As fortunes in the Internet advertising industry continue to sink, a serious spat over an ad representation deal is shaping up between two well-known players.
In a discussion about its financial state, DoubleClick said earlier this week that it is gearing up to protect itself from a loss of $19 million that it will incur if it’s unable to sell inventory on AllAdvantage, whose business, DoubleClick alleged, might be in jeopardy.
But spokespeople from the Hayward, Calif.-based ad-sponsored surfing company argue that DoubleClick was unfairly trying to damage AllAdvantage’s reputation — to cover up its own inability to sell the ads.
DoubleClick made the allegations during a conference call Monday with analysts — in which the company lowered estimates for its own fourth quarter. But while listing one-time charges, the Alley-based company’s chief financial officer Stephen Collins casually indicated that DoubleClick has created a $19 million reserve to cover losses in a transaction with AllAdvantage.
“We have a full recourse advance of approximately $19 million outstanding to AllAdvantage, that is due in November of 2001,” Collins said. “Recent events including the overall weak environment for online advertising, and specific issues related to AllAdvantage’s business prospects, have increased the risk of collection. Thus, we have established a valuation reserve for the entire amount outstanding at this time.”
A spokesperson for DoubleClick confirmed that the company has reservations about AllAdvantage’s business, and is taking steps to write-off the loss. Collins said during the call that DoubleClick would record that $19 million in the fourth quarter as a goodwill charge.
When asked about Collins’ remark, AllAdvantage spokesman Alex Gourevitch sidestepped the question of whether his company’s business was in jeopardy, and, instead, pointed a finger back at DoubleClick.
“That charge was specifically an advance against future sales that DoubleClick made to AllAdvantage,” said Gourevitch, “and in return, they were expected to sell inventory on the AllAdvantage network.”
Gourevitch’s explanation — which is supported by AllAdvantage’s regulatory filings from a failed IPO — is that DoubleClick paid AllAdvantage some $20 million last year in advance of future sales. The agreement stipulated that DoubleClick would pay AllAdvantage for $20 million worth of inventory, which it would then resell.
“Up to now they have not sold the amount of inventory we expected,” Gourevitch said. “It calls into ability their ability to sell. The issue here is the ability to make the sales, of which it has committed last year. They made that advance to us initially. What they haven’t done since then is to bring us 20 million dollars worth of business.”
Gourevitch declined to comment specifically on DoubleClick’s allegations that its “business prospects” were in question, or to describe the state of AllAdvantage.
“If I do that, it sounds like, in a way, DoubleClick succeeded in bringing into question our financial situation. Which is not in question. The question is not our financial health, it is the ability of their sales force to make sales.”
“They’ll win their propaganda war if they manage to get debate about the state of our company’s health,” he added.
“The issue we had is over this advance against future sales that DoubleClick made to AllAdvantage at end of last year and that is point one, and therefore now what is being debated and questioned is now how DoubleClick has not lived up to its commitment in this area,” Gourevitch continued.
“Our concern is more with their performance to date on those obligations,” he said. “The question as far as we can see is not about our financial viability, it is about the fulfillment of a contractual obligation by DoubleClick.”
Collins said during the call that relations between the two companies are continuing normally.
“AllAdvantage remains a DART client, and is current on their DART bill,” he said. “In November, they accounted for approximately one percent of DART billings, and we expect their billings to continue to decline.”
Gourevitch said that AllAdvantage has been in talks with DoubleClick about the situation, but he would not comment on those talks specifically.
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