Case of the Sun King Casts Shadow over Advertising; as Aegis Sells [Pounds Sterling]500m Research Arm, New Probe into Agency Kickbacks
Byline: JON REES and ALLAN HALL IN BERLIN
WHEN Aleksander Ruzicka, president the German arm of media buying agency Aegis, was sentenced to 11 years in a tough German prison for taking kickbacks, the advertising industry united to condemn him. But now British regulators are starting to take a close look at our own advertising sales business.
Ruzicka was known in the German media industry as the Sun King. He was fond of high living and was often seen dining in Michelin-starred restaurants.
Last year, however, he was found guilty of siphoning free media airtime destined for clients and selling it for his private gain.
He claimed that such kickbacks from media owners were standard practice but the court disagreed and Ruzicka now spends his days sharing a wing with rapists, drug dealers and murderers in a prison near Frankfurt, writing letters to his legal advisers to try to get his sentence cut.
Pertinently, he described prison as 'more honourable than many businesses on the outside'.
All this must have seemed a distant nightmare at the London headquarters of Aegis last week as senior executives relished the prospect of a [pounds sterling]500million bid for its market research business Synovate. But fresh clouds may be gathering.
Britain's media regulator Ofcom is launching a probe into competition issues in the TV advertising market in a move expected to encompass wider media agency practices. It is the media agencies which now buy 80 per cent of the UK's advertising inventory on behalf of clients and then negotiate with media owners.
Ofcom's move was not prompted by the Ruzicka case and there is no suggestion that any sly money is going into the pockets of advertising executives in Britain. But it follows on from a series of regulatory and Parliamentary probes into the advertising sales market that have exposed concerns that advertisers are not getting everything they have paid for.
Submissions must be in to Ofcom by July 22 and the regulator could refer the whole issue to the Competition Commission.
'It is about television airtime sales but Ofcom has also identified related broader issues about media agencies' practices,' said Bob Wootton, director of media and advertising at the Incorporated Society of British Advertisers.
John Billett, a veteran media consultant who has worked for all sides of the business, is blunter. 'The advertising sales market is massively open to abuse,' he said. 'We have seen a growth in backhanders, additional discounts, surcharges and rebates which are paid by media owners to media agencies. They are untraceable - not auditable - and some advertisers get poor value for money as a result of this distortion.'
The media agencies are owned by a tiny number of players which over the past decade have developed an extraordinary grip on the [pounds sterling]13 billion UK advertising market.
Just six main holding companies now effectively control access to the all the UK's television, newspapers, posters and online business - Aegis and WPP from Britain, France's Havas and Publicis and the US firms Omnicom and Interpublic.
They buy advertising space on TV, in the Press, online and on billboards for clients, negotiate deals on their behalf and skim a little off the top for themselves.
It is possible this powerful club could get even more elite. Aegis is selling Synovate - it is in exclusive negotiations with France's Ipsos - and after that is expected to be sold itself, probably to Havas, which is owned by Aegis's biggest shareholder Vincent Bollore, who already has a 29 per cent stake in the firm.
Such a deal would make the management of Aegis very wealthy. Chief executive Jerry Buhlman last year received [pounds sterling]1.05million in remuneration while his considerable shareholding in the group could net him millions in the event of a deal.
He owns 265,890 shares in Aegis and will be entitled to a further 5. …