If you’ve ever been in a meeting when the marketing director signs off on the agency’s latest, greatest piece of work and wondered how much it’s going to cost to get it in front of enough consumers’ eyeballs, chances are one of these guys went on to play a key part in the process.
And more to the point, by virtue of presiding over such huge budgets James Parkinson – head of trading at WPP’s Group M – and Peter Horgan – head of trading for newly badged Omnicom equivalent OPera – hold unique vantage points across the marketing communications landscape. With their positions come valuable insights, massive clout with media owners and expert negotiating skills t0 deliver the bang-for-buck Australia’s biggest advertisers demand to get their ads broadcast at the best price. But before we speak to these heads of trading, for the uninitiated here’s the lowdown on just what it is they do.
It boils down to an old adage: strength in numbers. Parkinson, Horgan and Alex Pekish (trading head for Mitchell Communication Group) are the big three. Between them these rivals represent all the media agency brands within their respective networks and over $4bn in media spend. There’s also Publicis-owned trading group AMX to consider – this group represents Zenithoptimedia and Starcom. Although at press time it was in a state of flux, with its former trading head Ian Lomas having suddenly parted company with the business.
Exceptions aside, the men who head these groups carry out media negotiations that are essentially a tussle between a seller and a buyer – with TV networks pushing for revenue growth and media agencies angling for a competitive cost advantage on behalf of their many clients.
Group trading allows a number of agencies to band together and collectively bargain for a better ad rate from networks, in most cases a discounted price below the station’s base rates. Although the negotiated rate is applicable across all of the agencies represented by the trading group (for example, Group M secures rates for media agencies Maxus, Mediacom, Mindshare and Mediaedge:cia), this doesn’t though mean the trading director negotiates a blanket deal for all of those agencies, or their clients.
And not everyone in the industry is a fan of group trading deals either. Victor Corones, national investment director at Universal McCann, claims group traders are “much more complex and cumbersome” than agile, independent traders like UM. It’s also fair to say that group deals haven’t gained quite the traction here as they have in markets such as the UK – where so-called pooled-buying operations wield enormous clout over the media owners, and in particular broadcasters, as the latter clamour to keep revenues up.
Meanwhile, Kristian Barnes, managing director of MPG Australia, points out media owners themselves may prefer to negotiate individual client discounts.
“At the end of the day, everybody’s got inventory to sell and objectives to reach and therefore, it’s about creating a balance between the price of the inventory they want to sell and the price that we want to purchase it at,” he says.
But with so much money at stake, it’s not surprising negotiations between media owners and large trading groups are a source of much speculation and anticipation. And each year, come negotiating season – which falls at the end of the calendar year, with the exception of Group M which does deals mid-year – tensions mount as buying groups and media owners lock horns and crunch the numbers.
Across the following pages, we talk to Parkinson, Horgan and Pekish at this crucial point in the media world’s calender, get their individual takes on negotiations, views on the future of TV and other media, as well as asking for their predictions for the year ahead.
James Parkinson
Group trading company: Group M
Agencies under its umbrella: Mediacom, Maxus, Mindshare, Mediaedge:cia
Negotiating style: “Tough but fair”
Buying power: $1.7bn
What sets you apart from your rivals?
The thing that’s unique about Group M is that all agencies’ trading reports directly to me, so that makes a big, big difference in terms of the way you can control the media. That doesn’t happen with anyone else – it’s a marriage of convenience or inconvenience in other companies. Group M is the only agency in the world that has group trading where the agency partners’ trading reports into Group M.
In what ways do you challenge media owners?
In the past, media companies and sales organisations have assumed and worked on the basis that nobody talks to each other. A sales organisation will tell you what their sales policy is. They will assume that the person that they’re telling won’t ask the person next-door to see if it’s the same story. And data has an amazing way of cleaning all that stuff out because what you end up doing is saying, “these are the facts. Let’s work on the facts, not on the fiction”. I think that is potentially challenging to (media owners) because they know that we’ve now got all of the data to support our arguments. That’s the reality and for us to move forward, there’s a lot of bulldust out there. Everyone’s saying what they feel they need to say. Hopefully, we can back it up. We’ve offered transparency that other people don’t.
Why do you base your negotiations around the fiscal calendar?
The way the negotiation season seems to work is in October or November, the papers start to talk about rate increases. Nobody talks about it in May or June, because most of the other people have done (theirs) so it’s just about us. We think privacy is a massive advantage for us, so we can get on and do what we need to do without the distraction of everything else. All of our other negotiations happen throughout the year.
Which markets do you trade in?
We’re $1.7b – just under $800m of our money is television money. So for us, only to be doing group deal structures that cover less than about half of our business makes no sense at all. So as of 2007, what we made sure was we could build our influence outside the television arena. We brought together all of the major players in radio, cinema, out-of-home and said to them, “the opportunity is to take more of our $1.7b dollars and create true competition”. The competition isn’t for me about Seven, Nine and Ten. That’s a well-trodden path. It’s about what outdoor can do, and what TV can do, so everyone is competing as sectors, as well as individual companies.
What are your market predictions for 2009?
I think it definitely will be harder. There’s no doubt about that. What we’ve got to remember is, it’s a $12 bn (ad revenue) market and what that means is that the nimble media owners that read the market will respond the quickest to the market conditions. So there’s more than enough money to go around. Not everyone will hit their budget, but the people who respond to the market conditions will win.
What about television in 2009?
I think Seven have been good at responding to (the) market conditions, but the massive difference – and it’s become more and more evident in the last year – is private equity. Private equity is putting pressure on sales directors and CEOs of sales organisations that’s never been felt before. So in the past, an organisation like Nine would have longer to rebuild and put the confidence back in. Now it’s having to try to grab everything up front and just hope the ratings keep coming. And they’re doing everything strategically they can to make sure the ratings keep coming, but if it fell over, it would be really bad for them. And equally, Ten have less assets to trade.
Is TV in decline?
We’ll see ongoing declines, but we’re certainly not going to expect changes over the next two to three years. But you’ll see things chipping away at the edges. That will create pressure for people. At the end of the day, the media organisations already know that. They’re geared up for that. You notice Ninemsn, Nine, ACP are there. They’ve surrounded their businesses as much as they can, so if the money is drifting to other channels, so be it.
Peter Horgan
Group trading company: OPera
Agencies under its umbrella: OMD, PHD, DaVinci, Marketforce, MD/OMD
Negotiating style: “A more flexible view”
Buying power: $1.3bn
What sets you apart from your rivals?
We have a TV trading department, print trading department, outdoor and radio trading department. If you set yourself up so you have expertise within your silos, with great specialisation as one of the main benefits, you want it so your trade has visibility over all bookings over the agency. You’re able to benchmark within a given channel what is and isn’t good value and what other kind of concessions you should be pushing for from the media. Clients really buy into the specialisation concept when you talk to them about it.
What is OPera’s trading philosophy?
If you’re trying to build an architecture that’s going to be relevant for your client base, then have the assets of a single media owner delivering across your client base, it becomes more and more complex as you add numbers of clients or an aggregated spend on to that. It almost becomes pre-ordained that you end up shoe-horning clients into pre-ordained agency agendas, which is not our idea of accommodating to clients. It’s much more, set the principle, find the line, a good price position to start with, but allow yourself to leverage down the track, so you can still move money around and keep the media interested for specific projects as the opportunities present themselves. So we probably have a more flexible view on group deals than some of our colleagues. We keep over $100m uncommitted and out of the main deals. So we still operate within the group deals arena – we have made commitment undertakings to the networks, and derive benefits and price protection in kind. But we retain the leverage of a significant pool of uncommitted funds.
What are your predictions for 2009?
We’re normally quite aligned with the analysts and normally have a chat to various media agencies before they will revise their projections, but I think they’ve kind of unhinged at this stage, because they’ve had so much bad news from their overseas operations that they’re overlaying a local perspective with some really quite bleak news that they’re getting from overseas. What we’re seeing is, through the briefing process into next year, it’s nowhere near that harsh.
Will pay TV become a major player in 2009 compared to FTAs?
I think they already are. The power of Foxtel and MCN is around audience aggregation. If you combine all of their channels, they do turn into a competitive force in share of audience. There’s other reasons to like them, which is lower commercial plateau. They tend to be larger, higher spending households, which is advertising premium. From a cost basis, they cost cheaper than free-to-air. In multi-channel homes, they are very dominant – nearly 60% within those multi-channel homes. So if you don’t have a component of your buyer on pay TV, you aren’t delivering in those 30-odd% of those homes that are multi-channel.
How is fragmentation affecting the media landscape?
The question is where the tipping point comes. Is it at such an extent that advertisers abandon TV as a mainstream marketing instrument? Again, you look to overseas where they’ve had fragmentation is further advanced and it’s a long way off, such as the US model. What it means is generally there’s more competition, so potential negotiability on the media side. But mainstream, cheaper mass audiences are replaced by more targeted but more expensive pockets of audience, and a much more complex job in terms of intercepting them. The opportunities come in tighter targeting of more engaged audiences. The challenge for the buyers is knowing where to seed them – how to price it and how to aggregate those audiences and having a deal structure that’s flexible enough to cherry pick.
What so you see as being the biggest pressures your are clients under?
Marketers are under budget pressure from their financial counterparts as targets are squeezed. Liquidity is going to be key in 2009. There are share opportunities for the more aggressive, but there’s a point at which even the most aggressive marketers will move to a more defensive mindset. It really is trying to pick how the market’s going to unfold and what the opportunities are to keep activity ticking over.
Alex Pekish
Group trading company: Mitchell Communication Group (MCG)
Agencies under its umbrella: Mitchell & Partners, MPG
Negotiating style: “Calculated, tenacious and bold”
Buying power: $1bn-plus
What sets you apart from your rivals?
We’ve got a whole series of deals ranging from straight television negotiations to negotiations with other media. Where we’re a bit different from the other guys is we’ve got four different levels of negotiation. The first one is up-the-top tier where we negotiate with the company itself, so effectively you’ve got a PBL deal, or a Seven group deal, etc. And within those, there are all these different components or different media in there.
What is the advantage of group trading deals?
It provides a starting point lower than the base network’s rates. That’s effectively what it does. It gives you a set of terms and conditions to work to and work by. It gives you certainty. It’s easy to have an open trade system when you’ve got three or four clients. When you’re the likes of us, you’ve got too many clients and for that, you need to have a starting point from which to negotiate from.
What are your predictions for 2009?
We’ve come to the conclusion that there’s more information that’s needed to have a reliable figure. The reasons why, are that business confidence is a pretty good indicator of ad spending. This seems to work with the budget process, hence the lag. As business confidence has fallen sharply this year, it’s likely that ad spending in 2009 will be poor. However, business confidence has not fallen to the level of the 1991 recession. So a sharp contradiction in ad spending is unlikely.
How have TV networks performed in 2008?
This year’s kind of been up and down. I think Nine have done a great job in reclaiming some of their lost audience. Ten has done a great job as well. And Seven, from a revenue perspective, have been buoyed by the Olympics. 2009 is going to be a very interesting year for television because of all the changes that are about to happen to free-to-air TV, predominantly the standard definition channels and the uptake of digital television. 2009 promises to be a great year for the television networks if they do the right thing and encourage people to, well, give them choice with digital TV. It will give buyers and clients more choice. Pay TV have been doing that for 10 years, and now, the multi-channel is going to allow the broadcasters to play around with their scheduling so that rather than appealing to all the masses, they’re going to be able to work out who wants to watch what. For instance, it may mean now that with Ten running sport on its HD channel, it may mean they don’t need to play as much sport on their analogue channel. It’s going to change the landscape, which is going to be exciting.
Do you think TV is in decline?
There’s doomsday (reports from) everyone in the world. TV has stood the test of time, as have newspapers. People said that newspapers would be finished and they’re still here. I think that TV will keep reinventing itself, to stay relevant.
What do you see as the future for pay TV?
In 2009, what the Government does with the anti-siphoning legislation is going to be the big issue. If the Government revises the anti-siphoning legislation in favour of the free TV networks and allows them to broadcast sport on their new digital channels, arguably, it will increase the digital penetration. But if it goes the other way and the Government says there’s a free for all in between pay TV and free-to-air TV sports wise, there’ll be a status quo. With sport being the biggest driver on pay TV, the Government maintaining the anti-siphoning laws in the current state or changing them is going to have a big effect on how sport is viewed by people, and driving whether they take up pay, if pay TV starts picking up a lot of the sports and they’re not on free-to-air TV, then you’d expect the pay TV penetration to increase significantly.
