When Keeping It In The Family Can Become Incestuous

05 February 2014

Today’s Cog Blog is rather longer than usual. Furthermore it contains some references to a time longer ago than last month (30 years or so in the 1980’s and early 1990’s to be precise) so those readers with a short attention span, along with those who believe that all history is bunk might be well advised to read no further. As might those of a nervous disposition – as todays blog is about media buying and selling.

Whatever one might think of WPP, it has to be admitted that more than any other holding organisation Martin Sorrell’s business has rewritten the rules over and over again. The whole notion of an over-arching media holding business, GroupM has had a huge effect on the industry; the idea of cross-discipline client teams drawn from across the entire WPP portfolio; the understanding that there are benefits from research and media businesses working closely together; these are all significant steps that have helped (re)define the industry.

Do they all work as well as they might? Of course not. Are they beyond criticism? No. Has the WPP structure allowed creative agencies to flourish as much as they might under, say, Omnicom? Probably not. But there is no question that WPP has had a major impact on the advertising, media and research businesses; and has played a significant part in elevating how those outside our industry (and in particular financiers and politicians) see us.

A few weeks ago it was announced that Xaxis, GroupM’s digital media and technology business was merging with 24/7 Media, in effect an ad network also owned by WPP. At first glance although this might rank some way down the big news of the week (‘one WPP company combines with another, shock horror’) in fact this is rather more important for what it says about GroupM’s ambitions and future.

For what we have here is a buyer, Xaxis, combining with a seller, 24/7. Now, I know (and can hear the howls of the digital natives from here) that it isn’t quite as cut and dried as that – there are many who will claim with some justification that Xaxis had become an ad network in all but name anyway – but fundamentally this is GroupM following a model many at the top of that organisation have long decried.

In the 1980’s and early 1990’s the original Carat, in France operated a broking system. Starting with off-peak commercial radio and moving smartly into print and eventually TV Carat bought inventory in advance at what they described as a wholesale price, and then resold space and time to their clients at a retail price. The price paid by Carat for this inventory was a closely guarded secret known to few outside of the founder Gilbert Gross’ immediate circle.

The arguments used: it’s more efficient for the seller to sell a block of inventory to one buyer instead of hiring a sales team to flog around every buyer in town; and: why should the client know what price we paid as long as he’s happy with the price we charge him (as Gilbert Gross said to me one day: ‘do you know or care about the wholesale price of the silk that went to make that rather nice tie you’re wearing’ (it was the 1990’s remember) have a certain resonance today.

Carat was distorting the market. They were too powerful; if as a media owner you didn’t play by their rules you didn’t play at all, it was as simple as that. I well remember one venerable US magazine simply vanishing from all analyses of the major readership survey (analyses run on programmes very largely controlled by Carat’s research operations) because they refused to deal in the Carat approved way.

Eventually a French law, originally designed to stamp out corruption in the construction industry was amended at the behest of a number of powerful advertising agency figures (oh, the irony) to include a simple principle: all ad space booked by an agency had to be supported by an order from the client. This law, Loi Sapin, changed agencies in France from being the principal in law when it came to media bookings (as they certainly were and I suspect still are in virtually all markets) to being agents.

Carat retrenched as they rather had to (around 90% of the profits vanished almost overnight), closed the something like 12 separate offices they operated competing operating companies from in Paris; opened one new office housing the various operating units on different, secure floors and reinvented themselves as a planning and research led media agency.

When some years later Carat entered the US market their broking history was widely discussed. Industry figures, at least one of whom is now senior within GroupM poured scorn on how such dubious practices simply wouldn’t be tolerated in the USA (never mind that Carat had long reinvented itself by then).

And so to today. GroupM is now buying and selling to itself. It is refusing clients the right to audit, and Xaxis’ EMEA CEO, Caspar Schlickum is quoted in ‘Campaign’ as saying that as long as clients achieve a ‘strong ROI the actual cost price doesn’t matter’. He didn’t comment on what the material in his tie cost, probably because in the picture I saw he wasn’t wearing one.

That ROI comment is extraordinary. In effect he’s saying: ‘If I invest your money for you in the stock market, and I make you a decent return, as defined by me, then it doesn’t matter what price I pay for your stock.’ There is one major weakness in that argument – actually I would rather like to know what you pay as it may well be that I could improve my ROI (as defined by me) by using a different broker.

Way back when, the Carat model influenced planning. If, after all you have a garage full of space in ‘Elle’ waiting to be sold to the client you’re unlikely to let anyone within your organisation place an ad in ‘Cosmopolitan’. Never mind that ‘Cosmopolitan’ is the better place, contextually and editorially for the ad, it’s going in ‘Elle’. Furthermore some numbers will be found to support ‘Elle’ over ‘Cosmopolitan’. The client won’t question the agency and life will continue merrily along.

It’s too easy to say that digital is different; that the sheer size and choice out there means that some model like the Xaxis one is essential. It’s also easy to fall under the spell of digital jargon, big data arguments, algorithms and the rest. But this is a simple point of principle.

No buying entity should be in a position to buy from itself. Even the huge Japanese conglomerates, who for ever and a day have done just that have hesitated before extending such a practice out of their native market – where the whole ecosystem is so completely unique as to make any comparison with what happens there irrelevant.

Xaxis now openly prioritises media owners within the 24/7 network – the world’s 25^th largest according to Comscore. Schlickum says this is ‘rewarding trusted partners’. ‘Trusted partners’? What about his clients – those poor saps whose money is being used to reward these ‘trusted partners’, however inappropriate the space they offer may be to their needs?

Or is it that Xaxis believes that an impression is an impression is an impression? In which case why have all those annoyingly objective planners cluttering up the place? Why bother with any people at all, come to think of it.

It’s interesting that WPP, an organisation which has always stressed the ‘client first’ mentality as exampled by such moves as their cross-discipline teams has it would seem sanctioned this move by their media operation.

It will also be interesting to see how GroupM’s competitors react. Of course they could copy them, buy up publisher networks and compete in opaqueness. But I very much doubt it – agencies hate copying other agencies. Instead I imagine they will follow the opposite path. ‘Come to us’, they may well say ‘and have access to the whole marketplace. Go to GroupM and be limited to the world’s 25^th largest publisher network’. True or not you have to admit is has a certain competitive ring to it.

It seems that a large number of big advertisers, including Unilever and Kimberly-Clark according to ‘Campaign’ and rather more according to industry gossip have quietly turned down the Xaxis offer in favour of a Mindshare-housed buying operation (I bet that sparked an interesting conversation within the GroupM management).

Xaxis could have been an advanced data centre, sitting between GroupM’s agencies and the WPP Kantar operations, charging very properly for their expertise and adding real value transparently to their advertisers.

What a shame they’ve morphed into the very thing most loathed by sophisticated advertisers, and so easily mocked by the competition: an opaque organisation that believes in ‘Campaign’s’ words in ‘increasingly making money out of complicating its relationships with both media owners and its clients’.