• by Joe Mandese  @mp_joemandese, March 12, 2009

In another sign of the effects the sagging economy is having on Madison Avenue, Donovan Data Systems, the leading provider of software and systems for processing media buys, as well as many of the other accounting and payables functions within big ad agencies, is restructuring and laying off a significant number of its employees. The move comes four months after Interpublic's Mediabrands unit consolidated much of its media processing services account at DDS, following a protracted review that also included newcomer MediaBank.

"Today we are announcing a restructuring that will involve staff reductions in most departments," DDS announced in a memo sent to employees Tuesday morning. "All employees who are being let go were informed in a series of meetings this morning. Needless to say, this step was not taken lightly. Rather, it is the result of a comprehensive three-month review of our operations."

A DDS spokesman declined to comment on the number of employees affected, but industry blogger Paul Benjou estimated that 100 DDS employees were laid off in the restructuring.

In its memo, DDS told employees that the downsizing was related to two simultaneous developments: The downturn in the advertising economy, and the completion of an intensive software development process for MediaOcean, a system used by TV stations to manage their sales to advertising agencies.

On the agency side, DDS said reductions were necessitated by the fact that advertising billings, which are the basis of its fees from agencies, are also declining.

It is also believed that DDS may have lowered its fee structure to retain Interpublic's business, and that it may be feeling a pinch from that, though the company has declined to comment on the terms of its agreement. Several other big agency holding companies that use DDS are believed to be examining the terms of the Interpublic deal, because of so-called "favored nation" clauses that would allow them to also reduce their fees if Interpublic managed to do so.

"On the agency side, we have restructured Operations and made changes in other departments," DDS said in its employee memo. "The moves within Operations are the next step in the company's restructuring plan that began a few years ago (starting with Client Service and Development). The changes in other departments were made to align them to the current business environment."

On a positive note, DDS is a technology developer, and said it is "taking advantage" of some of the advances in automation and technology to streamline its organization, "while maintaining the same high standards of service and reliability that DDS is known for in the industry."