I and members of my family were once employees of firms taken over by IPG, the huge advertising and marketing firm. Over the last year the stock has been at a year 2008 low of $2.50 or so and has moved slowly up to a $7.40 close yesterday. One would think that things are getting better - much better. Happily I got out in 2007. The bad part of all this (and there is indeed a bad part) is that the revenues for an advertising/marketing conglomerate are, well fees from advertising and marketing. OHOH.
I've written several times about the "advertising upfront" and the drop in ad sales generally. Well that two edged sword not only slays the networks it slays the ad agencies. Here is how it works for a firm buying advertising time.
A long time ago networks established a professional courtesy price structure for companies that used advertising agencies to place their media (buy ad space). It is a "net-gross" adventure in accounting. Agencies of record for a company buy media at the gross negotiated rate and when the bill comes due it is paid in "net dollars" which is 85% of a gross dollar. For instance, if I buy a :30 second spot on My Little Margie starring Gale Storm for $1,000 gross dollars my bill for payment, submitted to the agency will be 85% or $850. Originally the 15% difference was the agency profit and covered the agency's costs. With better software systems and EDS innovations, the real cost for handling advertising buying was substantially reduced and is now a fraction of the 15%. Major accounts are either bid at a low flat rate of the gross (2-5%) or the buying is done on a flat retainer fee. This is big trouble for an IPG.
They were being hacked to death by competetive bidding and had to reduce their commissions to the bone. Now the raw advertising spending has dropped like a rock so not only are their margins low their dollar volume goals in gross advertising placement are hard hit. IPG is in survival mode like almost all agencies.
The debt that they acquired in their buy out the competition is coming due just as their revenues are drying up. It doesn't help that GM was a big account. Twisting the clock backward, they would be fine. Running the clock forward.....ohmy.
I've written several times about the "advertising upfront" and the drop in ad sales generally. Well that two edged sword not only slays the networks it slays the ad agencies. Here is how it works for a firm buying advertising time.
A long time ago networks established a professional courtesy price structure for companies that used advertising agencies to place their media (buy ad space). It is a "net-gross" adventure in accounting. Agencies of record for a company buy media at the gross negotiated rate and when the bill comes due it is paid in "net dollars" which is 85% of a gross dollar. For instance, if I buy a :30 second spot on My Little Margie starring Gale Storm for $1,000 gross dollars my bill for payment, submitted to the agency will be 85% or $850. Originally the 15% difference was the agency profit and covered the agency's costs. With better software systems and EDS innovations, the real cost for handling advertising buying was substantially reduced and is now a fraction of the 15%. Major accounts are either bid at a low flat rate of the gross (2-5%) or the buying is done on a flat retainer fee. This is big trouble for an IPG.
They were being hacked to death by competetive bidding and had to reduce their commissions to the bone. Now the raw advertising spending has dropped like a rock so not only are their margins low their dollar volume goals in gross advertising placement are hard hit. IPG is in survival mode like almost all agencies.
The debt that they acquired in their buy out the competition is coming due just as their revenues are drying up. It doesn't help that GM was a big account. Twisting the clock backward, they would be fine. Running the clock forward.....ohmy.
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