An Ad Man Tests the Limits

Irwin Gotlieb became the most powerful man on Mad Ave by innovating. But clients may want to scrutinize his latest idea for boosting profits

By Burt Helm, with Jack Ewing, Andrea Zammert, and Carol Matlack

Gotlieb pioneered the use of metrics for the television and advertising business Ethan Hill

Wherever media and advertising executives gather—from future-of-the-industry confabs to magazine award luncheons—you will find a 58-year-old man with the haggard look of someone who would rather think than sleep. He rarely seeks people out at these events, but lets them come to him. And come they do: CEOs, CMOs, and network bigs, all jostling for face time. Eventually this man will mount the stage. A reverent hush will descend. Irwin Gotlieb, the most powerful man on Madison Avenue, is about to speak.

In his pensive, reedy voice, Gotlieb will typically lay out his vision of the future: billions of consumers in a global bazaar of digital media, advertisers seeking them out with hyper-targeted ads, can't-miss analytics. And he will inevitably explain why his media-buying company, GroupM (WPPGY), will remain central even as the world moves online.

Clients, Wall Streeters, media executives—all listen because Gotlieb is the world's most successful media buyer. He hates the term, preferring to call his business "media services." But he's a media buyer. What does he do? In the simplest terms, he uses scads of consumer data to help clients figure out where to spend money on ads—TV, magazines, Web portals, video games, and so on—and then buys the time or space. Last year, GroupM bought some $60 billion worth of ads for a roster of blue chips.

All media agencies use their massive buying clout to extract the best possible deal from the TV networks, billboard companies, and Web portals. But none of them exploits its scale quite as lucratively as Gotlieb. GroupM earned just over $400 million in operating income on revenues of more than $2 billion last year. That's a big chunk of the income netted by GroupM's parent, the advertising behemoth WPP Group.

But at a time when recession is in the air and ad spending is tepid, it's getting harder to keep profits growing briskly for his increasingly demanding overlords at WPP. So he is looking for new ways to earn money in the U.S., the world's largest advertising market. Gotlieb is known as a Digital Age oracle. But he is putting a new twist on a surprisingly old-fashioned moneymaking model—one that has been banned in France since 1993 and now is under fire in Germany.

The practice is known in the advertising industry as a rebate or "volume override." Here's how it typically works in Europe. A media-buying agency approaches a TV network or magazine publisher and offers to buy a large number of ads. In exchange, the network or publisher pays the media buyer a percentage of the total advertising tab. The media company may write a check, give away free ad spots, or agree to buy something from the agency—a research study, say. Sometimes media buyers share the proceeds with clients. Sometimes they don't.

The rebates are controversial because they present a potential conflict of interest: Media buyers could be tempted to place ads not where they make sense for a client but where the rebates are the fattest. When the French government banned the practice, it required media buyers to act exclusively as agents of their clients when purchasing advertising space or time. Rebates are common in most of Europe. But advertisers often hire auditors to keep an eye on their media buyers—and even then, auditors say, it's not easy to spot such payments.

In Germany, rebates have attracted the authorities' attention because the nation's two largest broadcasters, RTL Group and ProSiebenSat.1 Media, were paying media buyers rebates if they agreed to commit a certain percentage of their national ad budget. Antitrust officials saw such "sharedeals" as a way for the two companies to freeze out smaller rivals. In November they fined RTL and ProSiebenSat.1 Media $140 million and $175 million, respectively. Both companies say they have since halted such sharedeals but acknowledge that they pay fees to media buyers in exchange for bulk ad purchases. "All these rebates belong to the advertisers and should be passed on to them,"