The biggest buyer of ads on billboards and other outdoor spaces is proposing a controversial new payment system that critics charge will boost the company’s bottom line at the expense of ad clients.
Kinetic, a subsidiary of global ad giant WPP and its ad-buying arm GroupM, wants the big outdoor media companies that own the ad spaces to give it cash back in exchange for buying ads on everything from billboards to bus kiosks.
Kinetic insists the fees will be used to provide clients with research and measurement tools that advertisers have come to expect from other major media, such as broadcast television, and will boost overall spending on outdoor media.
However, critics say that the system will gouge the companies that own the ad spaces, such as Clear Channel Outdoor, JCDecaux and Titan Worldwide, and that the plan is a not-so-veiled attempt to introduce an overseas industry practice known as a “rebate” or “volume discounts.”
Opponents of the plan also say it potentially presents a conflict of interest for ad buyers because they are tempted to do business with the media company that pays the biggest rebates – not focus on their big name advertisers.
GroupM executives said the Kinetic program isn’t a rebate nor do they have plans to introduce rebates into any other area of media buying.
“We don’t view either what we’re talking about in the out-of-home arena or anywhere else as a rebate,” said Marc Goldstein, North American CEO of GroupM.
In some countries, such as the UK, rebates that started out as a percentage point or two of the total ad buy have become a major cost of doing business. Outdoor executives said rebates haven’t made their way to US shores.
“Clear Channel Outdoor in the US sells all of its inventory on a net basis,” said Paul Meyer, the company’s global president and chief operating officer. “It does not pay rebates or third-party commissions of any kind to any agency or media buying service.”
Several outdoor executives, who asked to remain unnamed, expressed deep reservations about Kinetic’s proposal because – like a rebate – the fees are based on the volume of advertising that an agency buys on behalf of clients.
“A system based on how much the buyer receives from the media company is a bad system for the clients and it’s a bad system for our business,” said one outdoor executive.
For more than a year, Kinetic has been talking to outdoor media companies about a proposal that calls for them to pay a fee, or around 12/3 percent of the total ad buy.
The discussions only came to light in the last couple of weeks, when a BusinessWeek story suggested that GroupM’s global CEO, Irwin Gotlieb, was trying to import a rebate system to the US.
Steve Ridley, the chief of Kinetic, describes the proposed system as a “funding vehicle” to pay for research and other services that will encourage advertisers to spend more on outdoor media.
Outdoor media is a fast-growing segment of the US market but remains a small piece of the overall ad-spending pie – around 3 percent.
“Hopefully, clients will feel more comfortable incorporating more advertising dollars in this channel because it has the right services,” Ridley said.