The media barter business is booming: Over the past 19 months, Orion Trading has added more than two dozen U.S. clients to its barter operations. Brian McMahon founded Orion Holdings in 1996 for Interpublic and the unit has grown from one American office to 12 worldwide locations. As the only global media barter company, which is part of IPG Mediabrands, Orion Trading has worked to change the reputation of that business and help taken it mainstream. The Orion Holdings CEO recently explained to Adweek how that happened and why barter companies can make money in good times and bad.
Adweek: How does media barter work?
Brian McMahon: We don’t act as a broker, we actually buy the inventory. Let’s take real estate [for example]. We just did a large real estate deal with a beverage company, with property in both Mexico and the U.S. We bought that asset from the client with trade credits and the trade credits are a currency the client then uses, through their agency, to partly fund media expenditures. So what they’re doing is buying their media, part in cash and part in their impaired real estate. Rather than using full cash to buy their media, they’re picking up the cash-flow savings because they’re using an asset rather than cash to buy it and then they’re picking up a gain on the value of the asset because they’re trading that asset at full value to us in exchange for media.
Since you mentioned impaired real estate, how has the global downturn impacted the use of media barter?
I often talk to clients about the economic sine curve: When the sine curve is high and times are good people make too much product and they want to move some of that product. When the sine curve drops down people need to move assets off their balance sheets or move impaired assets. So Orion tends to drive right through the center of that sine curve of the economy. In good times and bad times it’s a relevant business. This has moved it into the mainstream and clients are looking at it as a strategic tool. That’s a radical shift.
Explain more about that change.
If you look at the past reputation of barter, it was a mysterious business, smoke and mirrors. Sixteen years ago Interpublic said, “Clients keep doing barter deals, let’s bring the business in-house and let’s put rigor to it and build a proper business so clients can get the benefits of it but make sure that it’s managed appropriately.” It’s just math.
Orion was the first media barter company created by an industry company?
Yes, we were the first. Interpublic was a real visionary. They took a business that clients wanted but privately-held companies were not doing well—that’s where the barter reputation came from. Interpublic said let’s build this inside the agency and five years later Omnicom started their barter company. Three to four years after that, the rest of the holding companies followed suit.
How many other industry companies are in the competitive universe?
The … history of barter was [it was] a plethora of privately-held little companies that have shrunk in size or gone out of business. That happened because all of the major agency groups like Omnicom, Carat, Group M, Havas, have created internal barter companies. Clients demand rigor and they demand careful attention to their media plans and it’s got to come from the agency. What you had in the old days was a contretemps between the barter company and the agency.
What kind of growth are you seeing in this industry?
Orion has achieved in excess of 30 percent growth year over year for the past nine years. That’s extraordinary when you look at various advertising agency holding companies that project 3-5 percent growth a year. I can’t speak for other holding companies but I’m sure they’re experiencing the same kind of robust growth. Demand is really being driven by global clients. We have roughly $3 billion (in billings) between all of the Orion companies on a global basis so it’s a substantial business.
You’ve just promoted Tom Telesco to worldwide president of Orion Trading, freeing you up to focus on other business within Orion Holdings. What else does the company do?
Orion Holdings is not just barter. We have a terrific company in the portfolio called Orion Printing, a global partnership with Pitney Bowes, and we have Orion Capital. We have three new companies that [IPG Mediabrands chief] Matt [Seiler] has asked me to grow and scale that have nothing to do with barter. In addition, Orion was asked to build the third agency for IPG Mediabrands which is called BPN (Brand Programming Network). It has nothing to do with barter. So in six months we built that from zero to $800 million and then turned it back to IPG Mediabrands.