to generate incremental revenue and satisfy clients.
"It's been mutually beneficial," said Brad Simmons, VP-media at Unilever North America, which in January unveiled with AOL Time Warner a package that includes traditional advertising, AOL and custom publishing. "They've certainly benefited in terms of the affiliation with our brands and the volume of ad spending. We've benefited through what I'd say is competitive pricing in addition to access to some of their cross-channel properties. ... I think there's room for more benefits down the road, including some global expansion."
Unilever's offline advertising with AOL Time Warner increased 48% in the months following the deal.
H&R Block's measured spending more than doubled after it signed a multiyear "strategic marketing alliance" in August 2001. In addition, Block became the "preferred tax-services provider" across several AOL properties; the tax service, in turn, agreed to promote AOL in Block stores. "The partnership allows us to extend our reach to the largest consumer audience online," said David Byers, Block's senior VP-chief marketing officer.
There have been some spending decreases-several of them unsurprising given the business sectors of the companies involved. For example, Nortel Networks' measured spending fell 79% after it announced a deal with AOL Time Warner in 2001-right in time for the telecom implosion. "The decrease is related to our corporate-wide efforts to cut spending during the economic downturn," a spokesman said.
Likewise, measured spending for Compaq Computer Corp. fell 47% after it struck a deal in early 2001; Compaq last year grappled with the tech crash and prepared for a merger with Hewlett-Packard Co.
Philips Electronics signed a "global marketing alliance" in July 2001, but the study shows its U.S. spending fell about 19%. "We have lived up to the contract with AOL Time Warner," said Terry Fassburg, VP-brand communications, who noted much of Philips' spending was online and non-U.S.
Some of AOL Time Warner's packages have drawn fire. AOL Time Warner and Cendant Corp., which signed a complicated deal in early 2001, are defendants in a shareholder lawsuit involving Homestore, a Cendant-backed dot-com. Complex deals with Oxygen Media and with technology concern PurchasePro also have come under scrutiny.
AOL Time Warner this fall restated eight quarters of results, reducing reported ad/commerce revenue by $190 million, as part of an internal review after the Justice Department and Securities and Exchange Commission began investigations of the company's accounting practices.
The deals under scrutiny were complex arrangements where money sometimes went both ways. But all of the noise around a handful of controversial deals masks an important point: Most AOL Time Warner cross-media deals are relatively straightforward programs with blue-chip marketers.
There's no indication advertisers are running away from AOL Time Warner over concerns of accounting or ethics. Meanwhile, advertisers seem to like the idea of having access to an array of offline and online media at one company; that suggests the AOL Time Warner merger can work for advertisers if AOL and Time Warner partisans can find ways to work together.
"Anything worthwhile takes effort," said Rick Dow, senior VP-marketing programs and sales at Diageo's Burger King, which signed a multiyear agreement late last year. "For [cross-media programs] to work, you have to have a commitment on both sides to steward these things ... so you can both strategize and work through agencies, and in order to break down parochial issues. They take effort, but in our experience it's been worth it."
Mr. Dow said Burger King made a "material" increase in spending at AOL Time Warner, though below the 70% jump seen in Ad Age's tracking. While AOL Time Warner offered Burger King lower rates for higher volume, Mr. Dow stressed the main value comes from "how people think about your business." Burger King had "very constructive planning sessions" with executives from AOL, Sports Illustrated and TV properties, he said, and "collectively we were able to do some interesting things in timing and placement."
Mr. Kelly, a former publisher of Time Inc.'s Entertainment Weekly who took over Global Marketing Solutions in September, wants to grow the business organically, putting more emphasis on "program marketing," in which AOL Time Warner harnesses its marketing infrastructure to come up with ideas to pitch proactively to advertisers. "We have big relationships with most marketers already," given AOL Time Warner's stature as a giant media company, Mr. Kelly said. "If you want to grow that relationship, you do it one opportunity at a time."
Mr. Kelly's strategy is in contrast to the go-go approach of Global Marketing Solutions after it was unveiled in August 2001. Just five months later, AOL Time Warner boasted, without providing much detail, that the new group had signed "more than $1 billion in cross-divisional advertising and marketing agreements." Industry watchers have speculated that included barter arrangements for goods and services and that the actual revenue contribution could be a fraction of that. AOL Time Warner has said the company generated "significant incremental value" from cross-media deals.
"[In] the ones that we focus on-Unilever and Kraft and American Express, etc.-there really was no specific spending increase requirement in order to do business this way," Mr. Kelly said.
Going forward, a cross-media program for a given client is more likely to be a series of deals than one big deal. Under Mr. Kelly, Global Marketing Solutions is focused more on the work and less on making a big deal of hype.
contributing: kate macarthur and jack neff