Old Business Of Bartering Finds New Life In Media

Back in 2003, Ace Hardware had an inventory problem. The company had decided to replace a brand-name line of basic hardware goods—hinges and doorstops, among other items—with a private-label brand. The issue for Ace was how to make it as painless as possible for its 4,700 co-op retailers around the country to ship back and get credit for the phased-out hardware and at the same time dispose of it without taking a loss. Enter Active International, a corporate trading company based in Pearl River, N.Y. Active set up three warehouses around the country where the retailers could return their hardware and get full credit for the goods from the company. Meanwhile, Active bought up all the returned product from Ace at the full wholesale price, but instead of paying Ace in cash, it issued the company $3 million worth of "trade credits," which Ace is now using to fund a portion of its media spending in radio, TV and print. For the ads bought with trade credits, Active places the buy in accordance with the plan designed by the hardware company's media primary agency, independent Horizon Media. "This was the first time we used a barter company," said Peter Ting, Ace's controller. "The challenge internally was doing the due diligence to ensure we were getting dollar-for-dollar value with the trade credits. We were skeptical at first, but it worked out very well." So well that Ace sold Active a piece of real estate last year for an additional $1.5 million in media trade credits and plans to use the firm in the future as well. Welcome to the scrappy and fast-growing world of product-media trading. Twenty years ago, it was filled with tiny and some say dubious operations that frequently had trouble fulfilling their trade-credit obligations to clients that accepted them. But the mom-and-pop operations have largely fallen by the wayside, and the industry is now controlled by larger corporate entities that bill themselves as part financial institutions and part media-placement agencies that help clients realize greater value for underperforming assets. As the business has grown, it has commanded increased attention from the agency holding companies. Interpublic Group started a trading company in-house in 1998 that was initially set up as a subsidiary of Initiative. Aegis Group's Carat created an in-house shop, Carat Trade, four years ago. In 2003, Omnicom Group reached out to buy the second-largest independent corporate trading company, Icon International. WPP Group's MindShare is said to be exploring the area. MindShare declined to comment. No third-party ad trackers keep tabs on how much media is placed via corporate trade. Industry executives say it's now probably $2-3 billion annually and growing at a yearly rate of 20-30 percent. Active, an independent company founded in 1984, is generally recognized as the biggest player right now. CEO and co-founder Alan Elkin says the company places about $1.1 billion in media each year. Elkin says Active has been growing at a clip of more than 20 percent a year, and he believes that kind of growth is sustainable.As the agency holding companies have taken a more active role in the trading business, the competition and one-upmanship have become more intense. A little over a month ago, IPG reorganized its trading unit, taking it away from Initiative and renaming it Magna Global Trading, so it now reports up to Magna Global CEO Bill Cella. Cella said the barter business has "sort of been under the radar screen. But it's an important business, and it's a growing business. We're excited about it." Last month, Cella asked IPG agency heads to help Magna Global Trading gain the leadership position by convincing their clients not to use outside corporate traders. "When your clients use outside firms like Active or Icon, your agency loses control of the media quality and the revenue tied to the barter media," he said. "Magna Trading prevents that from happening, as the billing can be placed through your agency." Elkin's retort: "That's untrue, and it's also doubletalk." The agency never loses control of the media quality, he said, because Active always gets approval from both the agency and the client before executing any buy. "So they have total quality control." John Kramer, CEO of Icon, agrees with Elkin. "We do everything on a net basis and do it specifically so that we don't get involved in conflicts with any agency on whatever their compensation arrangement is with their client," he said. "And we ask for very specific media plans, and we attach them to our contracts all the time. We guarantee to deliver on it, and if we don't, it's actionable. And we've never been sued." Kramer also counters that the Magna position won't always fit the needs of the client. "There is no memo like that from Omnicom" trying to persuade co-owned agencies to pressure their clients to trade with Icon, he said. "The agencies are told to do the best job for their clients, and it doesn't matter who the supplier is." But Kathy Kladopoulos, evp and managing director of Carat Trade, contends that "the business of corporate trade is going to end up with the big media companies, because ultimately that's where the accountability is." Clearly, shops that enter this space will convince some of their media clients to deal exclusively with them on trade. In fact, it's happening already. Case in point: Philips Domestic Appliance & Personal Care North America. Company CEO Robert Baird, says Philips will do business exclusively with Carat Trade as part of its "global relationship" with Carat.

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Old Business Of Bartering Finds New Life In Media

Steve Mcclellan

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