April 23, 2001
By R. Craig Endicott
CHICAGO (AdAge.com) -- Against a backdrop of reduced client budgets, agency staff cuts and
Agency gross income was propelled last year to $32.57 billion worldwide, up 12.4%, on billings of $259.28 billion among U.S. agencies, according to Advertising Age's 57th annual Agency Report.
The U.S. portion grew even faster, at $18.94 billion, up 14.6%, on billings of $150.64 billion, giving U.S.-based agencies their second best growth year of the past decade, according to the
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The decade measured from lean to fat. Agencies fell into a tailspin in 1991, the first year of the last recession. That year they eked out 3% growth in gross income in the U.S., nadir of the period. Only in 1994 did double-digit growth return, the first such ad explosion since 1985 - a year of accelerated agency acquisitions.
Big year for mergers
Indeed, 2000 also proved a big year for mergers. Some of the biggest names in the industry were acquired mainly by the big three ad organizations, Omnicom Group, WPP Group and Interpublic Group of Cos. These giants secured their grip on the U.S. ad industry, paced by Omnicom's leading 14.4% share of the U.S. market, followed by Interpublic's 14.1% and WPP's 11.9%. That hegemony extends to a worldwide basis as well, with Omnicom leading with a 13.9% share, followed by WPP Group at 12.4% and Interpublic at 12.3%. The three together control 38.6% of the world's agency market. A worldwide share point equals just over $400 million in gross income.
WPP in 2000 became the world's largest ad organization at $7.97 billion in gross income, up 19.9%, leaping past Omnicom ($6.99 billion, up 11.9%) on the basis of WPP's acquisition of Young & Rubicam, the seventh largest ad organization in 1999. WPP's share of the U.S. and worldwide agency business is lower than that of Omnicom because shares are based only on advertising and marketing services returns.
Interpublic arrives third among ad organizations at $6.6 billion, up 16.9%, but is poised to leap them both this year should the acquisition of True North Communications, this year's ninth-largest ad organization, be consummated as expected. True North's 5.1% U.S. share and 3.4% world share would give Interpublic 19.2% of the U.S. market and 15.7% of the world's.
The components of the world gross income tally of $40.46 billion are $18.94 billion from the U.S. and $21.52 billion from ad agencies in 124 other countries in the report. AA estimates these ad returns represent about 90% of the world's total returns for agencies.
Acquisitions alter chart
The chart of ad organizations was so altered by acquisitions and the subsequent loss of various players from the 1999 chart that only 27 ad organizations worldwide mustered gross income above $10o million in 2000 compared with 37 in 1999. Gone in 2000 were Saatchi & Saatchi PLC, now included in totals of new parent Publicis Groupe; Lighthouse Global Network, now part of Cordiant Communications Group; Nelson Communications, now a Publicis Groupe network, and Deutsch and Nationwide Advertising Service, both part of Interpublic.
Following a procedural decision by the editors, the chart also lost $100 million-plus interactive agencies from 1999: MarchFirst, in Chapter 11, Sapient Corp. and IXL Enterprises. Ad Age eliminated interactive agencies from the rankings in the Agency Report - shifting them to the AA Interactive Media & Marketing report of May 7. The Ad Age Index totals reported last year for 1999 were restated this year to eliminate interactive from the composites.
Penetrates industry fabric
Consolidation by no means is wedded to the top three, but reaches deeply into industry fabric. AA has monitored nearly 250 agency acquisitions since the beginning of 2000, two of the more active acquirers being Hawkeye Communications and Maxxcom, a division of MDC Communications, Toronto, both ad organizations involved heavily in marketing services. Hawkeye grew 58.3% to $93.6 million and Maxxcom, 18.3% to $177.4 million. That was organic growth, however, because Ad Age treats all acquisitions and divestitures pro forma as if they were on or off the books for two consecutive years.
Agency consolidation takes its cue from the client who, in seeking economies of scale, is consolidating advertising from multiple shops into a single agency or set of agencies within an ad organization. In 2000, the Chrysler Group unit of DaimlerChrysler, the Guinness division of Diageo, Exxon Mobil, Hasbro, Unilever, Ford's Volvo, Compaq Computer Corp., Philip Morris Cos. and Kellogg Co. moved advertising into one or two shops.
New York once again flexed its ad muscle, its 143 reporting shops pushing the city's total billings to $57.2 billion, up 13.1%, or 37% of the U.S. total. Grey Worldwide repeated as New York's largest single agency in billings at $3.66 billion. Chicago, a distant second at $15.2 billion, up 14%, pulled $3.14 billion from top agency, Leo Burnett Co.
International billings gain
International returns in the report remained strong, with gross income of $13.62 billion, up 9.5%, on billings of $108.64 billion, up 12.5%, despite depressed levels of most currencies against the U.S. dollar. Ad Age treats exchange rates historically by retaining actual rates for the prior year.
Japan's 20.3% growth in agency returns to $5.3 billion gross income was abetted by the yen's 8% growth against the U.S. dollar, the second consecutive year the Japanese currency has made advances. The world's largest agency brand, Dentsu, grew a healthy 23.6% to $2.4 billion in gross income.
In billings by ad capitals, Tokyo agencies pushed billings to $38.7 billion, up 20.4%. Even with highly unfavorable exchange rates, Europe's ad centers drew strong agency returns. The London agency market advanced 12.3% to $23.8 billion in billings as the pound declined 6%.
Concentration at the top defines the top 10 media specialist companies surveyed in the report. These companies, all part of ad organizations, placed about $155 billion in worldwide media billings in 2000, at least 75% of the world's billings handled by specialized media buying and planning agencies. Interpublic led the pack at $31.2 billion, up 7.4%.
Similarly in other specialties, ad organizations own 17 of the top 25 U.S. healthcare agencies and 13 of the top 25 U.S. multicultural agencies.
Concentration of the ad organizations in the U.S. PR sector is even more pronounced. The top 10 ad organizations measured by PR holdings drew $2.02 billion in U.S. fees in 2000, up 31%, and nearly two-thirds of fees generated by 316 U.S. firms pooled by the Council of Public Relations Firms. The Council also found most projecting high single-digit to low double-digit revenues for this year. By the end of the year, ad agencies may wish they had that.
Copyright April 2001, Crain Communications Inc.