An Ad Man Tests the Limits

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Viewers using digital videorecorders to blast past TV commercials? He would circumvent the menace by stepping up product placement. GroupM (like other media agencies) has built an entertainment division to produce programming designed around advertisers' products or messages. Recently, for example, a GroupM agency produced Exposing the Order of the Serpentine, a faux Spike TV documentary designed to sell Axe Snake Peel Shower Scrub for Unilever.

OVERSEAS MODEL

Gotlieb persuaded clients that he could bring Web-style analytics to TV. GroupM has a minority stake in InVidi, which tracks channel-surfing behavior to deduce who's watching what. Another recent investment: Visible World, which lets marketers customize 30-second spots to specific customers and locales. On the Web front, GroupM is doubling, to 2,000, the size of its worldwide digital staff. Clients seem impressed. "To have someone at the helm who is so knowledgeable about the future of the industry provides a tremendous amount of confidence," says Wendy Clark, the chief marketing officer at AT&T (T), which in October hired GroupM as its main media buyer. "He played a definite role in our decision."

Gotlieb's Web and TV innovations are bringing in money. He is signing up more clients than any of his rivals. And GroupM is the biggest media-buying operation in the world. But it may not be enough at a time when advertisers are stingier about paying media agencies. Gotlieb's boss, WPP Chairman and CEO Martin Sorrell, is counting on continued earnings growth. So is Wall Street.

Which brings us to rebates. It's not hard to understand why Gotlieb wants to replicate the business in the U.S. Rebates can be worth 1% to 15% of a multimillion-dollar advertising budget, as much as a client pays a media agency to place ads. In fact, according to a former GroupM insider, rebates recently generated more than a third of European annual profits at GroupM agency MediaCom. GroupM acknowledges its European agencies get such income from media owners but calls assertions that MediaCom generated a third of its European income that way "absolutely ridiculous."

Why might GroupM zero in on outdoor advertising in the U.S.? Although small, it's the third-fastest-growing medium. And the sector is fragmented: In addition to such giants as CBS Outdoor (CBS) and Clear Channel Outdoor (CCU), it includes startups eager to attract advertising. In 2005, GroupM formed a separate division, Kinetic, to handle its outdoor ad buying. In recent months, Gotlieb and Kinetic CEO Steve Ridley have been making the rounds of U.S. outdoor companies. Here's what they say is on offer: In exchange for a large ad purchase, Kinetic will sell the outdoor companies "tools and services" designed to help them prove their marketing efficacy to advertisers. This does not amount to a rebate, says Gotlieb. It's simply payment for services rendered. But Gotlieb acknowledges that the price is a straight percentage of what Kinetic's clients spend each year with the outdoor companies. (One person familiar with the situation pegged the fee at 1.7%.)

Kinetic has an agreement with billboard companies JCDecaux Out-of-Home Media Group and Titan Worldwide. It also is in discussions with a broad range of other outdoor companies, including Clear Channel Outdoor, CBS Outdoor, and Screen Vision, which supplies the commercials you see in movie multiplexes. But several outdoor executives who know about the plan express reservations. "It's wrong," says one, who requested anonymity for fear of losing Kinetic's business. "It defies all the fundamentals of what agencies should do: buy ads based on the merits of the advertising. I want to win deals on merit, not because I've agreed to award a rebate."

Gotlieb says he has briefed one "major, global" client about the Kinetic program and got its blessing, although he declined to name the advertiser. BusinessWeek contacted several Kinetic clients; most declined to comment and said they hadn't heard about the rebate deals. But one Kinetic client did express wariness. Rebates are fine, says Burger King Holdings (BKC) marketing president Russell B. Klein, so long as they are done transparently and the connected ad buys are monitored closely. That's partly why Burger King analyzes an ad campaign before and after its run and requires media buyers to provide affidavits that the money was spent in the right place. "If it were simply someone saying, Here's 10 million bucks,' and the person secured rebates and there was no checking up on it," he warns, "that would be another matter entirely."

As far as Gotlieb is concerned, the rules have changed. In a world where ads can be customized to the individual and every click and ad view measured, he says, advertisers and media companies alike will gladly pay for his quantitative expertise. In five to seven years, he predicts, he may not represent advertisers at all. He will be an arbitrageur, buying ads in bulk, slicing them up for niche audiences, and reselling them at a premium. "Then," says Gotlieb, "we don't have to be transparent."

"An Ad Man Tests the Limits" (In Depth, Mar. 3) incorrectly stated that GroupM CEO Irwin Gotlieb had accompanied Steve Ridley, who runs subsidiary Kinetic in the Americas, on calls to U.S. outdoor advertising companies to discuss a plan to revise ad-purchasing arrangements; Ridley's visits were made without Gotlieb. The story also inaccurately said that advertising rebates are prohibited in France. While France set strict limits on rebates in 1993, requiring that the terms of any such arrangements be spelled out contractually, it did not ban them outright. The story should have included GroupM's assertion that its policy is to include any rebate arrangements in client contracts. While the article correctly noted that Gotlieb expects GroupM to continue to expand its sources of revenue, it incorrectly stated that he predicted GroupM might eventually stop representing advertisers at all.