Motown Woes Weigh on Adworld -- but Not as Much as You'd Think

Agencies, Media Are Less Reliant on GM, Chrysler Spending Than in Past

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Source: Ad Age DataCenter analysis of TNS Media Intelligence data

NEW YORK (AdAge.com) -- Now that the Obama administration has taken the wheel at General Motors and Chrysler, the agency and media worlds are anxiously watching the two marketers, who together poured $3 billion into U.S. advertising last year, careen toward bankruptcy.

While there's still plenty of uncertainty -- whether Chrysler will link with Fiat, whether GM will emerge with four major brands or two, whether either will ultimately escape Chapter 11 -- it's a good bet the two automakers will be spending at vastly decreased levels. That will undoubtedly hurt agencies and media companies. But most, seeing this coming, have long been taking steps to mitigate the damage.

"This would be a very different conversation if everything we had lost in the last five years was being lost in late fourth quarter and right now," said Brett Wilson, senior VP of advertising at USA Today, one of the top 20 recipients of GM and Chrysler ad spending last year. "The tobacco industry was kind of the guillotine: They were in and then they were out. The domestics have been conditioning us for less revenue dependence for a long time."

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Ad Age tracks where GM and Chrysler are spending their money.
"These are good partners of ours," Mr. Wilson added. "They're just not carrying me anymore."

An Ad Age DataCenter analysis of the auto giants' measured media spending from TNS Media Intelligence shows that the media properties most dependent on GM by share of total ad dollars, unsurprisingly, are auto titles. For example, Source Interlink's Automobile Magazine derived 21% of its ad dollars last year from GM, and sibling Motor Trend 16.2%. Motor Trend collected 3.6% of its 2008 ad dollars from Chrysler. Hachette Filipacchi Media U.S.'s Car and Driver got 10.1% of its $20.6 million in advertising from GM last year but only 1.3% from Chrysler, while Hachette's Road & Track received 9% of its ad dollars from GM and 2.1% from Chrysler.

Steve Parr, president of Source Interlink Media, said it's important to remember that the publisher's parent collects more than $2 billion in annual revenue. "We have a wide and diverse customer base," he said. "It is also clear that many of the great GM brands will continue to exist, and we have no reason to expect that they will not continue to advertise with us."

TV diversity
Though GM spent a lot more with the TV networks -- some $229 million with CBS alone -- they received a relatively low percentage of their revenue from the country's largest auto marketer. None of the Big Four TV networks got more than 3.5% of its revenue from GM last year. The percentage was even lower for Chrysler; the most exposed was Fox, which took in only 1.1% of its ad dollars from the automaker last year.

Even so, there's real danger of losing revenue. "All you can really do is try to replace the American automakers with Toyota, Hyundai, Kia and Audi," said Neal Pilson, former president of CBS Sports. "You don't want to do it in a way that disrespects those relationships, but your job is to maximize revenue for your company. So you dance a little jig with it."

The History Channel, once a major Detroit target, today has no major deals with domestic automakers. Its largest auto advertisers are Hyundai, Honda and Subaru. "We saw this coming three years ago and knew we had to diversify," said a History Channel executive.

GM ad costs
Source: Ad Age DataCenter analysis of GM filings
The silver lining many in media are hoping for is a share of spending for a proposed marketing campaign from the Obama administration to reassure consumers if one or both of the automakers declares bankruptcy.

The Wall Street Journal, No. 20 on the list of GM and Chrysler media partners last year, is gearing up to fight for a piece of any industry messaging or corporate positioning campaigns. "There are two things we have that are key to our relationship," said Michael Rooney, chief revenue officer at Dow Jones, the News Corp. division that owns the Journal. "One is we sell cars, and the second is the opinion leaders and the influence that GM can have through the pages here. That's very powerful, and I don't know what other media properties can say that. So going forward I think we're in a very good position to build up the companies moving forward as well as moving metal."

Optimism in bailout
For the most part, the industry is hopeful that the Obama administration will recognize the importance of advertising. "I'm not sure that government intervention in ailing companies will dramatically affect advertising spending -- at least it shouldn't," said Nancy Hill, president-CEO of the American Association of Advertising Agencies. "To pull back at this time would be to do so at the peril of the companies that the Obama administration is looking to support."

So far, the administration hasn't spoken about launching an incentive-based campaign that could spark consumer interest and purchase activity. But President Barack Obama did discuss a public-relations campaign the Internal Revenue Service was launching to alert consumers to a new tax benefit for auto purchases made before the end of the year. But a full-scale ad campaign, say, built around tax breaks for people who buy fuel-efficient vehicles hasn't been mentioned.

While asking for cash upfront is considered an unthinkable insult to a longtime marketing partner, media companies are bracing for requests for extended payment terms from automakers. Media companies "have to make the decision as to whether or not they want to take that risk," said Martha Stewart Living Omnimedia co-CEO Wenda Millard. "We want to be supportive, but we have businesses to run, too."

Also less dependent on automakers are the Big Four agency holding companies, which hauled in some $1.5 billion -- or 3.6% -- of worldwide revenue from the Detroit Three last year.

Interpublic Group of Cos. generated 5%, or about $348 million, of its revenue last year from GM, its largest client. GM's share of Interpublic's revenue has fallen sharply from 8% in 2005 (when it lost GM media buying to Publicis Groupe) and 15% in 1979.

Interpublic up
GM at yearend 2008 represented 4%, or about $194 million, of Interpublic accounts receivable and expenditures billable to clients (work in progress not yet billed), according to Interpublic's 10-K filing. Chairman-CEO Michael Roth told analysts that Interpublic's exposure to GM -- receivables plus work in progress -- stood at roughly $150 million at the end of February; Ad Age believes the figure held stable at $150 million at the end of March.

Investors are betting that what's bad for General Motors won't necessarily be that bad for Interpublic: Stock in the No. 3 agency firm, though still way down from historic levels, hit a 2009 high last week even amid talk of a potential GM bankruptcy. In a statement to Ad Age, Mr. Roth said: "GM is vital to the U.S. economy and an important IPG client. We remain committed to our partnership and are working closely to support them as they navigate through these challenging times."

Agency revenue
At Publicis, GM represents "slightly over 3%" of worldwide revenue for 2008 and 2009, Chairman-CEO Maurice Levy said in an interview last week with Ad Age. That means Publicis last year generated slightly more than $207 million from GM. Publicis assignments include media planning and buying, digital work, and Buick-Pontiac-GMC. Mr. Levy said GM is the ad firm's third-largest revenue client, behind No. 1 Procter & Gamble Co. (about 8%) and a client he declined to name.

Mr. Levy stressed: "We feel that we have an obligation to best serve a client who has been loyal to us for so many years. They are facing now some serious issues, and we believe that we owe them loyalty and we owe them to best serve them during this troubled period.

"Obviously at the same time we have to protect the legitimate interest of our group, our employees and our stockholders, and we are in conversations with GM [for] many months, and we have discussed all the values, options and possibilities. I believe that we owe them loyalty and commitment and maybe more in difficult times than in good times. ... We are not only here when days are good but also when days are bad."

Reducing fees
Mr. Levy said Publicis agreed to reduce its GM fees. "It started last fall," when Publicis cut its fees, "and we have done something more at the beginning of this year" to reduce fees, he said. He declined to go into specifics.

Mr. Levy also declined to reveal how much GM owes Publicis but said "the vast majority of receivables" are for media purchased by Publicis on behalf of GM. "There is what we call sequential liability" -- the concept that the client, not the media agency, in the end is responsible for media purchases -- "so we believe that our exposure is limited. ... The final client for the media is General Motors."

Ad Age asked GM how much liability it has for media buys and agency fees, including whether media owners, production companies and agencies have sequential liability in their contracts. A GM spokeswoman said, "We are not commenting on this level of detail at this time."

Among the major holding companies, Omnicom Group is least dependent on Detroit. DaimlerChrysler was Omnicom's largest client in 2005, when it accounted for about 4%, or about $419 million, of revenue. Chrysler remained a big revenue source last year, accounting for a bit less than 2.1%, or a little less than $281 million, of revenue, according to Ad Age's analysis.

An Omnicom spokeswoman said last week: "We continue to provide great services and creative to our client. Chrysler has not been our largest client since 2005. In 2009, the account will represent less than 1% of revenue. We have taken steps to minimize exposure if bankruptcy were to occur."

J.P. Morgan's Alexia Quadrani estimates Omnicom 2009 revenue at $11.9 billion, down a bruising 10.9% amid the weak economy. That implies that the Chrysler account, at less than 1% of revenue, would bring in less than $119 million -- well below half its 2008 contribution.

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Contributing: Jean Halliday, Bradley Johnson, Michael Bush, Abbey Klaassen, Nat Ives, Andrew Hampp, Jeremy Mullman

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