OMD Alters Ad Liability Policy: Asks Media To Pay It Back

by Joe Mandese, Aug 25, 2006, 8:18 AM

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In a move that could signal a new battle between Madison Avenue and the media industry over the potential liability of advertising buys, one of the world's biggest media shops has quietly begun changing the wording of insertion orders it sends to the media, making them accountable to repay the agency anytime the agency repays its clients for buys it has made. The move by Omnicom's OMD unit signals a break from Madison Avenue's current standard, known as "sequential liability," which had simply sought to protect ad agencies from collections from the media on defaulted media buys unless they had already been paid by their clients. The prevailing practice for most media outlets - especially the broadcast and cable industries - has been to hold both agencies and their clients liable for paying the advertising buys they make, regardless of who defaults.

The clandestine move by OMD, which was only detected by the broadcast industry in recent weeks, has caused a stir within media credit departments that approve advertising buys for advertisers and agencies, and raises big questions about its timing. It's also expected to spark a new round of discussions between major ad agencies and media outlets over the state of advertising liabilities, something that has operated under a tacit stalemate agreement since the last blow-up in the early 1990s.

"If other agencies see OMD doing this, they may follow suit," said one well-placed Madison Avenue executive, noting that most agencies have yet to become aware of OMD's move.

But the broadcast industry has been buzzing for weeks, ever since a credit executive at Raycom Media in Montgomery, AL, noticed the new language coming from OMD in insertion orders for buys made on behalf of GE and Nissan. More recently, OMD added it to buys made for Dial.

The fact that OMD sought to make the changes on media-buying contracts for blue chip advertisers with now whiff of credit problems is also sparking questions in broadcast circles. One theory is that stations and networks would be less likely to read the fine print on orders coming from some reputable clients. Another theory is that there may have been changes in the liability agreements between OMD and its clients, or OMD may have stumbled upon a problem with one of its clients that it is seeking to protect itself from.

"Why now," asked Mary Collins, president-CEO of the Broadcast Cable Financial Management Association, which began circulating a memo to its radio, broadcast TV and cable members in the last few days advising them of OMD's move and offering suggestions for dealing with it.

"We are in discussions with several media suppliers and industry groups regarding media liability terms but nothing has been resolved," said OMD spokesperson Tara Clark, reading a prepared statement. She declined to elaborate, but later emailed MediaDailyNews saying the agency would have a further statement this morning.

While OMD hasn't disclosed its motives publicly, Wanda Borges, a principal of Borges & Associates, a Syosset, NY-based firm that consults the media industry on credit policies and laws, issued a memo to the BCFM's membership, outlining its interpretation of OMD's move, and noting that OMD executives said the agency was simply seeking a greater level of protection from potential creditors.

"I've communicated with (OMD CFO) Barbara Burger and Craig Gangi, both telephonically and electronically," wrote Borges, "They have expressed OMD's intention to protect itself in the event a demand for the return of an alleged preferential transfer is made upon OMD, in a bankruptcy environment, and OMD determines that it must repay the transfer."

Borges added that the firm began "discussions regarding a compromise language which would be more palatable" media companies, but that those talks were never finalized. The complete memo, including the wording of OMD's liability language, can be read online here.

The timing of OMD's move is indeed intriguing, because it comes at a time when there is no apparent problem with credit, defaults and liabilities between advertisers, agencies and the media community. While liability language is discussed and modified from time to time, the last significant debate between Madison Avenue and the media industry occurred during the 1990s, following an economic recession, a pronounced advertising downturn, and some high profile bankruptcies by some clients and big media buying agencies. Curiously, the debate did not heat up during the dot-com crash of 2000 and the economic recession of 2001, even though a number of big advertisers also folded during that period.

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