• by Joe Mandese  @mp_joemandese, March 17, 2005

The review of some massive media buying assignments is providing some fascinating insights into the contribution media assignments provide to the bottom line of major agency holding companies, especially financially plagued Interpublic Group, the parent of Initiative Media and Universal McCann.

Citing the double-whammy of two media buying account reviews handled by Interpublic's agencies - General Motors' and L'Oreal's - a top Wall Street firm estimated their loss, which would represent a combined $4 billion in media billings, would translate into a "1 percent hit" to Interpublic's total revenues.

"We estimate that the GM account is worth $40 million to $50 million in revenues" to Interpublic, Merrill Lynch analyst Lauren Rich Fine wrote in a report sent to investors on Wednesday. Fine estimated GM's U.S. media billings, including its dealer group, at $3.2 billion, and L'Oreal's global media buying account at $1.5 billion. She did not break out the contribution of L'Oreal's billings to Interpublic's revenues, but estimated that the cumulative effect of a spate of recent Interpublic account losses, including Universal's media buying accounts for Nestle, Capital One, Subaru and Gillette, as well as Deutsch's Mitsubishi and Revlon accounts, at another 1 percent hit to Interpublic's total revenues.

The impact of those account losses also has a profound impact on corporate earnings, she said, noting that "for every 1 percent change in our revenue growth assumptions, there is a 10 percent impact on our 2004 earnings estimate."

So when Interpublic CEO Michael Roth reiterated his commitment to retain the GM business earlier this week, he meant it. Among other things, he has a stock options compensation formula tied directly to Interpublic's revenue growth, and the Merrill Lynch analysis implies the loss of GM might mean he would not achieve it.

In a broader sense, the securities firm said the litany of recent account losses, and the current reviews, as well as management upheavals in its media networks, is creating negative perceptions among clients and investors about Interpublic's long-term prospects. "We have concern that more clients will lose faith and put their accounts under review."

This week, Interpublic announced that the heads of both its Initiative and Universal McCann networks were stepping down from their posts.