Five years ago those same contenders, apart from SFM Media would have been called Grey Advertising, Young & Rubicam, DDB Needham Worldwide, Foote, Cone & Belding and International Communications Group, all New York, and Leo Burnett Co., Chicago.
MEDIA BUYING'S EXPLOSION
There has been such an explosion of media departments unbundling from their full-service parents-with the accompanying media-only account wins-that Advertising Age offers, with this Agency Report, a new chart indicating the spending of these media dependents and independents, separate from the ad agencies that spawned them.
In the last year alone, MediaCom, New York, and Starcom, Chicago, joined the club. But, as Irwin Gotlieb, president-CEO of MediaVest, New York, explains, "This just didn't happen in the last year. We started TeleVest [which came out of D'Arcy Masius Benton & Bowles and is now MediaVest] more than five years ago, and we were late in doing it then."
Mr. Gotlieb says the original driver came from the client side, when marketers started to unbundle and consolidate their media in the 1980s.
"Once clients began to unbundle, agency-of-record units began to assume responsibilities for more and more implementations that had no relationship to the agencies they were a part of," he notes.
At first, agencies were reluctant to unbundle media. "We were driven by a full-service culture, and the notion of unbundling media wasn't comfortable, in some cases, to agency management and, frankly, in most cases to media people themselves," he says.
Mr. Gotlieb, known as one of the most astute media players around, confesses "in 1985 if you told me that I had to unbundle my national broadcast department, I'd have said, 'Wait a minute, I'm part of the agency. What are you talking about? Why would you disinfranchise me that way?' "
Eventually, he felt D'Arcy was getting so much business that wasn't part of the agency, due to the client media consolidations, "that we couldn't remain part of the agency anymore."
For years, media was considered "a stepchild, a necessary evil that everyone else at the agency put up with," recalls Charlie Rutman, who was at Bates USA, New York, for years before media became unbundled and is now exec VP-managing director of Carat New York.
"Before unbundling, media people felt unloved," says a top executive at an agency holding company, "that the status at an agency was in the creative department, not the media department. Unbundling has given much more status to media and tremendous focus, and has allowed more resources to be devoted to it." Or, as Mr. Rutman says, "Media is now an equal partner."
The explosion of media shops separating from agencies has become a financial reality, notes Mike Moore, former worldwide media director at DMB&B and now a media consultant. "There needs to be a mechanism to make sure the media capability generates the revenue it needs to support itself to compete against independents and dependents, such as your Carats, your SFMs, your Western Initiatives.
"They have a very compelling argument, which is media is our only business. So when you pay us, some of the money goes back into our enterprise. When you pay a full-service agency, that money could go to pay a creative director," says Mr. Moore.
According to media consultant Erwin Ephron, "You need media-only business today to keep you competitive. It costs a lot of money to be in media today. You have to buy optimizers, you have to buy Nielsen respondent data."
Furthermore, forcing media to stand on its own, financially, means "tremendous advantages in your ability to control your own resources such as investments in human capital, systems and research that lead to the ability to do better work for clients," says Rich Hamilton, CEO of Zenith Media Services, New York.
Part of this agility is to move quickly, "without being encumbered by the agenda of the main agency," says Bob Brennan, Starcom's chief operating officer. For example, "at the beginning of 1999, we had 50 secretaries at Starcom," he explains. "We now have none because we moved to a paperless office and we redefined work flow."
NOT JUST STRAIGHT FEES
As the agency holding company executive says, "You often get time-based fees, too, not just straight fees. Carat makes 23% margins, which compares with the best full-service holding company performer, Omnicom Group, at 15%, Interpublic at 14% and WPP at 13%. So there seems to be a lot more profit in specialization than generalization. Usually when you're more focused you're more profitable."
But Mr. Moore issues a caveat: "When media was a cost center, you just did what the client needed you to do, and the commission, or the fee, never really changed. It was a bundled fee.
"By having media independent," he adds, "you can make intelligent decisions about real costs, and what you need to get paid given the amount of work a client is expecting. And hopefully, we're sane about it. But there is some insanity right now in the business where some media shops are taking business for a loss and somehow thinking they're going to make it up in volume."
PUSH FOR NETWORKS
Next will be the big push for global media networks.
It is clear that clients are increasingly expressing a need for global media managers. But those networks are hard to build. On one hand, the Starcoms and MediaVests are scrambling to build strong networks outside the U.S. And on the other, the big holding companies are struggling to implement a MindShare [WPP Group] or an Optimum Media Directions [Omnicom] in the U.S.
"As usual, we are probably on the late side in building network infrastructures that support our clients' media needs on a worldwide basis," Mr. Gotleib says.