Transitions Lead to Troubled Times for Carat

Agency Loses Major Clients Despite Its Leadership in Digital Realm

By Published on .

NEW YORK ( -- Conventional wisdom holds that in today's marketing world, an agency can't be too focused on digital. It's where consumers -- and marketing budgets -- are going, after all. So why is the media agency that's arguably been most aggressive about demonstrating its digital chops having trouble winning and retaining business?
Sarah Fay
Sarah Fay

Blame it on a tough transition period following a changeover in management and strategy. Despite folding an interactive shop into its media operation and putting a digital executive at the top of the combined unit, Carat has had a rough go of it in recent months. The Aegis Group-owned agency lost $735 million in billings at the beginning of the year when client Hyundai Motor America moved its account to IPG's Initiative. Client Wachovia Corp. recently announced plans to review its online-advertising account, and New Line, a client with more than $250 million in billings, is moving its media account to WPP Group's MediaCom.

Softening the New Line blow is the fact it resulted from a corporate move on the part of Time Warner, which folded the film company into Warner Bros. Studios, a MediaCom client. On top of those losses and despite some wins, such as the $90 million OSI Restaurant Partners, Carat's new business record has been less than stellar since its reorganization last summer.

Boardroom shuffle
Aegis merged Carat USA with interactive shop Carat Fusion and put two digital execs at the helm. Sarah Fay, who was president of Isobar U.S. at the time, Aegis' network of digital shops, became CEO of Carat; and Scott Sorokin, formerly the president at Carat Fusion, became president. Carat's president at the time, Ray Warren, a former OMD exec who came onboard in 2005, moved on to pursue other opportunities.

It was a bold move, no doubt—but was it too bold? In today's media climate, where channel neutrality is valued above all else, an agency that appears to be pushing one medium over others could be a deterrent to certain marketers, one executive said. After all, consumers don't separate their media consumption habits into digital and analog. But according to Ms. Fay, the agency is not selling digital to clients who aren't ready for it.

"For clients who aren't ready for this strategy, we are not shoving it down their throats," she said in an interview. "The organization ... is still perfectly capable of handling traditional clients."

Positive feedback
Feedback about the merger from existing clients, such as Reebok, Adidas and Pernod Ricard, has been overwhelmingly positive, Ms. Fay claimed, adding that Carat has seen good organic growth from many roster marketers this year. Some ex-clients don't seem to have gripes with the restructure either. Joel Ewanick, VP-marketing at Hyundai Motor America, said the automaker's media review "had nothing to do with the reorganization at Carat. We have a policy to take a look at contracts after a period and Carat's contract was up. Within five years we'll put Initiative through the process," he said.

But, at the same time, Carat hasn't been a hotbed of new-business activity that you'd expect from a shop organized around the future. One industry consultant chalked it up to the "growing pains" that come with any reorganization or executive shuffle.

Plus, the consultant said, marketers' needs vary. A company looking to cut costs and save money on big buys isn't likely to go for an agency that has put a focus on area of expertise. What's more, in a business still predicated on relationships, losing someone like Mr. Warren is a big blow. "He has been a seller, so he has the credibility with the clients with the gray hair," the consultant said.

There has also been rampant speculation about David Verklin's future as the CEO of Aegis Media Americas. Mr. Verklin, a fixture on the conference circuit, is one of the media business' most visible spokesmen, and there are constant rumors he is leaving Aegis for other jobs.

Ms. Fay acknowledges there's been a lot of change but maintains the agency is heading in the right direction. "You never make a big change to an organization without some level of upheaval," she said. "We've had a people flux ... but based on what we are trying to do with the company, I don't think we are anywhere we don't want to be."

Uncertain future
Here's another consideration. Carat faces a big question mark over its future. French financier Vincent Bollore, the largest shareholder of Aegis Group and chairman of rival holding company Havas, has been talking about merging Aegis with Havas' media division, if he ever does launch a successful takeover bid of the company. It's a situation that has to be a distraction to senior executives, though one consultant said it isn't a big deal to marketers: "It's not like they are going out of business."

Nonetheless, Ms. Fay said she is confident Carat is on the right track, noting that the agency is involved in a number of pitches for new business.

"You don't get these new-business wins overnight," she said. "But we have so many indicators that we are heading in the right direction."

~ ~ ~
Contributing: Jean Halliday
Most Popular