French agency heads sound off on 'Sapin'; the 'loi Sapin' is the last thing agencies need during a recession By Daniel Tille

PARIS--Though barely five months old and under attack from both the advertising industry

Though it is difficult to tell where the damage from the recession ends and Sapin begins, agency execs readily sound off about the negative impact of the law on their shops and offer strong opinions about whether the law is just.
“We are hurt very badly by Sapin,” said Jean-Michel Goudard, president and ceo of Euro RSCG International. “It’s a disaster.” Somewhat indirectly, he elaborates on how the world’s seventh-largest agency has been damaged:”In 1990, (before the merger between Eurocom and RSCG), 95% (if not more) . . . of Eurocom’s profits were from France.” The picture has changed dramatically. “In 1993,” he continues, “we’re going to make 60% of our money outside France. I’d like to think that this was all due to our international growth (stemming from the merger), but France has taken a dive.”
“New business has helped stay the effects of Sapin,” said Bernard Brochand, president of DDB Needham International. “So we’ll make a profit in 1993, but much less than in the past three years. And we could go into the red in ’94 if the law isn’t changed.”
Philippe Calleux, chairman of FCA and one of the most vociferous opponents of the law, said the reforms prompted the first firings in its French operations. “And our financial results will be much worse in 1993 than last year,” he said.
“The French system was a disaster in that the profits of almost every agency came from sources other than the agency commission,” said Jean de Yturbe, the newly hired president of BSB France (ADWEEK, August 9).
BDDP president and ceo Jean-Claude Boulet said his shop thought that someday legislation like Sapin would be put in place in France. “We anticipated Sapin for years and weren’t keeping (media buying) discounts,” he said. “We’ve always been transparent. We asked our clients to pay us well and gave them all negotiated rebates.” Jean-Michel Carlo, president of BDDP France, disclosed hard numbers. “In 1992, our French revenues grew 25%. This year should be from 10% to 12% depending on the second half. So we won’t grow as fast, but we’ll grow.”
Despite the revenue hit, Euro RSCG’s Goudard does not dispute that full disclosure in media buying was necessary. “France has been tarnished by the media practices of the past 20 years. It has rotted our industry.” But FCA’s Calleux disagrees. “The problem was lack of competition, not transparency. And competition had improved dramatically since the first investigation into media buying practices in 1987. The government should have left it alone.”
Most agency heads agreed that Sapin over-regulated the market to the point of strangulation. “Sapin went way too far,” said BSB’s de Yturbe. “It was done by technicians who didn’t know anything about the business.”
Not long after the April election and the installation of a new center-right government, an investigation into the law’s effects on the industry was announced (ADWEEK, July 19). Talk about amending certain elements, such as whether advertisers or the media pay intermediary commissions, and even questions regarding outlawed surcommissions from the media outlets to agencies were floated. While the report admitted that the law seemed to favor advertisers and TV at the expense of the print media and intermediaries, it only recommended further study of the issue.
De Yturbe and Brochand, encouraged by the investigation, think the government is going to mandate the return of the 15% commission; bargained away over the years by agencies in exchange for client clients have resisted offering now that they, no longer the media, must pay their agencies directly. “The government has no choice,” points out de Yturbe. “Everyone knew the minute you let clients decide commission rates it was finished.”
“I think the government is open to putting it back,” adds Brochand. “We could see a vote in September, but early next year is more likely.”
But Goudard strongly disputes that the government can legislate commission rates. “The government will do nothing. There’s no way they can impose a figure in a market economy. People who think otherwise are dreamers.”
To be sure, nothing more of note should occur before Autumn. In the meantime, lobbyists on all sides of the issue are readying for a full court press on key government officials.
Daniel Tilles reports on advertising from Paris.
Copyright Adweek L.P. (1993)