GroupM’s case against government media switch to Carat hinged on market share/lower prices contention

Does having a bigger share of the media market mean you (you being a media agency) get cheaper prices from media owners?

groupm-660x550That appears to be the nub of the complaint and consequent legal action taken by WPP’s GroupM over the UK government’s decision to move its four-year media buying account from WPP construct M4C to Dentsu Aegis, which owns Carat.

The High Court found against GroupM last week although GroupM/WPP says legal action is continuing. This may involve a claim for damages.

GroupM comes into the equation because it negotiates the rates for all of WPP’s media agencies in the UK: Maxus, MEC, MediaCom and Mindshare – and M4C.

GroupM certainly accounts for the lion’s share of UK media billings. According to the FT court papers suggested it had about a third, recent RECMA figures showed it had 43 per cent through its various media agencies. Carat, on the other hand, has about 12 per cent.

12 per cent buys you an awful lot of clout though and Carat has shown in recent years that it is the best in the business at putting together deals for big clients that we might call ‘competitive.’ A few years ago it won General Motors’ global media buying, which came as a shock to US-based media agencies. At the time Carat hotly denied that it had agreed to work on a no-profit basis for the first two years of the contract.

The government’s Cabinet Office said this week that Carat was expected to deliver savings of more than £100m for taxpayers over the next four years, thanks to “a combination of tighter spending controls across public sector campaigning and smarter purchasing.” Which is a red rag to a bull as far as WPP and GroupM are concerned.

How Carat is supposed to deliver this, heaven only knows. Campaigns on London Live?

But back to market share. GroupM’s 43 per cent of the UK market (if such it be, WPP agencies scoff at RECMA figures) cuts both ways. If it gets markedly lower prices than the rest then you have, in effect, a two-tier national media market and that would raise competition concerns.

And GroupM’s contention that the Government’s media account should be prevented from moving to a smaller rival – because it’s smaller – is somewhat radical, to say the least. GroupM, of course, would argue that it isn’t saying account moves should be decided in the courts, rather that the Government hasn’t stuck to the conditions outlined in its tender.

So there may be life in this one yet. Another court, should it decide to hear the case, may indeed rule that GroupM has been wronged and is entitled to damages. But it looks as though the UK government’s media account (estimated at £140m although with more cuts apparently on the way that may reduce) is safely lodged at Carat.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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