When it comes to the cinema world, some of the biggest drama is happening off-screen – in the independent sales houses that sell advertising on behalf of the cinema owners.
Pearl & Dean's loss of the ad contract for the UGC chain (rebranded Cineworld) to its rival, Carlton Screen Advertising (CSA), has had repercussions far beyond those felt by the 10 Pearl & Dean staff who were last week made redundant. For it will leave CSA dominating 76% of the cinema advertising market from January next year.
There are fears that this dominance might even extend into a complete monopoly. These fears are prompted by reports that Pearl & Dean's owner, Scottish Media Group (SMG), is a target for a take-over, with its businesses in danger of being broken up and sold off. The logical buyer of Pearl & Dean would be CSA.
Where media buyers have seemingly accepted a 76%market share that would have had them complaining to Ofcom if the situation arose in other media sectors, the prospect of a monopoly has now aroused their indignation.
Advertising growth
The fears are compounded by the growing importance of cinema in media schedules. In the first seven months of 2005, cinema advertising increased 8.9%, according to Nielsen Media Research, the highest growth among traditional media channels.
One media planner-buyer for a top agency says: "If CSA ends up colonising the entire market, it would be a nightmare for advertisers.
They would have no leverage and the sales house would have the power to dictate terms."
Another agency executive, Danielle Brand, planner/buyer for radio, outdoor and cinema at Starcom, adds: "If CSA had a monopoly in the market place, it could set the value for the cinema industry. There would be no room to negotiate."
Dominant position
She adds that the overwhelming size of CSA's share of the cinema market is a situation in media matched only by Viacom Outdoor's dominance in bus advertising: "It does leave CSA in a dominant position within the market, but as an agency, we are primarily concerned that we've got the right environment for our advertisers, rather than who has got what in it."
Some in the industry have questioned why cinema owners haven't taken advantage of recent consolidation in the sector to launch their own sales divisions, instead of paying commissions to independent sales houses. This option was touted last year by former EMAP boss, Tim Schoonmaker, during his short-lived reign as Odeon's chief executive, although it may have been more a case of putting pressure on CSA to negotiate a new contract more favourable to Odeon.
Private equity firm Terra Firma, which bought Odeon and UCI last year, refuses to talk on the record about its plans, but privately, says it is focused on running cinemas, not selling advertising. It insists it is happy to "buy into CSA's expertise in this area."
A source at The Blackstone Group, a private equity group which last year acquired the now branded Cineworld cinema chain, says taking cinema ads in-house would be "prohibitively expensive", requiring taking on and training staff to compete against experienced sales houses with "massive experience" in a market which they have virtually "sewn-up," declaring: "It's a non starter, frankly."
So it would appear that CSA can look forward to continuing its dominance of the sector. Not unnaturally, it is cock-a-hoop at the powerful grip it now exerts and sees the in-house threat as a "kite-flying" exercise by Schoonmaker, which has now fallen to earh with his departure.
Careful approach
At the same time, it is careful to play down the prospect of achieving a 100% stranglehold on the market, confiding privately that it is anxious to avoid provoking any pre-emptive action by the Government's regulatory bodies.
The Office of Fair Trading will not confirm at present whether it would take steps to block a future CSA monopoly. A spokesman says: "We only comment on a definite proposition, not a speculative one."
Pearl & Dean declined to comment on the prospect of a takeover of SMG, but should it fall victim to a predator it might provide an interesting litmus test for media agencies and advertisers.
If they accept a monopoly in cinema, does that weaken their resistance to consolidation in other sectors?
Who sells what (from January 2006)
Carlton Screen Advertising sites:
Cineworld 76
Odeon 91
UCI 31
Showcase 19
City Screen 19
Pearl & Dean sites:
Vue 48
Apollo 13
_1.jpg)
.jpg)