Barter's back, but this time it has a new, more polished name: corporate trade.
Call it what you will, the concept remains the same - and it may have new appeal in a tough economy: Cash-strapped marketers that want to buy ad time and space use barter deals to trade unsold inventory for media credits.
But while barter often has operated on the margins of the industry, several big players are now taking a stab at it. True North Communications' KSL Media has launched a joint venture with barter company Corporate Trading Solutions. And Carat North America has set up Carat Exchange, a joint venture with an unidentified barter company. A Carat executive characterized the closely guarded venture as a trial, saying, "It's trying to do barter without all the sleaze attached to it." Interpublic Group of Cos.' Initiative Media has been in the barter business since 1995 with its Western Trading unit led by Chairman-CEO Bob Ingram. For Initiative, barter has always prospered in a soft economy, according to a company executive.
This year's softening of the U.S. economy clearly is playing a role in barter's revival. "Advertisers are pulling in their horns," said Kal Liebowitz, CEO of KSL. "This year, we are seeing the highest cutback ratio in second quarter options we've seen in a long time. The market is wide open in broadcast media. Everybody is negotiating." KSL's model is to create barter deals through a third party - in this case, CTS. For example, if a computer company comes to KSL to buy ad time and doesn't have the budget to do it, but does have unsold inventory to exchange, KSL brings in CTS. "We will pull the trucks up to the docks and take the inventory," said CTS President-CEO Don Stukes, "and we will convert that into media credits."
The arrangement, Mr. Liebowitz noted, is not at all like a typical one-to-one barter between a client and a media owner, brokered by a media agency, in which an airline will furnish plane tickets to a network in exchange for airtime. Instead, New York-based CTS takes a company's inventory and immediately converts it to cash credits, which it then turns over to KSL to buy media.
"Barter is back, and we believe it will be reformulated. Nobody besides us has this new formula," Mr. Liebowitz claimed. "Our positioning is that we are a consulting firm that uses corporate trade as a marketing solution," Mr. Stukes said.
Mr. Stukes first worked on barter deals as an exec at Atwood Richards, New York, where he took the barter concept into his own specialty area, urban and African-American markets, spinning off a division called Atwood Stukes. Mr. Stukes' company performed inventory-to-media credit conversions working with his parent company's media department. With Atwood Richards closing its doors, Mr. Stukes turned to the new joint venture with KSL. CTS gets paid for its efforts through a percentage of its sales.
KSL and CTS said they have two pending barter deals that have not yet been announced. One is with "a top-10, blue-chip client," said Mr. Liebowitz, who would not disclose the client's identity. Mr. Stukes also would not reveal his client list, saying, "there's a stigma attached to [barter]."
According to a media exec with knowledge of barter deals, it's a risky business that promises very high margins on return. The trading company takes a client's unused inventory and promises to liquidate it at the client's price. The trading company actually unloads the merchandise for much less, but makes up the difference by purchasing an equal amount of inventory in overnight and early-morning media buys. "It's a tough business, that's why you do it in a soft market," said the executive.
Mr. Stukes sells much of the bartered goods for cash at African-American churches. "We set up promotions on Sunday. We're not only able to sell off the product, but we are penetrating a new market for these brands," he said. CTS also has an arrangement with Dentsu in Asian markets. "They provide us with a gateway into the Asian media community [that] the major U.S. and international firms cannot offer," Mr. Stukes said.
"These deals are no longer called barter," he added. "This is corporate trade. And it has never left the scene. It has just escalated. A lot of people don't know it, but this is a $16 billion industry and growing."
Copyright February 2001, Crain Communications Inc.