The small screen still dominates the big picture.

The small screen still dominates the big picture. Although the economy was top of mind among the 850 attendees at the ninth annual American Association of Advertising Agencies Media Conference in Orlando, Fla., last month, much of the discussion focused on the many and often perplexing changes racking the medium that draws the most ad dollars: broadcast. Adweek media editor Jack Feuer sat down with three top media-agency executives, each a respected veteran of the buying wars, for a roundtable discussion on how the broadcast picture in particular, and the media-agency business in general, will change—or not—in 2002 and beyond. The panelists were Bill Cella, chairman of Interpublic Group of Cos.’ Magna Global USA; Steve Grubbs, CEO of Omnicom’s OMD USA; and Marc Goldstein, president/national broadcast and programming for WPP Group’s MindShare. ADWEEK: When will the general economy recover?

CELLA: The stock market has been schizophrenic on a daily basis, so the picture is very cloudy. Indications are that things will start to pick up in the second half of the year.

GOLDSTEIN: We were on our way toward that, but the Enron crisis had a major impact not only on the stock market but on consumer confidence. The recent announcement of Global Crossing [filing for bankruptcy] doesn’t help. You can’t underestimate the impact of consumer confidence on the economic marketplace.

GRUBBS: I agree that Enron does indeed have a huge impact, [but] there are some positive signs. Retail sales for the month of January are up 1.2 percent, a huge number from what it was a year ago.

ADWEEK: How does this affect prospects for advertiser spending?

GRUBBS: We have some clients aggressively spending and others who are cutting back. There doesn’t seem to be any consistency.

GOLDSTEIN: That’s a very important point: There is no consistency across clients and even across categories. We have seen some fairly significant spending in the scatter marketplace in some sectors. Automotive spending has spurred a fair amount of volume. We have seen a lot of scatter money coming out of the cell-phone industry, particularly with wireless. Yet in other categories, we have seen cutbacks or people holding the positions they took in the upfront.

GRUBBS: The movie business continues to spend behind their releases.

CELLA: The pharmaceutical category has been pretty healthy. But the bottom line is that there aren’t a lot of companies doing well. Just some niche categories showing some life.

ADWEEK: What are the early indications for upfront 2002?

GOLDSTEIN: There will be one.

ADWEEK: OK, but are we going to see the flat market and torturous pace that we saw last year?

CELLA: Option pickups have been positive for the networks in the past two quarters, but there’s nothing really showing us that there’s a big reason to see any kind of increases. The reason the upfront took a while last year is that the networks didn’t believe us. We saw it was a pretty grim picture last year, and it took about three weeks for them [to agree and] go to market.

GOLDSTEIN: There are a lot of things going on in the marketplace today that are viewed as being positive for [this year’s] marketplace. As Bill pointed out, option pickups are one of them. I tend to discount that because the advertising community spent a lot less in the upfront last year, notably in prime time. No matter how you slice it, hundreds of millions of dollars were not purchased in the upfront last year. Advertisers were more conservative. The year before, they overbought. When the economy went south, they cancelled their inventory. This year, their conservative nature puts them in the position of not being overbought. So I don’t think what happened last year is a direct reflection on where the next upfront is going to be.

GRUBBS: I think we prefer last year’s pace. Buying all dayparts in a one-week period is a ludicrous way to do business.

CELLA: It’s like buying a car without knowing what color it is and just putting it in your garage.

ADWEEK: But if you guys don’t like doing business in this frenzied, carnival atmosphere, how do you get out of it?

GOLDSTEIN: Timing is ultimately about a meeting of the minds. I think the gap between our thinking and the networks’ is much narrower today than it was a year ago. I also think, and maybe we as an agency community have learned a lesson, that we do a better job for our clients at a more orderly pace in the marketplace.

ADWEEK: Another price issue you’ve expressed concern about is the escalating rights fees networks are paying for sports broadcasts.

CELLA: I think the recent NBA changeover, for example, was pretty tough on NBC, who’s been dealing with the league for quite a few years. The rights fees escalated almost exponentially in a marketplace where it shouldn’t happen. The bottom line becomes the advertiser who has to pay the freight. So I think the rights fee situation is still way out of hand.

GRUBBS: I applaud NBC for saying this is a bad deal and we should walk away. It puts pressure on the network to raise prices beyond what the marketplace will bear, and it certainly puts pressure on the big, key sponsors. As far as it impacts us, frankly, we still have the ability just to walk away and say no, with a couple of exceptions, to these guys when they try to put pricing at a level that we feel is inappropriate.

GOLDSTEIN: Our concern is perhaps a bit broader in that we’re concerned about the economic well-being of the networks themselves. They have a business that we want to see continue to grow and flourish. We want them to be able to make investments in programming, not only in sports but in entertainment, news, specials, in every aspect of the television game.

GRUBBS: Right.

GOLDSTEIN: The concern we have is that the health and economic viability become threatened by making sports deals or any kind of deal that doesn’t have a solid economic base, ultimately costs them money, and perhaps prohibits them from spending in other areas.

GRUBBS: It also makes it untenable for us to buy some sports events that we would prefer to be in.


ADWEEK: The corporate entities that the three of you represent command about 60 percent of total worldwide ad spending. Much has been written about consolidation, but from your day-to-day perspective, is it playing out the way you expected it to?

GOLDSTEIN: Everybody focuses first on clout. There’s no argument that’s something we look to achieve for our clients. But what falls by the wayside is the things we’re doing in terms of investing in research, people and systems, and taking our resources and being able to provide our client with a better understanding of the consumer, a better way to reach the consumer, a more effective and efficient means of communicating the message.

GRUBBS: In my opinion, we have a far superior product offering today than we did two years ago. In no small part, it’s driven by our competition, which has also stepped up its game. And, frankly, I give [Aegis Group’s] Carat a nod for forcing us to step up our game and look at our resources and capabilities in the research area. The second thing is that although we’re still aligned with our agency partners, most of the pitches we participate in are no longer [with them]. We are forced to do it ourselves, and therefore we are forced to deliver a superior product.

CELLA: Let’s face it, we wouldn’t be sitting at this table representing the kind of entities we do if it weren’t for consolidation on the selling side. They control a lot of GRPs out there, so we didn’t create the commoditization everyone talks about. It came from them. One of the things we are all doing is trying to rebalance the landscape, as we call it at Magna. It’s important for us to protect our clients, whether it’s with leverage or resources or content.

ADWEEK: That brings up the question of media agencies becoming involved in the creative end of the business by aligning or buying entities that produce content. Do you want to make shows, or do you have something else in mind by getting involved in the content end of the game so much these days?

CELLA: We’ve been successful in getting closer to the client’s stra tegy, in getting involved in content that extends their brand’s image. We believe in it. It addresses clutter, it addresses owning your destiny, even if in a very small way.

GRUBBS: Do we want to get into the program-development business? Yes and no. We don’t want to get into anything that involves deficit financing. That’s a bad business. But where we will go is developing content that meets our clients’ needs, and that could come in the form of developing an environment that’s unique or ties into a broader promotional platform or that offers a pricing advantage.

GOLDSTEIN: I also think that to some degree the whole programming thrust is driven in part by the networks themselves in a slow economy. Five or six years ago, I would think that our active participation was not necessarily received with the most open arms.

GRUBBS (laughing): You think so?

GOLDSTEIN: A slight understatement perhaps? Economic conditions change, and there’s certainly greater recepti vity for us to bring things to them.

ADWEEK: What about them coming to you? In the last two weeks, for example, I’ve had three agents and producers in L.A. ask me, “What would happen if I took Bill Cella a show?” They seem to be starting to go to the advertisers and the agencies first.

GOLDSTEIN: They’ve been calling us for six to 12 months.

GRUBBS: Yeah, because somebody’s been whispering in their ears, “Hey guys, it’s the advertisers who have all the money.”

GOLDSTEIN: In some cases it’s the networks sending them to us because they don’t want to finance programs. They want a partner, particularly in original programming for the summer. There’s a fair amount of opportunity there.

CELLA: Marc makes a very good point. It’s about sharing the risk. To address one of your questions in the past about fundamental shifts in our business, Jack, it’s about the programming. If we can come to them with clients who can help fund programs, they’re all over it. And I think that’s going to stay for a while.

ADWEEK: What other new tactics and opportunities do you like or intrigue you the most?

GOLDSTEIN: I’m not sure it’s something I necessarily want to do, but I’d say repurposing. It’s created a lot of analysis at MindShare as to whether or not it works and what is the cost/value relationship of shows being sold as combined runs. And I think we’ll see more of that. It’s an economically driven concept.

GRUBBS: It’s surprising to me in an era of escalating production costs that we haven’t seen a change in the genre of programs put on the air. Game shows, Survivor-type shows, shows that cost less to produce, we see that. But at what point will we start to see offshore production, Canadian sitcoms, action-adventures and that sort of thing?

CELLA: We’re seeing an interesting production dynamic shift on the West Coast. The talent agencies are creating sales forces to address Madison Avenue. We’ve gotten their attention that we can make it work for a client or several clients, and they can maybe get some kind of ownership.

ADWEEK: Let’s talk a little bit about the competition among yourselves.

GOLDSTEIN: There’s no doubt Steve is the best golfer.

ADWEEK: Actually, I meant media reviews. What do you foresee in terms of competition for new business this year?

CELLA: I expect that [account] consolidation will continue.

GRUBBS: I’m trying to think of the last major full-service [creative and media] agency review that took place out there. I think more and more you’ll see media separated.

ADWEEK: A final question for all of you. If you could predict one thing that will happen in the media-agency world in the next couple of years, what would it be?

CELLA: Tough question, but I think the sellers have bought so many assets that they really have to justify them now. I think cross-media deals, done properly, could become 15-20 percent of the way we do business.

GRUBBS: I foresee major corporations aligning themselves with partners, with at least one or two of the major entertainment networks.

ADWEEK: You mean, just to throw out a hypothesis, OMD and Disney partnering up, that kind of thing?

GRUBBS: No, I mean individual clients within OMD. I’m talking about almost preferred-vendor type of relationships. It may be part of the cross-platform thought, that kind of “favored nation” partnership. My other thought is I think we will start to see global media reviews, maybe 18-24 months down the road. We’re already seeing some of those driven by European-based companies, but I think that will be the next generation coming from U.S.-based companies.

GOLDSTEIN: I would put two things on the table. Steve’s point about globalization will be very much on people’s minds in the next couple of years, not only in reviews but from a doing-business point of view. Companies are getting organized to do business that way. Secondly, from a media-agency point of view, there’s going to be a continuing emphasis on us being more efficient, whether that means electronic communication or some other way. We’re still very paper-and-pencil dependent in the way we do business, and that’s something we all have to to address.