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AT&T's WarnerMedia is demanding tougher payment terms from its ad agencies as part of an effort to save $2.5 billion after acquisition

DATE POSTED:January 27, 2020

WarnerMedia Stankey

  • AT&T's WarnerMedia is trying to enforce longer payment terms and cut the fees paid to its ad agencies as it prepares to step up marketing for its entertainment brands, five knowledgeable sources told Business Insider.
  • Some agencies agreed to the reduced fees and longer payment terms in exchange for the potential of getting more work from WarnerMedia, sources say.
  • According to these people, these steps are part of an effort by AT&T to cut costs at WarnerMedia after taking on billions in debt to acquire the media company.
  • An AT&T spokesperson declined to comment, telling Business Insider the company does not discuss its vendor contracts.
  • Click here for more BI Prime stories.

AT&T has been taking steps to cut costs across the media network WarnerMedia, which it formed out of its $85 billion acquisition of Time Warner.

According to five sources whose identities are known to Business Insider but spoke on condition of anonymity because they are not authorized to discuss the matter publicly, those steps include renegotiating WarnerMedia's contracts by enforcing longer payment terms and lower fees with some ad agencies that WarnerMedia hires to promote its properties. 

In exchange, WarnerMedia executives dangled potential access to handle work for more properties in the portfolio, including HBO, CNN, Warner Bros., and Bleacher Report.

One agency source claimed to be happy with the possibility of more work but expressed some frustration with the new contract terms.

The development is significant because WarnerMedia is a major buyer and seller of ads, spending an estimated $1 billion-plus on paid promotions in North America each year. The new contracts are a sign of a conglomerate using its increased bargaining power through consolidation to get better terms from its agencies.

Two agency sources close to the business said WarnerMedia is enforcing net 90 contract terms for these agencies, which means WarnerMedia will pay them once every three months rather than monthly. One of those sources said WarnerMedia also got some agencies to agree to accept reduced rates for their work, effective immediately.

Business Insider was unable to determine which agencies agreed to the reduced rates. 

Last summer, WarnerMedia executives presented a group of agencies with a strategy deck, first reported by Business Insider, showing the company planned a big increase in marketing and programming to promote its entertainment properties, especially its planned streaming service HBO Max.

Screen Shot 2020 01 23 at 10.24.33 AM

An AT&T representative would not comment, saying the company does not discuss vendor contracts. A WarnerMedia spokesperson did not respond to a request for comment.

AT&T has been looking for savings across its new media company

Executives began contract negotiations with about 10 agencies over the summer, according to a source who attended one of the meetings. Three other people close to WarnerMedia said the new contracts would only apply to agencies that work on a retainer or long-term-contract basis.

A fifth source whose agency works with WarnerMedia said the company is looking to gain efficiencies by focusing on agencies that handle a large volume of work.

The new contracts haven't been finalized, so it's unknown how many agencies will agree to them, these people said.

AT&T took on significant debt to acquire Time Warner. To pay it down, executives projected $1.5 billion in administrative cost cuts and another $1 billion in savings by cutting headcount.

The CEOs of Turner, Warner Bros., and HBO all left before or soon after the acquisition closed in June 2018. The newly-formed WarnerMedia also offered buyouts to employees of Turner and CNN in early 2019, parted with several top ad, content, and revenue executives, and integrated WarnerMedia's entertainment properties with AT&T's ad tech division Xandr before meeting with these agencies over the summer.

Marketers have been paying their ad agencies later

Payment terms have been a contentious issue in the ad industry for more than a decade as marketers, led by auto and consumer-goods giants, stretch out the periods in which they pay their ad agencies.

When Diageo moved to a net 90 model in 2013, former WPP CEO Martin Sorrell told AdAge, "We're not a bank."

Yet that number has now become industry standard. Two sources described WarnerMedia's proposed new contract terms as fair. The 90-day pay period is less taxing on agencies than Coca-Cola's 120 days or Fiat Chrysler's 180 days.

It is unclear whether the new contracts will conform to the terms of those used by AT&T prior to the Warner acquisition.

A spokesperson for Omnicom, which was AT&T's agency of record and inherited media-buying work for most of the additional WarnerMedia properties when the merger went through, declined to comment.

Got more information about this story or another ad industry tip? Contact Patrick Coffee on Signal at (347) 563-7289, email at [email protected] or [email protected], or via Twitter DM @PatrickCoffee. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: Leaked pitch deck shows how WarnerMedia plans to become the dominant media company by spending on HBO Max and adtech division Xandr

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