Sears severs ties to Focus Media, takes legal steps

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Although it both fired and brought legal action against Focus Media last week, Sears, Roebuck & Co. still might be responsible for all or some part of the estimated $40 million Focus owes TV stations and cable networks on the retailer's behalf.

Sears last week awarded $200 million in TV and radio spending formerly at Focus to WPP Group's MindShare USA, Chicago and New York, giving MindShare a total of $450 million in Sears spending.

Sears on March 13 filed a lawsuit against Focus in Superior Court of the State of California, Los Angeles. In the suit, Sears said it doesn't know the full extent of outstanding bills owed to TV stations but specified that it amounts to at least $3.6 million. That figure represents the total owed two media outlets -- Turner Broadcasting Co. and Univision -- which filed affidavits within the Sears' complaint.

But media execs estimate that in total, about $40 million is owed to media outlets.

RESTRAINING ORDER

"People are extremely concerned," said Peter Szabo, president of Szabo Associates, a media collection agency that represents TV and radio stations. "There is an awful lot of money at stake for a number of media outlets with the Focus situation."

Barry Langberg, an attorney representing Sears, said the retailer received a temporary restraining order preventing Focus "from disposing, transferring or in any way reducing the Sears funds which it possesses or controls."

According to the suit, Sears has an oral agreement with Focus for its media services; Mr. Langberg said the agreement requires Focus to pay media bills within 30 days of invoice. Neither David Burke, an attorney for Focus, nor Tom Rubin, Focus chairman, returned phone calls.

WRONGFUL `DOMINION'

Typically, large advertisers give media agencies millions of dollars to hold for upcoming media deals. Agencies buy the media, and the media outlets later invoice the agencies. The media agency then pays out the funds or invoices the advertiser. After the funds are paid out, the media agency receives its fee.

Estimates are that Focus could be holding at least $40 million in Sears' money.

In its complaint, Sears said, "Focus has not paid, and has refused and continues to refuse to pay, Sears' money to the media outlets even though Focus holds the money in trust on Sears' behalf and was to pay the media outlets on Sears' behalf. Focus has thereby wrongfully exerted dominion over Sears' property in a manner that is inconsistent with Sears' ownership thereof."

The complaint also requests that Focus account for and disclose all money it has received from Sears, money paid to the media and payments still due the media on Sears' behalf.

BANKRUPTCY PROTECTION TALK

Sears could be responsible for funds owed, however, depending on whether Focus was an "agent" of Sears in the legal sense of the word, Mr. Szabo said.

"If Focus was an agent, then Sears is in jeopardy. If Sears paid Focus as its agent but Focus didn't pay the media, then Sears is responsible," he said.

The suit has fueled talk that Focus soon will file for protection under the U.S. bankruptcy code. In a possible preemptive strike, the ABC Owned & Operated Station Group reached agreement, according to media executives, on how much money it is owed by Focus. The original amount owed ABC hasn't been made public, but executives close to the situation said the final agreement was that ABC would accept about half what's owed. An ABC spokeswoman declined comment.

"The whole situation is going to have a ripple effect through the industry," Mr. Szabo said. "Clients who are using media agencies could start pressing media agencies to protect their interests."

For the last 10 years, Focus has handled the Sears account, buying advertising time on syndication, cable TV, local TV and radio, and on Hispanic media outlets. Now MindShare will handle syndication, local, network and cable TV as well as spot radio and infomercials. Previously, a partner in MindShare, WPP's Ogilvy & Mather, New York, bought network TV and network radio for Sears. Young & Rubicam's Bravo Group, New York, now gets the Hispanic media assignment. Y&R's Media Edge, New York, will continue to handle the retailer's print buying.

Focus' woes, however, are not confined to Sears, and extend to other current and former clients, such as DreamWorks Pictures, King World Direct and Universal Studios. TV stations maintain they are owed money on all those accounts, with estimates reaching as high as $3 million to $5 million combined.

Focus recently has lost some big accounts, including Universal Studios' $50 million local spot TV business in the fall of 1999, and DreamWorks Pictures' entire $90 million account in 1998.

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