Big Principal Holding Companies

I've covered the ad biz for more than 40 years now, but sometimes I still don't understand the unspoken language communicated between agency chiefs and Wall Street analysts, especially when it comes to big agency holding-company media-services practices.

That was especially true after I listened to Interpublic chief Philippe Krakowsky respond to an analyst's question about whether Interpublic was thinking about getting into the principal media-buying business.

My colleague Richard Whitman reported Friday that Krakowsky said Interpublic is in fact reconsidering that.

After listening to his answer (see verbatim Q&A below), frankly, I'm not sure what he said. You can be the judge for yourself.

But that's not what confuses me.

What confuses me is that my understanding is that Interpublic -- like its peer holding companies -- already is in the business of acting as a principal when it comes to buying media for its clients -- not necessarily in all cases, but definitely in some of them.

Take media buys made with some of the biggest sellers of media: Big Tech companies Google, Meta, Amazon, etc. My understanding is that those organizations treat all agencies (not just the biggies) as principals -- not agents -- when they buy media from them.

In addition, Interpublic's most profitable media-buying division -- barter media shop Orion -- essentially is the principal when it comes to buying media to fulfill reciprocal media deals for clients, in which they trade some goods or services that are turned into media credits that are used to run their advertising campaigns.

I mean, where do you think those media credits come from?

Ultimately, this may seem like semantics -- or maybe just cost accounting -- but in the end there are numerous examples where all of the big agency holding companies -- Interpublic included -- act as the principal when buying media.

So what exactly is Krakowsky reconsidering?

Here's the verbatim Q&A.

Michael Nathanson, Senior Research Analyst, MoffettNathanson: Now that we see another one of your peers showing the size of their principal media-buying business -- I asked you last quarter -- do you that is a structural disadvantage that you guys are not in that business? Any update on that following my question last quarter?

Philippe Krakowsky: On your media question, I thought about it some, because you had asked the last time, and I thought Michael will either connect at some point, or it will come up here.

So media has been a very strong performer for us. It continues to be a very strong performer for us.

So our model works well, and the question you're asking is, is there something missing -- a dimension missing?

Can it work better? So we are looking at that.

3 comments about "Big Principal Holding Companies".
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  1. Ed Papazian from Media Dynamics Inc, July 24, 2023 at 11:09 a.m.

    Joe, the key point I believe is to what extent do agencies who make what appear to be huge agency deals with media sellers clear these transactions first with their clients,  keep them fully informed and, in effect secure their agreement to participte--if the expected audience/CPM goals are met?In such cases the agency gets only its normal buying fee or if the result is lower CPMs due to the volume, the agency may get a pre-determined, client- approved bonus fee. In that event, there should be no problem.

    However, if an agency tells the seller that it will handle the parcelling out ---or re-sell---of the placements and GRPs to its clients later, after the deal is basically negotiated, then it is acting as a broker---or principle---and suspicons may be raised about what it's fees and/or profits on the deal actully are.

    As for what Phillipe said---beats me.

  2. Ed Papazian from Media Dynamics Inc, July 24, 2023 at 1 p.m.

    Sigh! Make that "principal" not "principle" in the last sentence of my last post.

  3. Darrin Stephens from McMann & Tate, July 26, 2023 at 3:09 p.m.

    Earlier this century, Interpublic made a large investment in Facebook. At the same time, they promised client dollars to be placed on the site.
    Several years later, IPG sold the stake at a large profit.
    I don't think anyone ever called them out on it, except maybe one guy.

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