Eye on mergers: Media behemoths up agency ante

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Viacom's $36 billion purchase of CBS, approved last week by the Federal Communications Commission, could rev up the already hyperspeed pace of recent ad agency media-buying consolidations. But the question is whether the megamergers give agency or media giants the upper hand.

The theory behind the shop consolidations is that bigger communications companies with wide-ranging interests in a variety of media -- such as the CBS/Viacom and Time Warner/AOL pairings -- demand bigger or at least broader-based media-buying agencies to even out the bargaining clout. Those same media juggernauts, however, also are concerned that media megamergers will result in spiraling ad prices.


"It just shows how absolutely necessary it is for agencies to consolidate," said Jean Pool, president of operations at MindShare North America. "Big is the mantra. So big it must be," said Ms. Pool, an executive at the company formed from WPP Group's J. Walter Thompson Co. and Ogilvy & Mather. At the time of their combination, Mindshare was billed as "the world's largest management and media services company with annual billings of over $16 billion."

Bob Igiel, president of the broadcast division of Young & Rubicam's Media Edge, New York, said larger media buyers are going to be a fact of life. "Consolidation is a fact of business anyway. As a big buyer, I have to believe in size and scope. I believe that makes a difference," he said.

During the days when only three networks ruled the airwaves, media buying was a transaction performed by advertising agencies. Media buying was a subsidiary business, relatively small and unglamorous.


Proliferation of media, particularly cable, spawned proliferation among buyers and the gradual unbundling of media agencies into separate entities. Now with the vertical build of media conglomerates, media agencies are not only unbundling, they're bulking up.

The Botway Group with its sizable Unilever account was gobbled up earlier this year by Initiative Media, while B Com3 Group's two media agencies -- Leo Burnett Co.'s Starcom Worldwide and MacManus Group's MediaVest -- have tied the knot, creating a global holding company.

The idea behind these giants is a leveling of the playing field. If media empires can leverage programming and networks at the negotiating table, establishing higher price levels, then media agencies can leverage brands to bring those prices down, essentially dictating prices.


But powerful agency buying organizations maintain massive deals such as Viacom/CBS could still give the media an unfair advantage.

"It is going to be anti-competitive to have all of that activity in one place, whether it be the top eight out of 12 syndication shows

. . . [or] two stations in the same market owned by CBS," said Alan Banks, Saatchi & Saatchi's executive media director. "I felt that was all too much in one place. That is going to create a situation that is not in the advertiser's best interest."

"It will boost prices eventually, but not immediately," Ms. Pool predicted. "Look at radio. They have been consolidating the last five to seven years, and now we are feeling the bite. [Viacom] can't do it right away, because it can't be too obvious, but it won't take too long."

Alec Gerster, chairman of Grey Global Group's MediaCom Worldwide, said he believes advertising rates will rise, though "not in any way you can point to and identify." Even so, he doesn't see media negotiations changing significantly.

"The question [for media buyers] is going to be less about your size than how broadly you are represented. If you are in one segment and not in others, you may not be in a position to take advantage of the horizontal opportunities [Viacom] is going to throw at you."


Said O. Burtch Drake, president-CEO of the American Association of Advertising Agencies, "We are fine with it as long as they don't have a dominant position."

At least one FCC commissioner, however, indicated some concern. Although the agency approved the deal last week, Commissioner Gloria Tristani dissented with a strong warning note.

"The commission shows little sensitivity to the broader context in which these mergers are taking place and little stomach for limiting consolidation based on diversity concerns," she wrote. "The sound of a dog not barking is a clue. The sound of a watchdog not barking is a problem."


Mr. Igiel of Media Edge, however, suggested advertisers could benefit from the combination. The new Viacom might, for example, be able to offer advertisers on the National Academy of Recording Arts & Sciences' Grammy Awards broadcast promotional packages including radio, which weren't possible before.

"It will give them the opportunity to extend sponsorships to reach a particular audience in a variety of venues, instead of just a one-time event," he said.

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