Can Carat push to the top of U.S. media agencies by 2000? Just watch ’em try.
Four executives huddled around a table at the Four Oaks, a discrete Los Angeles restaurant located far from the klieg light glare of celebrity and power, one night in January 1996, speaking intently among themselves. Two of the men did much of the talking, and though the restaurant was otherwise empty, they tried to keep their voices low. The pair had traveled far for this meal. One, dark-haired with a cleft chin, spoke with clipped English precision. His partner, sandy-haired and fair, etched his words with the slightly musical twang of Scandinavia. Their hosts listened intently to what they had to say.
For Crispin Davis, the dinner represented the culmination of four painstaking years reconnoitering the U.S. media buying landscape. As chief executive officer of Aegis Group, plc, the London-based holding company of Carat, Europe’s largest media management company, the Briton had long been looking to establish a beachhead in America. Long a Goliath in European media, Carat was all but unknown in the United States. Davis had made it his personal mission to change that. Now he thought he had finally found the opening to launch his assault upon the world’s largest media marketplace. To help make the pitch, Davis was accompanied by Stig Karlsen, the Danish president and chief operating officer of Carat’s nascent North American unit.
Across the table, Andrew Butcher and Bruce Milner were intrigued by the Europeans’ spiel about why they would be wise to sell themselves to Carat. Butcher and Milner had built International Communications Group (ICG) of Los Angeles from scratch into a $450 million media agency, with offices in nine cities. Now Davis and Karlsen offered $21 million up front for ICG (with the prospect of as much as $8 million more down the road) and promised the British-born Butcher and his New Zealander partner plenty of autonomy to continue to run their company as they pleased, as long as they hit Carat’s ambitious targets for growth. But what clinched the deal, Butcher recalled recently, was listening to Davis and Karlsen describe the head of a Carat network agency in Italy who was wrestling with the same issues and headaches half a world away. “I knew that even if were were speaking in different languages, we’d be talking the same media language,” Butcher said recently. Before they called it a night, the quartet shook hands on the sale. Carat ICG was born-and the world’s largest independent media buying company finally had its U.S. foothold.
French, German, Italian, Spanish, Portuguese, Swedish, Danish, Greek, Russian and, yes, even Mandarin: Carat executives discuss media in numerous language at the firm’s 55 offices worldwide. Now the company, which posted $8 billion in global billings last year, is determined to put its stamp on America. “The U.S. is our No. 1 priority right now,” says Karlsen. Since 1996 Aegis has spent $32 million on acquisitions of U.S. media and research companies and jump-started Carat’s U.S. billings from zero to $850 million last year. The purchase of ICG formed the anchor of what’s now called Carat North America. And Karlsen, the genial former retailing executive in charge of Carat’s American debut, makes it clear that’s only phase one of a far grander vision. He has publicly proclaimed his goal of making Carat one of the top three U.S. media agencies by the year 2000. “The $2 billion level is the threshold we felt we need to be at in order to compete the way Carat competes in our strongest markets,” he explains. If successful, that would put Carat’s U.S. take on the same level as the billings from its top French and German.
But it’s a big if for a company barely out of the starting gate and little known on this side of the Atlantic. To reach its goal, Team Carat will have to more than double its billings over the next two years. And to do that, the company will have to grab 5 percent of the projected $10 billion annual growth in total U.S. ad billings-far more than the less than 1 percent share of the $186 billion U.S. market Carat currently commands. “Sounds ambitious to me, unless they have a plan to make a lot of acquisitions by then,” says one media observer.
Not everyone is convinced the upstart will be able to make sufficient headway here. American marketers are still by and large accustomed to hiring full-service ad agencies to create, manage, plan and buy their ads and just warming up to the idea of unbundling their media buying. TV network executives, whose own bottom-line interests favor mass media and big gross ratings-point solutions, say they are so far underwhelmed by Carat’s early forays into the American arena. “Carat has had no impact in the [network TV] marketplace yet,” says Larry Hoffner, president of NBC TV network sales. Even Carat insiders display occasional jitters when they contemplate the dimensions of the task that lies ahead. “Terror set in when we realized we had committed to some extraordinarily ambitious performance and growth,” admits Butcher.
It doesn’t help matters much that Carat’s reputation is still somewhat sullied in American circles by its former overseas buying practices. Purchased by Aegis in 1989 while the holding company operated under its former name, WCRS Group, Carat is still associated with the now-outlawed French practice of amassing blocks of TV and print inventory and placing clients’ advertising in them without disclosing any sort of relationship between the amount paid for the time or space and the fee charged against it. Though such pig-in-a-poke practices were prohibited by France’s passage of what’s known as the le loi Sapin (named after the French finance minister who championed the cause of greater media transparency) in 1993, TV execs here still view Carat a bit warily. “The European practice-bulk buying and putting their clients in-is not the way we do things here,” says Hoffner.
WCRS changed its name to Aegis Group in 1990 to end confusion with an unaffiliated ad agency and moved its headquarters from Paris to London three years ago. Today, Aegis employs 2,300 people worldwide and counts among its global clients American Express, Apple Computer, Coca-Cola, Philip Morris, SmithKline Beecham and the Walt Disney Co. Davis joined the company in 1994 after serving stints as a managing director of United Distillers and a food division vice president at Procter & Gamble in the U.S. Karlsen signed on in 1992; previously he was chief executive officer of AS TH. Wessel & Vett, Magasin Du Nord, the leading department store group in Denmark.
The acquisition of ICG was the first of a trio of deals that Carat racked up in little more than a year. After Butcher and Milner had agreed in principle to link their fate to Carat’s (although another 15 months would be consumed by the haggling of lawyers on both sides until the purchase was signed, sealed and delivered), Karlsen turned his attention to putting another critical piece of the American media jigsaw puzzle into place. He focused next on Media Buying Services, a New York media agency that came with its own well-regarded, if modest, national TV buying department.
“They said to me, ‘Why do you want to sell to us?’ and I said to them, ‘Why do you want to buy us?’ I liked their response,” says Matthew Bryant, MBS’ president, who had previously turned down a parade of suitors from full-service agencies over the years. “They’re media people, just like us. They know and focus on the business as we know it.” Another factor that made Carat’s offer attractive was the company’s record of leaving senior management in place in 90 percent of its acquisitions. Renamed Carat MBS, it became Carat’s New York outpost in a $4 million deal signed in October 1996.
The most recent addition to Carat’s expanding fold was the purchase of Media Marketing Assessment, a Wilton, Conn.-based research firm with a blue-chip client list that includes Coca-Cola, Kraft Foods, Bayer AG and Sears, Roebuck & Co. as well as a solid reputation as a cost-value marketing expert. The price: $7 million down, with another $7 million pegged to future growth and performance. MMA provides its clients with marketing reports that permit them to insert their raw sales, advertising, consumer promotion, channel marketing and distribution data into regression-analysis programs as a way of isolating the costs, relative impacts and returns of various media strategies. It’s now known as MMA Carat.
Such proprietary research-based products are linchpins of Carat’s strategy as it attempts to muscle into the competitive U.S. market. The firm devotes nearly $20 million annually on the research and development of new media planning and buying products to support its worldwide operations. “There’s a greater and greater demand for demonstrable return on advertising investment,” says Karlsen. “Because we’ve had, and continue to have, an emphasis on developing research tools to show return on investment, we think we have a particularly powerful story to tell in this marketplace.”
While many rival media agencies are taking their first tentative steps toward going online with imported or in-house media optimizers, which promise to sharpen TV time planning and buying by allowing the manipulation of real-time data, Carat executives can honestly boast that they have four distinct services already up and running. Smart Scheduler springs from the well of MMA Carat; it permits Carat to propose ad spending specifically targeted at a specific desired sales level. Carat’s Cafe optimizer offers reach-and-frequency options against varied media efficiency criteria. CRAM is an awareness-tracking program that draws on a client’s data point of awareness and looks at post-media campaign levels compared with TV ratings levels.
A fourth proprietary product turned out to be the edge that Carat ICG Chicago needed to walk off with the $100 million Ameritech media account last year. Ameritech, which not coincidentally is also a client of MMA Carat, had a branding program that sought to emphasize the telecommunications company’s commitment to attentiveness in its product lineup and services. Measuring audience attentiveness is the essence of Carat’s Foretel optimizer, which evaluates TV commercials’ impact in terms of viewers’ involvement in a program. Using Foretel, shows with equal ratings, audience composition and demographics score as more or less forceful placements for an advertiser, depending on the levels and quality of audience involvement.
“We were interested in seeing research that shows target audiences and how attentive they are to programming. That went hand in hand with our branding strategy-to be the attentive company,” says Marilyn Lunenfeld, director of corporate media at Ameritech. “We’re trying to build relationships with programs, just as we do with people. We’re also looking to move beyond ‘just running spots’ and toward long-term relationships with stations and programming. Carat seems to really drive strategic thinking based on strong consumer research.” Ammirati Puris Lintas lost out in the Ameritech review.
“Clearly, they’re broader than media,” says Arthur Anderson, president of the New York-based media agency search firm Morgan, Anderson & Co. It’s a definite advantage to offer Carat as an option to advertisers involved in media reviews. “Consolidation and takeovers have reduced the number of directions a client can go. Carat brings so much more to the table than efficiencies and GRPs,” he says. To raise its U.S. profile yet higher, Carat has hired two full-service agency veterans: Joanne Burke, former head of research at True North Communications’ TN Media, and Charlie Rutman, former senior vice president and media director on the consolidated media-planning account of Coca-Cola at D’Arcy Masius Benton & Bowles, New York.
True, Carat has hit a few speed bumps as it pushes its pedal to the metal toward the year 2000. Hardee’s Restaurants yanked its $50 million media assignment from Carat ICG in January and threw it to Western International Media. That might have been inevitable, after Hardee’s was acquired by CKE Restaurants Inc, a long-entrenched Western client. Still events of that sort, whatever their roots, make Carat ICG’s Butcher jittery about making his numbers.
What’s next? A high-profile executive search for a CEO to head Carat North America is rumored to have been narrowed down to two candidates. And Karlsen and Davis might be ready to deal once again. European trade papers have published speculation about Carat’s future acquisition of London-based Zenith Worldwide Media Services, which known to be seeking another investor. And at press time, Carat was rumored to be on the verge of inking a fourth deal that would boost its North American billings by an additional $200 million-putting it over $1 billion worth of billings annually. The company’s latest financial report is due out this week, and its management has often used that occasion to unveil its newest acquisitions. So don’t be surprised if Davis and Karlsen have their checkbook out. The millennium will be here soon enough.
BILLIONS OF BILLINGS
Though little known in America, Carat’s name carries plenty of weight across Europe, where It dominates the market. The latest available breakdown:
Country ……………………. Billings …………..Percentage of total 1996 group billings
FRANCE ……………….. $1.85 billion …………. 26%
GERMANY ……………… $1.83 billion …………. 26%
UNITED KINGDOM ……. $1.28 billion …………. 18%
SPAIN & PORTUGAL ….. $591 million …………. 8%
SCANDINAVIA …………. $565 million …………. 8%
ITALY ……………………. $532 million …………. 8%
BELGIUM ……………….. $210 million …………. 3%
OTHERS …………………. $61 million …………… 1%
THE NETHERLANDS ….. $50 million ……………. 1%
GREECE …………………. $42 million ……………. 1%
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