Payments Drag Out on TV Spots --- Makers of Commercials Complain That GM, Anheuser

Press for New Terms
By Suzanne Vranica
795 words
23 February 2009
The Wall Street Journal
B6
English
(Copyright (c) 2009, Dow Jones & Company, Inc.)
Some of the biggest advertisers in the U.S., including auto maker General Motors and brewing giant Anheuser-Busch InBev, are putting the squeeze on companies that produce and broadcast their ads, as part of an effort to rework contracts with suppliers to cut costs.
As the economy's slump continues, GM has raised an uproar among the production firms that make its TV spots by playing hardball on payment terms. Other advertisers could follow suit, bringing pressure on the small companies that make up that business.
Over the past few weeks, GM, whose brands include Cadillac, Buick and Pontiac, has offered to pay ad-production firms 50% of a commercial's production costs 60 days after the first day of shooting and the remaining 50% when the ad is finished. That's a major departure from the standard practice of paying 50% or 75% of the cost before production starts.
A car commercial can cost anywhere between $500,000 and $1.5 million, say production executives.
"This has the potential to destroy the commercial-production business," says Matt Miller, chief executive officer of the Association of Independent Commercial Producers, the New York-based trade group that represents production companies.
The move is the latest in a long list of cost-cutting moves cash-strapped GM has adopted as it seeks to avoid a bankruptcy filing. Last year, GM asked its ad agencies to cut their fees by as much as 20% for 2008 and 2009.
Historically, GM has been one of the U.S.'s biggest ad spenders, shelling out $1.6 billion to buy ad time and space for the first nine months of 2008, according to ad tracker TNS Media Intelligence, a unit of London-based ad-holding company WPP.
So far many production companies have balked at GM's terms, but people familiar with the matter say that some firms have agreed to the new payment structure.
GM declined to comment specifically on its moves, but a spokeswoman said, "We have and continue to work closely with our suppliers, partners and vendors in an effort to improve the efficiencies of our marketing."
Anheuser-Busch InBev is trying to overhaul all its vendor contracts, including advertising-related deals. The world's largest brewer by sales recently told media outlets that they will now be waiting 120 days after an ad runs to receive payment versus the typical 30-day standard.
"The challenging global economic environment has resulted in AB InBev, like many other multinational companies, reviewing its standard terms and conditions of payment," the company said in a statement.
WPP's Group M, which buys ads on behalf of corporate clients, recently proposed new terms for its online ad deals that could triple the time that online publishers wait to get paid for the ads they run. The changes were designed to give its agencies and clients more flexibility, and not to cause media companies any hardships, says John Montgomery, chief operating officer of Group M Interaction. Because of the tough economy most publishers have complied.
GM has been trying to persuade TV-production companies to accept its new payment terms by suggesting it is looking to have a few "preferred vendors." In order to be on the list, the production company would have to agree to the new fee structure. Production executives believe about 30 firms have received calls about the matter in the past few weeks. The new set-up reflects a broader policy change GM began applying to all its vendor contracts last year, according to a person familiar with the matter.
"Our business is not the same as buying lug nuts" says Cami Taylor, president and co-owner of Crossroads Films, a Los Angeles production firm that has said no to GM's new payment terms. Crossroads also works with major marketers like Anheuser-Busch and Procter & Gamble.
Ms. Taylor and other production executives say the lions share of their costs are tied up in labor and hard costs, such as locations and equipment, all of which have to be paid upfront. The new payment terms, they say, are unacceptable because many production companies aren't able to finance thesecosts, due to the tight credit facilities.
Donald Block partner and executive producer at Gartner Films, a production company in Santa Monica, Calif., adds: "GM and other brands are finding ways to delay payments more and more."
Mr. Block says GM still owes roughly $500,000 from a job he did in September. "It's a growing problem," he says.