BUSINESS Spectators

Commentary

1:06 PM, 2 Dec 2008

 Edited by Sophie Vorrath

The barter the better

 It's somehow comforting to know that the collective tightening of the purse strings that is currently sweeping the globe has not eluded the advertising and marketing industry – at least not according to Adweek's Steve McClellan.

It seems that, with ad dollars spread a little thin in today's recessionary climate, an increasing number of marketers are reverting to "a tactic once-considered a last resort: barter advertising."

The age-old process involves the exchange of unsold goods, services and other underperforming assets, for ads, says McClellan – most deals involving a combination of cash and credit for media time and space in return for unsold client inventories.

And while this practice has, in the past, been kept on the down low, it's really coming to the fore now that excess inventory is becoming a mainstream problem for marketers.

It's getting so big, says McClellan, that some agencies have started outsourcing their barter assignments to third-party specialists. And for the first time this year, industry insiders say they are seeing new business requests for proposal (RFP) that specifically ask about shops' barter capabilities, as well as RFPs whose sole focus is corporate trade.

Brian McMahon, founding CEO of Magna Global Trading, reckons that industry-wide growth in 2008 will probably reach 30 per cent, says the magazine, and 35 to 40 percent growth next year.

Increasingly, says McMahon, global clients want to apply credits accrued in one region to media in another, making the deals much more complex affairs, in need of stewardship.

Another strategy Magna employs is "hooking up multiple clients that have use for each other's products as well as media credits."

And while traditional media is still the main currency of trade, barter is evolving to include various digital offerings.

"Music is the common connection to every demographic today," Active International chief strategy officer Jim Porcarelli tells Adweek. Songs, which no individual client could collect on its own for as low a cost, can be used in promotions of various kinds.

Tricks of the Trade: Bartering for Ads

A practice once considered a last resort has become an attractive strategy in tough times

Dec 1, 2008

- Steve McClellan

NEW YORK The search to stretch ad dollars in today's recessionary climate has an increasing number of marketers using a tactic once-considered a last resort: barter advertising.

The corporate trade sector has existed for decades. The process involves clients exchanging unsold goods, services and other underperforming assets -- such as real estate leases on stores they have closed -- for ads. Most deals involve a combination of cash and credit for media time and space that are swapped for unsold client inventories. But up until recently, many marketers, not wanting to tip the competition to perceived weaknesses in their sales models, considered it something akin to a dirty little secret.

Now, however, excess inventory has become a mainstream problem many marketers have to deal with. They're talking openly with their agencies about solutions, with barter taking center stage, even to the point that it's sometimes being incorporated into the RFP process.

"It really is at the forefront," said Steve Lanzano, COO at Havas' MPG. "We're seeing a lot clients who were not really involved in the barter space asking a lot of questions about it."

Some agencies, including MPG, outsource their barter assignments to third-party specialists. Lanzano said MPG works with several outside firms, but declined to name them due to nondisclosure agreements. Some shops, like independent KSL, which earlier this year launched eWorld Asset Trading to handle its barter business, have subsidiaries that do the work. Several holding companies have in-house firms including Magna Global Trading, an Interpublic firm; Icon International, owned by Omnicom; and Carat Trade, a unit of Aegis Media. Independent corporate trade specialist Active International, with offices in 15 countries, claims to be the largest company in the business today, placing more than $1 billion in such deals annually.

Agency executives say that for the first time this year they have even seen new business RFPs that specifically asked about shops' barter capabilities, as well as RFPs whose sole focus is corporate trade. "This used to be a business you had to go and aggressively seek out," said Kal Liebowitz, CEO of independent media shop KSL, who has been doing barter deals for more than a decade. "Now, clients are raising their hands" and initiating the conversations.

Alan Brown, evp, worldwide media at Active International, agreed. "With the economic downturn and growing inventories, more companies are being proactive, coming to us seeking counsel and solutions," he said. "And it's crossing all sectors." He would not name clients, but said that most of them are Fortune 500 firms

Third-party ad trackers don't publish annual tallies on the amounts of barter advertising that are transacted. But Brian McMahon, worldwide CEO of Magna Global Trading, which he founded 14 years ago, estimated that the global business is close to $3 billion with the biggest market "by far" being North America. He added, however, that the practice is growing significantly in Europe and Asia as well. Industry-wide growth in 2008 will probably reach 30 percent, he said, and he projects 35 to 40 percent growth next year.

Liebowitz agreed that growth in the sector will be huge in 2009. "Right now it's about 15 percent of our total business, and next year it may be 30 percent," he said. KSL is currently in talks with a handful of car companies about swapping its excess inventory for media. Several of the shop's AOR clients started as barter project assignments, Liebowitz said, including Turtle Wax. He declined to name the others. While clients are more open with their agencies on the subject, there is still reluctance to be identified in print, he said.

For bigger clients, the barter transactions are becoming increasingly complex, said McMahon of Magna Global Trading. Increasingly, global clients, for instance, want to apply credits accrued in one region to media in another, he said, making stewardship of the work critical. He cited a deal involving a Fortune 50 client in the U.K. The mission: help an Australian subsidiary repackage a bunch of media credits for use across three continents. Magna worked with sister shop Universal McCann to complete the task.

Another Magna strategy: hooking up multiple clients that have use for each other's products as well as media credits.

Barter specialists are also expanding their offerings, notably in the digital domain. Traditional media is still the core offering, but it's evolving, said McMahon. "We do provide [some] digital media on trade," he said. "And we're exploring opportunities to enhance our digital partnerships."

At Active International, chief strategy officer Jim Porcarelli, a 25-year ad agency veteran who joined the firm about two years ago, helps develop service offerings for clients. Among them is a new digital music package with millions of songs dubbed the "Active Music Store."

"Music is the common connection to every demographic today," said Porcarelli. The songs, which no individual client could collect on its own for as low a cost, can be used in promotions of various kinds, he said, and is just one example of how the firm's "offering has evolved just as media has."