This ad agency received millions from Netflix and abruptly closed. What happened?

By Wendy LeeStaff Writer

July 27, 2022 Updated 11:40 AM PT

The insults toward Palisades Media Group Chief Executive Roger Schaffner continued to pile up at his Santa Monica office.

Laid-off workers affixed letters from an old office sign to spell out “ass” on his glass office door last week. Others placed yellow, blue and green sticky notes with messages that read “Shame on you!!!,” “I hope you cannot sleep at night.”

For many of Palisades’ roughly 100 employees, the office closure July 15 came out of nowhere.

The ad agency, which launched in 1996, counted Netflix as its largest client, placing ads in newspapers and other outlets to promote its critically acclaimed programs for awards. Suddenly in one email, employees learned not only that their office closing in a few hours but also that they would all lose their jobs.

“The company has endured the cumulative financial effects of the pandemic/Covid, which came to a head this year,” Schaffner wrote in a July 15 staff email reviewed by The Times. “With client budgets/revenue going down and expenses going higher, we find ourselves in an untenable position, and are now forced to close the office.”

But the explanation did little to mollify employees, who remain stunned by the abrupt closure of a business that had been a fixture of the studio advertising business for more than two decades. They said they were given no severance and only one-third of their vacation pay and added that the only communication they received from Schaffner came from emails.

“We were all blindsided,” said one of several former employees who declined to be named for fear of reprisals. “Everyone was doing business as normal. I had buys to be placed.”

The closure, first reported by the Wrap, has been particularly devastating to veteran employees, some of whom recalled sacrificing vacations and personal time with their families to help the company during tough times.

“It’s a deep betrayal of the dedication and investment of my time over a decade,” said another former employee who worked at Palisades for more than 10 years. He said he’s owed around $15,000 in unpaid vacation time. “I’ve been nothing but loyal to a company.”

Ron Grant, Schaffner’s attorney, said his client would not comment for this story.

So what happened?

Former employees and vendors told The Times the company’s sudden demise followed a series of what they described as poor business decisions that deepened financial problems caused by the COVID-19 pandemic and other factors, including the loss of vital business from its most important client, Netflix.

Palisades Media would be hired by Netflix and other clients to place ads at various outlets and then pay those outlets after the ads ran.

In a meeting earlier this month, senior managers were told by Palisades Media President and Chief Operating Officer Laura Jean Bracken that the company collected $14 million to $16 million from Netflix and other clients, but had not paid the money to vendors. When pressed by the group for more information, Bracken offered no further details, said two people familiar with the meeting who were not authorized to comment.

Bracken did not respond to a request for comment.

In the days before closing, Palisades Media owed millions of dollars to various publications, including the New York Times, the Los Angeles Times, KTLA, and the Wrap, sources said. The agency owed more than $1 million to the Los Angeles Times, the sources said. L.A. Times spokeswoman Hillary Manning declined to comment.

The New York Times sued Palisades last week, saying the outlet is owed $1.9 million plus interest for ads it ran.

Netflix, which works with many agencies, declined to comment.

Although Palisades Media represented a small fraction of Netflix’s media spend, the agency had about 40 staff working on the account, insiders said.

Trouble emerged this year when Netflix moved its ad work for consumer titles from Palisades Media to its rival, Mediahub, according to a December email written by Schaffner that was viewed by The Times. Palisades Media would retain its awards campaigns work for Netflix, but the move was a financial blow.

“Obviously this means we will have to lay off a large number of staff members which we will not do until after the holidays,” Schaffner said in the email.

But the anticipated cuts never came. During the height of the pandemic, Palisades agreed to not lay off workers as a condition for receiving a waiver from paying back federal loans through the Paycheck Protection Program in 2020 and 2021. Palisades received $3.89 million in PPP loans that the company said would go toward payroll and healthcare costs, according to ProPublica.

This year, some former employees expected there would be layoffs even as the agency lost clients amid the healthcare crisis. However, there were no staff cuts or salary reductions that had been widespread throughout the entertainment industry.

“The executive leadership could have stepped up and made hard decisions that were needed,” one former employee said. “They were willing to let the whole ship sink.”

Meanwhile, Palisades Media continued to rent the top floor at the Santa Monica Water Garden office complex, even though many people were working from home. The company has a lease for 25,245 square feet through early 2027, according to CoStar, which tracks real estate data. In April, the company made its office available for sublease, CoStar said.

Schaffner started Palisades Media Group in 1996, after working at media agency ICG, where he built an entertainment division representing independent movie studios, according to his LinkedIn page.

Palisades handled media buys for various Hollywood clients, including Miramax, the influential studio founded by Bob Weinstein and his brother Harvey, the former movie mogul who was convicted in 2020 of committing a criminal sexual act and third-degree rape.

The agency built a reputation of having talented professionals that worked with studios and brands such as Mercury Insurance and the Los Angeles Philharmonic. In 2000, Schaffner described Palisades as a $250-million business to Ad Age.

“Through hard work, smart business insights, and ethical dealings, Roger has created his legacy in the media community,” his bio on Palisades Media’s website reads.

The agency’s fortunes, however, took a turn for the worse this month when a vendor threatened to not run any more ads from Palisades unless it paid the money it owed for Netflix ads, and Schaffner told staff that the agency’s financial issues were insurmountable, insiders said.

“Unfortunately the cash flow only allowed for one last payroll,” Schaffner wrote in a second July 15 email to employees. “If you miss a payroll in California, the penalties are very severe. Thus the last minute shutdown.”

The news came as a blow to search media specialist Lea Yang, who had been working at the ad agency for less than a year on an H-1B visa. If Yang, 24, doesn’t find a job within 60 days, she could be deported to Taiwan.

“It was definitely a shock,” Yang said when she first read in an email that the company was shutting down. “It was pretty emotional that afternoon.”

Times staff researcher Scott Wilson and Deputy Editor Nate Jackson contributed to this report.