2006 "SarbOx" Deflations vs. Media-"Star Buck" Inflations
During the Internet boom, a classic question webdev shops would pose to corporations was the line, "What keeps you up at night"? For many of us on the i-agency side, we hoped they would reply, "Good question, we need to build a new $3 million web site". Most often though, we received dull stares. It wasn't the first time they'd heard the question. The second thing was that the late '90's era venti-sized stock market was helping CXO's sleep quite well. But then, once Enron, Worldcom and others sucked the "double tall non-fat decaf latte" out of the market, Washington DC felt the need to put on a black apron and take over brewing the coffee. It was time to wake the corporations up.
Since 2002, CXO's have been losing a quite large amount of sleep and continue to operate in an overly nervous caffeine-ated state. Why? Because of SarbOx. Short for Sarbanes-Oxley, the 2002 federal Act requires that CXO's have to sign off on earnings personally or risk going to jail.
How did it SarbOx affect Madison Avenue? Suddenly, Media-All Star inflators stopped adding whip cream to their proported media billings. In bizdev and shareholder meetings the emphasis changed from bigger to better. MadAve media agencies were now promoting how they could bring more creativity to smaller media budgets. How could they do this? Simple, the budgets were never as large as they claimed them to be.
For example, there's a nationally known cola company located in Atlanta many refer to as "The Real Thing" (TRT). Back then, TRT had two media agencies working for it; one for planning and one for buying. On the street the planning agency would promote that they planned and managed over $400 million in TRT billings, while the buying agency would promote that they negotiated and stewarded over $400 million in TRT billings.
To the untrained eye, one might determine that TRT spent over $800 million in media; however this was not the case. To a trained eye, it would indicate that both shops were blowing their "hands-on control" out of proportion. Neither had as much influence on the brand as they claimed.
For a while, this drove publishers crazy. With both mega-agencies claiming so much control, sales reps would go back and forth between the two shops and work in earnest to sell their offering to each agency. Many found it impossible to close the deal. Neither agency (which were owned by different agency holding companies) liked to chat with each other much. Given the paralysis, much time and energy was wasted trying to decipher who was the influencer and who was the decision-maker. Finally, frustrated with the situation, many publishers decided it was simply easier to go directly to the client.
As a management consultant, many found this quite humorous since TRT hired their agencies to reduce, not increase the flow of media sales reps knocking directly on their door. The situation only exacerbated that problem. Plus, it made TRT's inside media group not unlike a pre-school teacher helplessly and hopelessly trying to manage two mis-bahaving little brats who refused to play nicely with the other. Like Enron and Worldcom, the agency's outlandish pre-SarbOx behavior - overstating their media control and media clout - led to vastly wasted efforts across all channels, that ended up literally on the client's doorstep.
Since then TRT has restructured its roster of agencies, but even if it didn't, agency CXO's are very careful about how much control state they have on any media budget.
However, SarbOx the StarBucksian fluid to keep CXO's in line is about to be watered down. It's now being referred to as "a new cancer" by high-flauten CFOs as an "American nightmare," (the exact words used to describe it by former CFO GlaxoSmithKline, Stephen Moore, now founder of Club for Growth).
The SEC is planning to decrease its provisions to a lower "Duncan Donuts" enforcement standard and the lobbyists are lining up to add a french croller to their order. The pressure on publicly traded MadAve-based companies will soon be de-caffeinated. MadAve CXO's will soon be catching up on their sleep. The question is, how will a decaffed SarbOx change the business next year? At least 3 ways:
Marketers: We expect corporations will find the new provisions enable them to continue expanding within their categories. In order words, expect more consolidations. That said, marketers who will live to consolidate another day are fairly savvy enough to understand that their marketing apparatus is as important as the manufacturing of the widgets they make. There will be increases in marketing departments at the client level to "overhear" as much chatter from the other media-star buck table as possible about new trends. Clients will makes these increases due to the lack of trust many marketers have with their media-star agencies, whether they are part of one holding company or split between a few.
Publishers: As reported in the June 15, 2005 issue of wsj.com Viacom's announcement of separating detailed that the company's cable channels and film studio from its broadcast-television and radio operations goes into formal effect on January 1st. On the 6th Avenue side of things, yesterday's announcement seen in AdAge of many of Time Inc's fat cats being given pink slips, is an indication that publishers are rehauling their media managers, retiring those who don't read email or IM and ratcheting up those who use wireless for more than their phone. One senior executive made the politically correct statement, "This is a hard day to be excited". though underneath the veil, there is dancing and shouting that the company - who essentially created the modern-day magazine business - is finally able to make the claim, "We’re not just a magazine company...It’s part of what we do, but we’re also builders and providers of content." Ultimately, media companies are going to deal with hyper-fragmentation, though will actually be able to service the market's new requirements as they retire obstructionists who refused or could not accept the new media marketplace.
Agencies: For better or worse, agencies stand to net the greatest breathing room from SarbOx. Smart agencies who manage to hold on to consolidated business will be able to renegotiate fees that come closer to realistic retainer/bonus business relationships that put back more of a platform for agencies (even agency holding companies) to do their best work (or at least better work) without going broke. As stated in previous issues, the disappearance of commission-based compensation has neither increased quality of service nor ROI on a marketer's spreadsheets; especially if it lowered the overall fee. You get what you order for. All that said, small agencies and media tech verticals who continue to offer superiority of service will continue to grow at the expense of larger shops. This may increase at a more rapid rate as inside corporate marketing departments are better staffed to manage more granular media investments and agents.
Summary: Overall, a more decaffeinated SarbOx could be just what Madison Avenue has been waiting for. However, for a business built on helping increase their clients' sales - through the creative use of largely exaggerated claims of the slightest brand differences -will MadAve be able to discipline itself from going back to making highly inflated claims of imaginary media power? Yes and no.
Yes: The larger agencies have more than likely learned their lessons and if done at all, will be talked about over dinner, and not in the press, in bizdev or at media conferences.
No: Smaller shops and media tech firms may not heed the impact of the reduced SarbOx criteria. Mistakes made by the older generation are more often than not passed down to the younger ones.
However, since going to jail these days seems to be a "right of passage" - if measured by many of our contemporary pop-culture roll models - or even some of our lace curtain decorating experts - if they can bring Starbucks to Afganistan, who is to say one of these days they won't open one in Cook County Prison?
"May I take the next "guest's" order"?