From Bad to Worse

When English adman Charles Courtier, the newly appointed CEO of WPP's The Media Edge, arrived in New York in July, nobody had to tell him times were tough."I remember looking at the budgets and thinking, bloody hell, it couldn't get any worse," he says. "Then Sept. 11 happened, and it got a lot worse."The media business was neck deep in turmoil in 2001. It was only the fifth year in more than six decades that spending fell, with analysts forecasting a total ad-spending decline of 4-9 percent. Even at the lower end of that range, the damage is far worse than that wrought by the last ad recession, in 1991, when spending dipped by about 1 percent. In fact, despite Universal McCann forecaster Bob Coen's prediction that 2002 spending will inch up more than 2 percent, several prognosticators expect another shortfall in the year ahead. If that happens, it would mark the first time that U.S. ad spending declined two years in a row since the Depression, when revenue dwindled from 1930 to 1934.The year arrived on the heels of the largest spending increase in history—a rise of almost 10 percent in 2000, to more than $240 billion. "What made 2001 worse was the comparative base," says Marc Gold stein, president of national broadcast and programming for WPP's MindShare. "Com ing off five or six years of strong growth, the falloff on a relative basis was more dra matic than I've ever seen before. It was like the old view of the world before Colum bus—the world is flat and we fell off."It was quite a jolt to the relatively new media-agency industry, which had never experienced a real downturn. (With the exception of Initiative Media North Amer ica, which began life as Western Inter national Media in 1970, the oldest media agencies and unbundled networks celebrated only their fifth or sixth birthdays in 2001).It was clear from the beginning that unhappy days were here again. The dot-com disaster, after all, was already in full bloom as 2001 arrived, with the previous 12 months recording the demise of more than 200 Internet companies. By Feb ruary, gloomy economic news was dominating the sidebar conversations and cocktail chatter at the American Asso ciation of Advertising Agencies' annual media conference in New Orleans. By the time the 2001 upfront began in earnest in the spring, the ad business was in recession in everything but name—though many were already using the word. Viacom president Mel Karmazin kicked off the selling season by gambling on an improving marketplace. He told media buyers they would have to pay CBS' prices or the network would withhold as much as 45 percent of its inventory to sell in the scatter market. The move frustrated the CBS sales force and offended buyers, while the other networks jumped at the chance to lure business away from CBS by offering better deals.In the end, while some advertisers paid more for blockbuster hits CSI and Sur vivor, the eye network was forced to surrender and began selling inventory at below-2000 levels. All the various upfronts—network, cable, kids' and especially syndication—dragged on for months as advertisers held back their dollars to see how low prices would go. For the first time in a decade, notes one agency leader, the pace was leisurely, with "none of this Chinese-food-at-four-in-the-morning crap." When the dust settled, the bellwether broadcast networks were forced to settle for a total estimated take of $6.9 billion, 15 percent less than their record haul in 2000.For 2001, Universal McCann reported declines in almost all major media from 2000. Spot TV led the way (falling by 20 percent), followed by radio (down 18 percent) and magazines (down 12 percent). The four major TV networks saw a 3.5 percent decline, and newspapers were down 8 percent.Predictions as to when spending will truly recover were difficult, with advertisers, not surprisingly, hunkering down. "If there's a consensus among clients, it tends to be a conservative one, but taken up a notch from where it usually is," notes Gold stein. "Everyone is working on a day-to-day basis or week to week."Recession fueled what one media-agency holding-company head called the "inevitability" of consolidation by buyers, sellers and clients, probably the most significant and certainly the most sweeping industry trend of the past few years. Consolidation's promise of greater efficiency turned an objective into an essential. Major clients now risk losing a competitive edge if they don't have media specialists with depth and breadth, a market reality that all but ensures more consolidation reviews. "How can you justify to your management that you lost 20 percent of your brand budget [through costly buys] because you didn't know where the market was or couldn't take advantage of discounts or value-added promotions?" asks Lou Schultz, chairman of Initiative Media Worldwide, by way of example.In 2001, $4.7 billion in major-client media planning and buying was consolidated, according to Adweek reports, down from 2000's estimated $5 billion-plus in media reviews, impressive nonetheless. The pharmaceutical companies accounted for much of the search activity, as they did in 2000. Pfizer and GlaxoSmith Kline completed reviews in '01, representing an estimated total of $1.3 billion in media-account consolidation. Novartis, Eli Lilly and Co. and Bristol-Myers Squibb all went into review, totaling an estimated $600 million.Entertainment entered the fray in a large way. Reviews were launched by behemoths Sony and Disney (both with $500 million in media), as well as New Line Studios ($100 million) and smaller spenders that included NBC, UPN and USA Net work/Sci Fi Channel. Schultz predicts a further wave of reviews. "As clients look at costs, billings currently in-house could be consolidated with outside agencies," he says. There was at least one high-profile move of business from inside to outside in 2001, with Best Buy taking its $50 million national broadcast account to an outside shop in a review won by Starcom.Meanwhile, the sellers continued to amass other companies and integrate operations in 2001. NBC announced plans to purchase Spanish-language network Tele mundo. CBS absorbed the sales operation of Viacom sister UPN. And at year's end, Vivendi Universal made its bid for top-tier status, announcing plans to buy the entertainment division of USA Networks for $10.3 billion.The media networks (and their corporate parents) more than matched those bets, with wheeling and dealing that completely reshuffled the competitive deck. The changes were qualitative as well as quantitative."After having so many years of bountiful economics, the recession certainly gave us all pause to stand back and see if our organizations are resourced for this kind of economic environment," says Donna Salva tore, CEO of MediaVest. "And at the same time, are we resourced for what our business is going to look like two or three years from now?"Much of the year's media-agency news centered on consolidation and its after-effects. The primary story was the absorption of the buying operations of True North Com mu ni ca tions' TN Media and FCB Media into Initiative Media following Inter public Group's purchase of True North in June. Another new media giant was created by Publicis, which formed a media-agency holding company, Zenith Optimedia Group, to house its Optimedia and Zenith networks (the latter is co-owned by Cordiant Communications). The media world's most gleefully followed soap opera of the year was WPP's ill-timed purchase of Tempus Group, a $629 million acquisition that WPP leader Sir Martin Sorrell tried and failed to back out of after Sept. 11. Two developments in 2001 went beyond accumulation-of-clout stories. The first was IPG's creation in September of Magna Glo bal, the world's first media negotiation company. An audacious bid to use clout and not merely stockpile it, Magna wields a formidable $40 billion in global buying power that its leader, Bill Cella, and IPG chairman John Dooner believe will give them unparalleled negotiation strength and marketplace intelligence.If Magna realizes its objectives, it could mark the beginning of consolidation's end game—buying would no longer be done by an individual client, agency, medium or media company, but one-on-one between planet-girdling giants."The creation of Magna resulted in a re-evaluation by other agencies—whether you look at WPP or Bcom3 or any of us—in terms of how we should manage our media," says Salvatore. "I don't know that we have all necessarily come to the same conclusions."The long-running OMD saga finally appeared to reach its climax in 2001. With the appointment of top Turner salesman Joe Uva as its global CEO, Omnicom's lead media network filled a role that had been left open for almost a year. The move signaled that Omni com Media Group head Daryl Simm's two-year struggle to add media planning to OMD's buying duties for siblings DDB, BBDO and TBWA\Chiat\Day was almost won. At year's end, only DDB was dragging its feet about turning its planners into OMD planners. It appeared to be a matter of time before OMD would at last be a full-service media specialist.When the acquiring, restructuring and merging ended, the media networks of the big three holding companies controlled 57 percent of worldwide media spending, according to Paris-based independent research company RECMA. IPG's massive global media operations led the pack with a share of just over 23 percent. WPP, with Tem pus in its pocket, was a close second at 21 percent. Omni com was third with 13 percent.The players and their positions appear to be solidifying. IPG offered an unaffiliated network, Initiative, plus a traditional unbundled specialist, Universal McCann, and all IPG media operations were linked to Magna Global. OMD would finally be both a planning and a buying giant, and would work in tandem with Omni com's second net work, PhD. WPP also would field two full-service global networks brands, Mind Share and Media edge: CIA (the latter the merged result of WPP's The Media Edge and Tempus' CIA), controlled by what Mind Share leader Irwin Gotlieb has termed an "umbrella" entity called GME. The other key players, Star com Media Vest Group and Zenith Optimedia Group, also include two distinct brands under a holding company. Remain ing in flux are the outlines of Aegis Group's Carat and Hori zon Media—both of which figure to be the next acquisition targets—and Havas' Media Plan ning Group, which lost its U.S. leader, Steve Farella, in 2001. Grey, with its Media Com network, continues to be eyed with interest by almost all the major players.With or without an economic recovery, the consolidation steamroller won't be stopped. "Over the last five years, the media landscape has been transformed by Pan-European account consolidation. Over the next five, it will be transformed by glo bal account consoli dation," wrote ABN AMRO adver tising business analyst David Doft in a mid-2001 report issued just after WPP made its counter offer for Tem pus. "There could be in excess of $10 billion of business to be won over the next couple of years."The big question, however, remains the health of the economy. Some are predicting a recovery by mid-2002. Universal McCann's Coen, speaking at the UBS Warburg media conference in early December, noted that the previous recession had to overcome both high unemployment and inflation, two factors not present in the current downturn. "Although advertising traditionally lags behind an economic recovery, we believe advertising and the economy will move closer into parallel than had been the case 10 years ago," he predicted.There were some encouraging signs. Also in December, Credit Suisse First Bos ton, which tracks the monthly earnings performance of the top 200 national advertisers, found that just seven missed their targets in November, tied with August as the lowest monthly total for the year. And 2002 will include Olympics and political campaigns, which figure to boost spending.Whenever it arrives, recovery can't come soon enough after what many believe was the worst year in U.S. advertising history. Indeed, as 2001 drew to a close, Creative Media PhD co-partner Bob Han ley echoed the thoughts of every other media-agency executive in America when he said simply: "Thank God."

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From Bad to Worse

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