Ad-Rate Limbo Dance

Print publishers are up in arms over extra discounts they say media agency conglomerate GroupM has been demanding in exchange for business from its clients, a blue-chip roster of names that includes Macy’s, Church & Dwight and ConAgra.

Volume discounts are standard practice in ad buying. But the publishing executives — all of whom requested anonymity so as not to jeopardize their chances of getting business from the holding company giant — said the agency’s demands were unusual if not unprecedented.

According to at least six publishers reached for this story, WPP-owned GroupM sought an additional agency discount that would be shared across all its clients, on top of volume discounts those clients already receive.

Some publishers also said GroupM was seeking pricing parity across all its clients, regardless of spending level. In one such scenario, a small-volume client would get the same rate as a big client even though it is spending less.

Some agencies have tried to seek pricing parity over the years, but the strategy is difficult because the publisher’s cost of handling clients can vary widely from one to the next. There’s also the potential for backlash from big advertisers. Some have tried to minimize this outcome in part by setting up a separate buying unit at an agency.

“I would not like this very much if I were a large client at an agency,” a former client media director at a top 50 advertiser said, speaking generally of the practice. “Why should the spending of a large client help get a better rate for another agency client?”

One publisher who’s been approached by GroupM put it more bluntly: “What they’re doing is unconscionable.”

GroupM would not confirm the specifics of the alleged demands. Instead, it issued a statement, saying: “GroupM always has and always will do everything it can to negotiate the best possible agreements it can for our clients. There is nothing remotely unusual or unprecedented in any of the negotiations or transactions we have engaged in since the consolidation of our print buying operations last summer.”

Publishers said they began hearing of the demands after last summer, when GroupM consolidated its print buying units with the stated goal of gaining more clout with publishing companies. The change affected Mindshare, Mediaedge:cia, MediaCom and Maxus, which together represented an estimated $800 million in print buying last year. GroupM has taken similar steps with its local broadcast and radio buying units.

This latest wrinkle in media negotiations comes at a time when agencies face immense pressure from clients to get more for their marketing dollars. Observers said the pressure is particularly pronounced from consumer packaged-goods advertisers. In turn, agencies — in a quest for cost savings — are trying to wring as much as possible out of their media vendors. Agencies that succeed in doing so get bragging rights that are useful when pitching new business.

Despite their complaining, some publishers readily concede that after years of discounting pages for the sake of getting market share, they as an industry bear some of the responsibility of the pickle they find themselves in.

When ad revenue was flowing in, publishers jacked up their rate bases on low-profit circulation to get the ad pages. The recession caused ad revenue to dry up, however, forcing many publishers to accept further discounts in a bid for market share or knock down their rate bases that no longer had adequate ad support. As one said: “We’ve done this to ourselves.”

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