Barter-based Media Buying Enjoys Business, Reputation Bump
Media executives call it "the dark arts." Some refer to it as a "dirty business." And those who wish to avoid its name altogether use the term "corporate trading."
But it's one of the fastest-growing sectors of ad buying, with one player, Interpublic's Orion Trading, projecting 49% growth in 2012. It's barter, an age-old concept through which companies exchange misfit products and distressed assets for goods -- in this case, unsold media inventory.
A stigma remains around those companies that engage in media barter, due to times when corporate goods have ended up in less-than-desirable locations, or when the quality of media suffered. But industry executives report the practice is increasing and its reputation improving thanks to a lagging economy, new opportunities in digital media and better oversight.
Since the economy tanked in 2009, media agency networks have expanded barter capabilities and initiated deals with traditional, and now digital, media owners. And organizations with goods to barter have become more comfortable with the practice, since they're dealing with agency holding companies. That's leading to big business, according to barter vets, who say such deals account for nearly $8 billion in media spending.
Horizon is among the agencies trying to capitalize on barter. The shop's two-year old barter division, Eden Road Trading, has doubled in billings over the past year or so to almost $200 million, representing about 15 barter deals. While that 's small potatoes compared with the agency's $4 billion in billings from clients such as United Continental and Geico, the home-grown unit means the agency doesn't have to cede control of a portion of a media budget or strategy to a barter vendor that 's not necessarily in sync with the client's existing media plan.
"We were managing deals to outside barter companies, and they didn't have clients' interests at heart," said Horizon CEO Bill Koenigsberg. "They would skip corners in terms of quality, schedule and also amortization of credits." He added, "Our general margins are probably lower and that 's part of our approach. We want [clients] to burn off credits faster."
As holding companies have gotten more involved in barter, "there is more scrutiny," said Kathy Kladopoulos, president of the Midas Exchange, a unit formed in 2010 as part of WPP's GroupM. And that lends legitimacy to the space. "The media is aware that this is a serious business model that is not going away," she said.
As with Horizon, the GroupM fixture has doubled its client base in the past year alone. "It was at the behest of our clients that we entered into this business to begin with," said Ms. Kladopoulos, who noted the group has grown its roster to 28 clients.
What have recent barter deals looked like? In one, Six Flags wanted to drive traffic to its theme parks and asked Orion to barter daily passes in exchange for media discounts. Orion purchased thousands of passes at full retail value and sold them through the internal website to the IPG friends-and- family network. Six Flags saw around 4,000 new visitors and achieved 20% savings on its TV buys (it also committed to purchasing a certain amount of media). It plans to renew the program in 2013, the agency said.
In another example, Sony Electronics didn't want an existing product line to cannibalize sales of a newer version of the line. Orion bought and sold the old products to appropriate vendors, and Sony was able to use the media value it got for them to boost its holiday campaign, including TV, online and print buys. Orion claims the buys were three times the fair-market value of the consumer electronics.
To build the kind of relationships that allow the barter agency access to that discounted inventory, agencies often invest in a media seller's business, by supplying capital assets, such as equipment. It's a strange and circuitous process—but one that more agencies, holding companies and clients are employing.
Media sellers don't want the prices of discounted inventory floating around, which could drive down the prices of regularly negotiated (or non-barter) inventory. That's why within a holding company, a barter division is kept separate from a regular media-buying firm.
"We're delivering on a non-disclosed basis in order to protect the pricing of the media owners," Ms. Kladopoulos said.
And unlike in a typical media/agency relationship, in which the media shop provides a service and acts as an agent of its client, generating revenue from commissions or fees, a barter agency often takes ownership of a client's asset and, in most cases, the media asset, making money on the margins.
"We don't ever want to be in a position where the perception is that we're double-dipping," Ms. Kladopoulos said.
Brooke Goldstein, senior VP-ad sales at children's cable network the Hub, acknowledged the uptick in barter, explaining that a number of marketers that participated in this year's upfront negotiations also initiated separate negotiations with barter companies just weeks later. "I was shocked to see how many deals changed to barter agreements over the past few months," she said. "We still do more business with agencies than barter [groups], but the growth has been very fast."
Much of the growth and perceived opportunity is from barter executives forging new opportunities with digital-media companies. Independent barter shop Active International notes that 60% of its deals have a digital component. "We've seen exponential growth in clients' interest and spending in the digital arena," said Jim Porçarelli, chief strategy officer. CEO-Chairman Alan Elkin added: "We trade with them the same way we trade with traditional media."
Barter executives are devoting chunks of time to educating digital ad-sales executives about the process.
"There are so many media owners, which means more work on our part and more calls to make. It's also more of an educational process that has to happen," said Brian McMahon, president-CEO of IPG's Orion Holdings (parent of Orion Trading), which touts more than 20 new clients over the past year. "There are many opportunities for us to have even better margins than traditional media. We haven't even gotten to the full extent for mobile advertising."
He added that digital barter is growing even faster in Europe.
The growth and opportunity is helping to rehabilitate barter's reputation, which had been tainted by deals gone wrong. "Back then it was remnant inventory, not the best quality. You couldn't buy network," said Ms. Goldstein, who worked at WPP's MediaCom before joining the Hub.
Now, barter agreements can nab coveted inventory. Active executives, for example, said they have bought Super Bowl spots via barter. Although the recession likely played a role, the buys speak to the ongoing emphasis on quality.
The general concern among barter skeptics is about where the liquidated assets go -- the worst case being to controversial vendors or regions.
"There was quite a bit of skepticism around the idea of barter within the company," said Dom Zino, group VP-corporate operations at Phillips- Van Heusen, parent company of brands such as Calvin Klein and Tommy Hilfiger. "We were initially concerned about not knowing where the assets would end up, but in our agreement with Active, we were given final approval over who purchased the products, so that concern was eliminated."
PVH began working with the barter group in 1997, when the company had excess shoe inventory. "Initially, we traded for non-media items like shoe boxes and signage," Mr. Zino said. "Today, with the addition of Tommy Hilfiger and Calvin Klein brands, our needs for media advertising have increased."
While most of the major media agency networks and holding companies now have a barter offering -- Omnicom has Icon, WPP has Midas and IPG has Orion -- one exception is Paris-based Publicis Groupe . Still, it's not out of the question.
Jack Klues, CEO of Vivaki, told Ad Age the company partners with Active and acknowledged the relevance of barter in today's market. "We do monitor it regularly," he said.