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Boulet A YEAR AFTER THE LAW: FRENCH AGENCIES LEARN TO LIVE WITH LOI SAPIN

By Published on .

PARIS-Ad agencies are marking the first anniversary of France's controversial media law, the loi Sapin, with a changed attitude: Their anger has given way to resignation.

That's because regardless of how they feel, it's clear the law that went into effect last April is here to stay. That's because a recent ruling from the Competition Council, a government-appointed independent watchdog, fined six media buyers a total of $8.8 million for unfair, uncompetitive or unsavory business practices.

Carat took the biggest hit at $6.4 million, with the remainder divided among Eurocom, now Euro RSCG; Publicis' Optimedia; Interpublic Group's Initiative Media and Publimedia, and The Media Partnership France.

Although a parliamentary committee studied the law's effects during the last year because of the agency outcry, the committee decided not to make any changes and will not review the industry again until early 1996 (AA, Feb. 14).

Some agency executives even admit they are paying the price for relying on making money solely from media rather than the creative product.

"Our business is supposed to be about selling good advice, but [the industry] decided to make its profit through selling media," said Eric Tong Cuong, president of Euro RSCG's largest agency.

"Many even decided to sell their ad expertise at a loss in exchange for making a bigger profit from media sales. Now that media is no longer a source of revenue, we must focus on the real heart of our business-creativity- and show our clients that it is worth paying more for."

Other agencies are in agreement. "We must now find a way to re-establish the financial balance, and the obvious manner of doing that will be to re-valuate the creative work agencies do," said Jacques Bille, VP-France's Association of Advertising Agencies. "[We must] show advertisers what they already know: that the agency is a vital partner in the success of [a client's] sales."

Agencies have a lot of convincing to do. They claim the law has cut their compensation up to 10%; advertisers say that's just not so.

Part of a sweeping reform package aimed at diminishing corruption in various business sectors, the law severely limits media buying practices and bans agency commissions.

By requiring each publication and broadcast outlet to publish fixed rate cards and limiting volume discounts to roughly 3%, the law has virtually eliminated negotiated media rates. The loi Sapin has also shut agencies and media buyers out of the payment and discount process by demanding that all financial transactions between advertiser and media be direct and documented.

Instead of paying a traditional 15% commission on media, advertisers now pay a contractually negotiated fixed fee for both media buying and/or creative work.

Advertisers believe the law has raised the curtain on the once shadowy industry.

"Ninety percent of our members say they unconditionally approve of it," said Alain Grange-Cabane VP of the French Union of Advertisers. Although no individual advertiser would comment, Mr. Grange-Cabane added, "The law enforced the same type of accountability that advertisers expect from any other activity."

But the law has hit agency and media buyers' bottom lines hard. Average agency revenues have dropped by 10%, according to the agency association, resulting in staff reductions of 15%.

John Shannon, president-chief executive, Grey International, London, cited the law as one reason for Grey's anticipated 5% to 10% drop in profits in France. Among agency management, unemployment currently is running about 18% vs. the 8% national average. At Bordelais, Lemeunier, Leo Burnett Paris, the agency cut about 10% of its staff-some 13 people-in part due to the law.

Estimated 1993 profits of the country's largest media buyer Carat, at $44.4 million, are half of those reported in 1989.

The AAA claims agency fees for the media buying and creative combined now amount to 10% or less of media costs. Mr. Grange-Cabane said a recent informal poll of advertiser association members reported average fees paid to agencies for both combined represents 16.7% of media budgets.

Mr. Bille says he does not believe the 16.7% fee is being paid by many advertisers.

Stephen Downer contributed to this story.

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