Consider operating a drink stand in the middle of the Sahara. The buyer needs water. The seller is well aware, so she has the upper hand, right?
Not necessarily. She needs the money because there isn't exactly a lot of foot traffic in the desert.
They need each other.GroupM, comprised of four sizable agencies and a particularly tough negotiator, has considerable force in the market, maybe controlling as much as 30% of the dollars laid down. That can be a blessing and maybe a curse.
In a limp market, that gives the group immense leverage as networks need its cash to fill their inventory. In a stronger one like what's unfolding now, GroupM has a tougher road to navigate.
"The best way to describe GroupM's influence in the marketplace is they're too big to fail," said a sales executive.
GroupM has so much money to spend, and so many top-tier clients needing to be in top-tier programming, that its ability to exercise Negotiating 101 can be hampered. It can't just tell CBS: later, we'll meet you in the scatter market. Or, Turner: we don't need your NBA games, so we're moving all of that money to ESPN.
For the most part, it can't walk away.
So, it's leverage can lose some steam with its size, especially as available inventory lessens with ratings falling for the broadcasters.
With the right maneuvering, an emboldened sales team could box a GroupM into a corner.
"If they feel that you can't walk from them, you're going to pay a higher price," said Jon Mandel, who oversaw upfront negotiations for years at MediaCom and worked briefly at GroupM.
A network could conduct deals with agencies willing to pay higher CPMs first and sell out the bulk of its inventory. Then, comfortable with its position, it could play rough with the real estate left for the haggling with GroupM.
At that point, still looking for price below market level, in order to gain access to more coveted inventory, GroupM may have to agree to buy a load of the lower-tier.
Still, the executives at GroupM (which declined comment) are some of the smartest and shrewdest in the business, including CEO Irwin Gotlieb and Rino Scanzoni, the Chief Investment Officer, who is overseeing the upfront deal-making.
They haven't exactly pooled a colossal amount of dollars to get taken. No question, GroupM's clout works in its favor, too. Its largesse provides some flexibility smaller entities don't have. As much as it can be muscled to the fringe, it can also buy its way into just about anywhere with the right approach (personal relationships seeded over years also help).
If it makes an early deal with, say, Viacom that fills a mass of its inventory, it can gain access to prime shows and maybe lower pricing for more volume. Viacom as a result has less to sell and can extract higher pricing from other parties.
And if GroupM can't exactly turn its back on leading networks, the programmers can't flee entirely either no matter how much Scanzoni wants to drive down CPMs.
"Both sides need each other ... at some point cooler heads prevail and say we've got to do something," Mandel said.
After all, this year's upper hand could be next year's desperation.