The combined market power held by a handful of media-buying agencies poses a serious threat to television broadcasters, according to a special report prepared by the Israel Antitrust Authority.
The report, obtained by TheMarker, found that competition among advertising agencies is intense, with dozens of large agencies holding a 40% aggregate market share and dozens of others holding sometimes no more than 1%. The financial barrier to entering the field is relatively low.
The problem, according to the report, has to do with agencies buying up airtime to ensure that their clients' message reaches a large number of consumers.
Over the last decades, ad agencies have begun setting up their own media-buying units or banding together to give them better bargaining power when it comes to setting rates and other terms with television broadcasters. Advertisers who buy airtime jointly enjoy immense leverage, according to the report. In addition to helping them secure the best placement - the first ad in a commercial break, for example - it also saves them money.
"Media-buying involves many fewer competitors than ad agencies," said the report, adding that one firm, McCann Erickson, enjoys a market share of more than 30%, while several others (TMF, Zenith, MediaCom and Union Media ) hold between 14% and 18% of the market. Several advertisers and ad agencies also buy media directly without going through ad placement firms.
The antitrust authority began work on the report after two ad agencies, Baumann Ber Rivnay (Saatchi & Saatchi Israel ) and Gitam BBDO, asked to merge their media-buying operations.
The report is considered a driving force behind Antitrust Commissioner David Gilo's recent decision to bar TMF and Zenith Israel from jointly buying advertising time. Gilo has said he plans to look into broader strategies for dealing with the issue as well.
The report is scheduled to be presented on February 28 at aconference on competition sponsored by the Organization for Economic Cooperation and Development.
The antitrust authority first dealt with the matter in 2008 when it refused to allow Reuveni Pridan and Shalmor Avnon Amichay (Young & Rubicam ) to maintain their partnership with United Media. Both agencies were controlled by the international Interpublic Group and it was thought that they would therefore wield too much combined power.
"The partnership held about a 40% market share," said the report. "Upon examination it revealed rising market concentration in media purchasing and an increase in fees paid by television stations. The large media buyers grew larger while the small firms disappeared from the market."
But in 2010 the commissioner decided to allow Universal McCann and the Glickman advertising agency to combine their media-buying efforts for three years. "An examination of the industry today shows a change in trend of concentration that was seen in the past," the decision said.
Now, following its more in-depth study, the commission's viewpoint has apparently changed again. The report outlines four components of the advertising market: companies advertising their products and services, ad agencies, media planners and buyers, and the media itself. It focuses primarily on television, which captures more than 40% of all advertising spending in Israel. According to the report, television is characterized by fixed costs that aren't affected - at least in the short-term - by the number of viewers or the sale of airtime; therefore, lost revenue can't be compensated for by lowering expenses.
On the other hand, the supply of TV advertising is limited to about 40 minutes during primetime. In fact, broadcasters regularly sell less than that, in an attempt to limit supply and keep rates high.
The report also points to a lack of transparency among media buyers when dealing with advertisers, who usually aren't aware of prices for rating points and don't receive full credit on discounts.
One result of the power accumulated by media buyers is that advertisers usually choose to work with ad agencies that also control ad placement firms and can therefore offer them package deals, according to the report. The few that hire both separately are usually international companies or companies with particularly large advertising budgets.
The commissioner has also found instances of ad agencies refusing to provide creative services to clients who don't also buy media through them. This gives a significant advantage to larger agencies that control media-buying operations.