Starcom CEO’s link with Tremor Video IPO raises conflict of interest issue

May 29, 2013

Laura DesmondYou can gauge the ebullience of equity markets these days from the number of obscure digital media companies with dodgy profit and loss accounts that are confidently seeking an IPO (or listing on the stock exchange as it is more commonly known). They’ve never had it so good… since 1999.

Right now video ad networks – companies that provide a digital video platform for the big marketing services groups serving their ads online –  are flavour of the month. The “space” is currently dominated by Google’s YouTube and Hulu (which you may also have heard of). But video industry experts expect YuMe and (which you won’t have done, unless you’re in the biz) to declare their hand.

In fact one of them already has: Tremor Video, a big video ad network that has long been eyeing a public listing, announced its IPO a few days ago. It’s typical of the breed. Last year the company lost $16.4m on revenue of $105.2m, the previous year $21m on revenue of $90.3m. But hey, what’s a big red hole when margins are improving and losses decreasing? The stock market is not about today, it’s about tomorrow: and Tremor is selling a great tomorrow, about $86m-worth of it, it hopes, on the NYSE. Already Tremor runs ads on over 500 websites and mobile apps: that figure can be expected to increase exponentially with all the publicity attending a flotation.

So far, so dull. But don’t nod off, because things are about to become considerably more interesting. Tremor has lots of admirers in the business. One of them is Starcom MediaVest Group, owned by Publicis Groupe – which is nearly, but not quite, the world’s largest media buyer. So, a friend worth having you might say. In fact, SMG likes Tremor so much that its business accounts for nearly 20% of the video ad network’s revenue, so I’m told . What that says about PG’s in-house alternative Vivaki I’m not quite sure; maybe things aren’t working out there as well as they should be. But it’s one hell of a vote of confidence in Tremor.

And perhaps that’s as it should be. Except… my eye was caught by a further disturbing detail in the S-1 – a simple IPO pathfinder document filed with the SEC. One of Tremor’s principal directors is Laura Desmond. Not, by any chance that same Laura Desmond (pictured) who has been global CEO of SMG since 2008? I fear it may be the self-same. If so, she’s a very provident – and lucky – woman. Because a small fortune is coming her way very soon. Desmond (that’s Tremor Desmond) was only one of two Tremor board directors to get paid last year: she received a full grant of nearly $300,000 in share options, plus another $175,000-worth which can be vested in equal amounts every month over the next four years. Quite a tidy sum, you’ll agree. But that’s not the full measure of it. The options, I’m told, have been awarded in nominal 2012 terms – at about $1 per share. And should the IPO striking price be $10 per share? Imagine – $3m, or thereabouts.

Enough, certainly, to pay for that sailing trip round the world which the other Ms Desmond has been promising herself for some years.

UPDATE  4/7/2013: Tremor Video’s IPO got off to a rocky start last Thursday, and Laura Desmond may not collect quite so much as she hoped when passing “Go”. The flotation price was $10 per share (as predicted above), below hopeful initial forecasts of $11-13. However, the stock has since spiralled down to a tad under $8. Ms Desmond need feel little despondency, however. There is still a tidy package coming her way. By my calculations (based on the S1 012 Director compensation table), she has already vested over 35% of her 175,000 stock options. Meaning she can cash them in at any time. The rest she must accrue at the vesting rate of 1/48 a month until January 19th 2016. No doubt she would be wise to wait a while until crystallising her nest-egg. At $10 per share, the options would be worth – hardly rocket science – $1.75m. She may – we don’t know this for certain – have to pay the strike price of $3.34 per share, which would reduce her total haul to about $1.2m. Still enough for that ocean cruise, though….

One PPS. Some readers of my original article made the fair point that there is nothing untoward in SMG representing such a large proportion of Tremor’s revenue: it is, after all, one of the world’s largest media buyers. Up to a point, Lord Copper. Pretty precisely, SMG accounted for 17.8% of Tremor’s revenue in 2012. On the above rationale, you would expect GroupM, which is even bigger than SMG, to account for an equivalent portion of that revenue. It does not. As far as I can make out, it spent only $7.5m through Tremor during the same period, a tiny amount by comparison, and has only one major client with them, AT&T. Could be a coincidence, of course. On the other hand, investors should be on their guard that Tremor does not screw up its special relationship with SMG.

WPP hurls BRICbats at Publicis Groupe’s performance figures

February 11, 2012

An arcane row has broken out between agency behemoths WPP and Publicis Groupe over the latter’s claimed financial performance.

First, some necessary background to the dispute.

These days, only two things really matter for global agency holding companies presenting themselves in the annual financial beauty parade. Two things, that is, beyond a clean set of figures showing decent organic growth, enhanced operating margins and a handsome improvement in earnings per share (EPS).

They are: how much revenue is digital (as opposed to derived from ‘traditional’ advertising). And: how much comes from emerging economies.

The annual figures merely tell us how well the company has been stewarded in the recent past. But the other two criteria are much more exciting because they are predictive. Get them right and you tantalise shareholders with the thought of future gain, garner positive headlines in the financial media, boost the share price and – if you are one of the company’s most senior executives – make yourself still richer in the process.

By these standards, Publicis Groupe has just produced a corker. Never mind revenue growth of 5.7% to €5.8bn in near economic-blizzard conditions, or operating margins of 16%, or EPS up 14%. What really mattered to The Financial Times was a sound-bite: Publicis’ US digital revenues are set to overtake those of traditional media.

And to be fair, it is a pretty singular statistic considering that, as recently as 2006, digital was only 7% of PG’s revenue globally; now by comparison that global figure is nearly 31%.

“Digital” is of course shorthand for: our share of the pie in the only bit of the advertising economy still growing in developed economies, such as the USA and Europe.

Of no less importance as a corporate virility symbol is “emerging markets”, the geographical counterpart of “digital’s” sectoral dominance. Maximum bragging rights are accorded to those who can establish leadership in the most significant of these markets, the BRICs (Brazil, Russia, India and China).

PG chief Maurice Lévy’s claim that 75% of group revenues will in the “pretty near future” be derived from a combination of digital and emerging markets such as “Brazil and China” is therefore music to the investment community’s ears.

Better still for investor returns, Lévy claims he will reach this milestone ahead of his rivals Omnicom and WPP.

Not surprisingly, these rivals are livid at the suggestion. So incensed in fact that WPP, for one, is challenging the factual evidence on which Lévy has built his ambitious projections.

It has dissected PG’s webcast financial presentation and done a slide-by-slide demolition of PG’s BRIC performance. I won’t bore you with all the details. But here’s the gist:

Slide 32, Brazil. Lévy mentioned last year that Brazil was PG’s 4th largest market. Now he’s saying it’s the 6th. What happened?

Slide 33, China. WPP takes issue with PG’s assertion that it will double its size in this all-important market by 2013, from a $200m 2010 revenue baseline. It says the ‘3 creative network leaders’ claim is a myth. R3 sourced figures actually put WPP and Omnicom agencies ahead of PG’s. Cannes performance also suggests WPP outguns Publicis. PG claims to be top in media buying: this is flatly disputed by WPP, which says RECMA figures prove it is overall leader in Greater China. The key argument, avers WPP, is over organic growth. Here, PG is achieving about 8.5% while WPP appears to be nearing 16% a year.

Slide 36, Russia. PG claims leadership in this market both in media (Vivaki) and creative (Leo Burnett and Publicis Worldwide). WPP asserts that there are no reliable creative rankings in Russia and where media is concerned it is emphatically on top with 28% share versus PG’s 23.2%, according to RECMA figures.

Slide 37, India. PG claims to be number one in new media business (Vivaki) and no 2 in creative (Leo Burnett), quoting R3 as the source. But R3 does not do a new business table for India, says WPP. PG claims strong positions in digital, healthcare and PR, but with no source attached. PG’s digital presence is “tiny” (says WPP), and it has made no recent acquisitions. As for media, according to RECMA, WPP’s GroupM has 42.7% share while Vivaki is 3rd with 9.4% share. Creatively, the latest Economic Times 2011 Brand Equity rankings for agencies (the only authoritative source on this subject) puts two WPP agencies Ogilvy and JWT first and second, while Burnett is 6th and Saatchi & Saatchi 17th.

It’s no surprise, of course, to find these two deadly rivals engaged in another slanging match, albeit disguised in high-falutin’ finance speak. What will be interesting is if Publicis has a riposte.

POSTSCRIPT. I note that, despite a strong set of figures and robust balance sheet, PG has maintained rather than increased its dividend. As Lévy explained, that’s because PG needs to hold on to all the cash it can in case it has to buy back up to €900m of Dentsu shares later this year. In view of recent developments, this seems highly likely.

While GM’s Ewanick dithers over global ad review, Big Fuel runs out of gas

January 12, 2012

It’s difficult not to feel a smidgin of sympathy for General Motors whirligig marketing supremo, Joel Ewanick. Clearly he’s bitten off more than even he can chew with a stupendous $5bn global creative advertising and media planning/buying review. Five months into the review, reaching a decision is causing him sleepless nights. Or so he confides to Ad Age:

“It takes a while to sort through all the data — and there’s a lot of data. We have 40-odd media agencies, 50-odd creative agencies; that’s a lot to sort though. We’re getting very close. We need a couple of extra weeks. …We hoped to have it wrapped up before Christmas, we couldn’t do it. No one out there knows anything. They think they do. But it can change tomorrow. I went to bed last night, and changed my mind.”

Agencies gnawing their finger nails as they await the final result of these nocturnal deliberations may come to welcome his procrastination. Because when he does make a decision, it can have devastating consequences.

Ewanick’s sleepless nights are nothing, I suspect, to those of staff at Big Fuel, which has now lost most of its business as a result of him placing GM’s social media account elsewhere.

Nor to the insomnia of senior executives at VivaKi, the Publicis Groupe digital division which in July last year took a calculated gamble on shoring up Publicis’ worldwide GM business by acquiring a 51% stake in the social media specialist.

Big Fuel without GM is like Hamlet without the Prince. According to information that has come to hand, in late 2010 Big Fuel signed a 2-year annually renewable contract with GM under which all its social media activities were consolidated at the agency. As a result of this, GM was projected to be $28m (77%) of total Big Fuel revenues at the end of 2011. Other clients, which include McDonalds, Philips and Fisher-Price, were budgeted at $8.5m. It is important to emphasise that these figures were forecasts: nevertheless, they are unlikely to diverge hugely from real performance. Circumstantially, we may also care to note that Big Fuel staffed up heavily in the wake of its GM contract. In early 2010 it had 30 employees; by July last year  – when PG pounced – that figure had reached 170, according to Ad Age.

The timing of the annual breaker in the 2-year GM contract may account for why Ewanick ‘let the agency go’ before making a general announcement on the agency roster.

The decision of Laura Lang – CEO of the Digitas unit of VivaKi responsible for Big Fuel – to quit in the wake of the GM decision (she is going to head Time Inc) is no doubt entirely coincidental. A more reliable indicator of the temperature at VivaKi will be whether PG takes up its option to buy the rest of Big Fuel, which it must decide upon by 2014.

Publicis’ sweetheart ad deal with Google turns sour after kickback allegations

November 25, 2010

When is an agency kickback not a kickback? When it’s a strategic partnership with Google – according to Kurt Unkel, senior vice-president at Publicis Groupe digital arm VivaKi.

Google and Vivaki have found themselves in the eye of a hurricane, thanks to an exposé published by the respected online journal TechCrunch. It sheds disturbing light on the highly incestuous relationship between the internet giant and agency group, with particular reference to their collaborative display advertising operations.

The technicalities are complex, jargon-ridden and difficult for outsiders to understand, involving as they do the secretive workings of so-called agency “trading desks” and “demand side platforms” (DSPs). But at heart the issue is simple. It’s exactly the same one aired in one of my recent posts on a historic kickback scandal at Grey Advertising. It’s about playing the agency client for a mug, possibly because the client in question is indifferent, but more likely because he or she hasn’t the first idea about what is going on. Or, as one anonymous Publicis employee quoted in the TechCrunch piece bluntly puts it: “Our clients are so clueless it is a joke.”

So how does the scam, if that’s what it is, actually work? Google is desperate to prove that it is not a one-trick pony, relying pretty exclusively on search advertising revenue. It has made considerable inroads into display, which now accounts for $2.5bn a year revenue according to the company itself. Some of this comes from its own sites, which include YouTube, but quite a lot is also generated via special units, the DSPs mentioned above, which are attached to all the big agency network groups – Omnicom, WPP and Interpublic as much as Publicis. According to one source quoted by TechCrunch, these DSPs already handle 10% of online ad spending but, such is their power, they could handle up to half in a few years’ time.

The issue is not whether money changes hands between Google and Publicis to boost Google’s market share. An explicit bribe would be illegal, not least because the financial inducement would not have been remitted to the ultimate paymaster, the advertising client. Rather, what seems to be going on are a series of non-monetary inducements offered by Google to improve agency performance. These, according to TechCrunch, include investment in the agency trading platform, co-marketing and training.

Google does not deny this is what is happening with Publicis. That in itself is serious enough, because it hints at abuse of market power, which could in time attract the attention of the competition regulator. In a nutshell, is Google using profit gained from its search operation to distort the display market?

But the implications are even more serious for Publicis, which depends on digital advertising revenue to sustain its industry-beating profit margins, of which we have been hearing so much from Groupe chief Maurice Lévy of late. According to a Publicis secret squirrel quoted in the piece, Publicis will run $1bn of advertising through Google this year, most search but about $200m display. To put this figure in context, digital was nearly 30% of Publicis’  Q3 €1.3bn revenues. And the rate at which digital revenues are growing – 28% in North America, which is the hub of global activity – is much higher than the industry average of 17%. Just to round off the point, there is an incestuous relationship between Google and VivaKi’s DSP technology: the technology is effectively licensed from Google.

If that’s the case, the not unreasonable question arises: are media planners at VivaKi acting in the best interests of clients when they allocate client funds, or the best interests of their employer?

I should point out at this stage that VivaKi does do business with display ad exchanges other than Google’s DoubleClick; for instance Yahoo’s Right Media. It also has a sweetheart display advertising deal with Microsoft, struck as a clinching quid pro quo during the Razorfish acquisition last year.

Nor does Google have an exclusive partnership with Publicis. It has a relationship with all the major advertising holding companies and a similarly structured deal to the Publicis one with Omnicom.

Whichever way you look at it, however, this exposé is a wake-up call for clients. Advertisers really need to pay a lot more attention to how their money is being spent.

POSTSCRIPT: Troubles, they say, always come in threes. To add to Publicis’ Google woes, there is a still-breaking corruption scandal in its China media buying operation, plus fresh news that Matthew Freud’s high profile PR subsidiary is plotting defection. For more information on this last, see what my old chum Stephen Foster has to say over at More About Advertising.

The Silver Fox proves his cunning

June 2, 2010

Lévy: Last laugh?

That’s it then. Jean-Yves Naouri has been confirmed as Maurice Lévy’s successor as Publicis Groupe chairman and chief executive, and – as predicted – David Kenny, joint head of Publicis’ digital/media buying venture, VivaKi, and a possible contender for the throne, is to step down.

Not exactly. What may really have happened is that Maurice Lévy frightened a refractory board and some dissident shareholders into giving him another, indefinite, term of power. The Silver Fox (or should we call him the French Houdini?), called everyone’s bluff by threatening to retire, but apparently had no intention of doing so. The threat of leaving seems to have concentrated minds around the Unacceptable Alternative: life without Lévy at the top.

It wasn’t a very pretty perspective. Après moi, le déluge, you might say. Publicis Groupe has punched well above its weight in the world arena, but its financial recovery is fragile. Organic growth has been comparatively good, but the digital programme is far from complete and parts of the geographical coverage – China in particular – are relatively weak. Coming up shortly are some complex issues with a strategic shareholder, Dentsu. Dentsu, Japan’s largest advertising group, had owned about 15% of Publicis but has begun reducing its stakeholding. According to some, it plans to get out entirely by 2012.

Is this a situation to entrust to a new and untried chief executive, Lévy might ask rhetorically?  If we omit the possibility of an outsider (hugely disruptive in a family-built business like Publicis) that really leaves the other four members of the executive committee as serious candidates. Jack Klues, chairman of Mediavest Starcom Group, and Kevin Roberts, head of the Saatchi & Saatchi Group, share several disabilities. They’re too old, they’re too attached to “old media” and they’re not French.

Kenny may be American, but he’s considerably younger and represents the cutting-edge of Publicis’ endeavour: he’s Mr Digital incarnate. Against that, it has been known for some time that Kenny will not be coaxed from America to France, a prerequisite for taking the top Publicis job. What’s more, he has been sniffing around a Boston-based private equity company with a view to becoming its chief executive (so far without success).

When he made his statement about stepping down at the end of 2011 (during the first quarter earnings call), Lévy must have known that Kenny was on the way out.

Which brings us to Naouri: French, of course; a technocrat like Lévy himself; and a safe, able pair of hands. But he lacks the charisma to be a shoo-in. Does he have the all-important blessing of the Publicis family, in the form of principal shareholder and supervisory chairwoman Elisabeth Badinter? I leave that as an open question.

Now Kenny has officially admitted he is leaving, Lévy has shortened the odds on Naouri being his successor by enlarging his role (as chief operating officer) and giving him, it appears, special responsibility for sorting out Publicis’ problems in China. But when exactly will he succeed to the hot seat? An awful lot can happen to a candidate’s chances in five years, not all of it good. The question now left hanging over Naouri’s candidacy is this: why wasn’t he good enough to take over by 2012?

Naouri’s weakness, however, is Lévy’s strength. Bien joué, M. Lévy.

Will Razorfish make Publicis cutting edge?

August 11, 2009

RazorfishPublicis Groupe may have dramatically trumped Dentsu’s higher offer to acquire digital and interactive agency Razorfish, but has it cut a good deal  ?

I ask the question because WPP Group, the third contender in second-round negotiations with Microsoft, has played a curiously muted role in this contest. That, to say the least, is unusual. Normally a locking of horns between WPP and Publicis is enlivened by the electric personal animosity between their principals, Sir Martin Sorrell and Maurice Levy. It’s a sore point with Levy that Sorrell has often outgunned him, most conspicuously in the hostile takeover bids for Y&R, Cordiant and Grey. But there was no war of words this time. WPP allowed itself to be meekly outbid.  Why?

The answer has nothing to do with the strategic value of the acquisition, which is indisputable. Razorfish has, by common consent, considerable scale and skills in digital and interactive, particularly in the US market. A recent AdAge survey ranked its revenue behind only Publicis-owned Digitas in 2008. It has over 2,000 employees and a raft of blue-chip clients which include Kraft, Ford, Visa, McDonald’s and AT&T. Moreover, while admittedly US-centric, it has valuable outposts in London, Beijing, Shanghai, Hong Kong, Tokyo and Sydney.


Levy: Digital king?

Fitting Razorfish into Publicis’ VivaKi unit will undoubtedly help it to build that global presence, not to mention its client list. But the acquisition is a big coup for Publicis, too. As David Kenny, managing partner of of VivaKi, has pointed out, more than half of his division’s revenues will now come from digital for the first time – and Publicis itself will be able to boast that, with 25% of its income derived from that same source, it will have more digital assets than any other advertising holding company.

“It gets us a culture that’s more savvy about technology and innovation, more nimble and more connected to Silicon Valley. We’re very connected to Microsoft and very connected to Google – the big platforms underneath all this,” he adds.

So far, Publicis has been much more aligned to Google’s DoubleClick adserver platform. Now, by embracing Microsoft’s Atlas platform, via Razorfish, it has redressed the balance; not unimportant given that Microsoft has bolstered its competitive position vis-a-vis Google with the Yahoo! search deal.

So, a strategic snip, bought in the midst of a recession and under the very nose of WPP into the bargain?  Well, not necessarily. As with any deal, the devil is in the detail. In this case, the detail is what allowed Publicis’ $530m cash-and-shares offer to best Dentsu’s $700m one. Superficially, it comes down to the fact that Dentsu has almost no media buying presence in North America, whereas Publicis has a lot. Microsoft made it clear it wanted a conditional deal whereby it could exploit that very buying power – and it has duly got its pound of flesh. Under the terms of the agreement, the two companies Microsoft and Publicis have signed up to a five-year alliance that will allow Publicis-owned agencies to buy display and search advertising from Microsoft on supposedly favourable terms. But here’s the rub: the discounts only kick in above a certain volume of business. I hear that Publicis will have to commit $3bn-worth of clients’ business over those five years to make the deal work, and that there will be financial penalties if it does not. I wonder what Publicis clients P&G, Coca-Cola and General Motors think of that.

This may be one reason why WPP shied away from a more aggressive bid. Another seems to be that the Razorfish profit and loss figures simply do not add up – and that it will actually make a loss this fiscal year.

Even so, Publicis has scored a considerable propaganda triumph with its acquisition.

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