56th Annual Agency Report

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continued agency consolidation, driven by a strong U.S. economy and the client's insatiable appetite for broader, integrated services, helped propel agency worldwide gross income by 21.7% to $31.2 billion in 1999, on billings of $235.5 billion.

Such growth, measured by the Advertising Age 500 Index, is the highest attained in decades, according to Advertising Age's 56th annual Agency Report.

The top traditional, marketing services, multicultural, healthcare, business-to-business and interactive shops comprising the index also pushed U.S. gross income a stellar 22.2% to $18.3 billion on billings of $138.6 billion.

The international component of the index hit gross income of $12.9 billion, up 21%, based on returns largely spread among the 15 leading U.S. agency brands.

At last count, more than 300 U.S. agencies have been consumed since the turn of 1999. Omnicom Group, the world's largest ad organization at $5.74 billion in gross income, up 13.5%, gained more than 20 agencies during this period; Interpublic Group of Cos., the world's No. 2 ad organization at $5.08 billion, up 14.6%, consumed more than 30. This M&A pace has been going on for several years, and though acquisitions don't inflate year-to-year growth in this report in which numbers are pro forma, over time they build new-business momentum by adding services and expanding the billings base.

Acquisition-oriented shops invested heavily not only in independent agencies, but in marketing services, PR and interactive-the latter three of which have evolved into front-line strategic partners in the marketing world. These services are well represented in the top 100 brands that cross marketing disciplines (see Page S-54). Twenty-six of the top 100 are marketing services agencies, 12 are PR agencies, 12 healthcare, eight interactive and two recruitment.

Contributing to the growing importance of marketing services has been the emergence this year of ad organizations such as Lighthouse Global Network and Hawkeye Communications that are dedicated to such endeavors. Interactive offers its own set of new ad organizations such as Luminant Worldwide Corp. and Sapient Corp.

Interactive was the agency stimulant that pushed growth above 20%. That component, comprising 43 shops of the 500, reached $1.27 billion in U.S. gross income, up 53.7%. Without those totals, growth in U.S. gross income for the rest of the 500 would have measured 16.7%, still far better than last year's 14.5% advance when interactive was just beginning to break into the rankings. Gross income is agency revenue stream.


Rebounding economies in Japan and South Korea helped elevate international returns of the 500 well above last year's 14.2% growth and 8.9% for 1997. Gross income rose to $4.39 billion in Japan, up 14.9% in 1999 compared with a 12.2% decline for the same agencies in 1998. Tokyo-based Dentsu, the world's largest agency brand, advanced 18% in worldwide gross income to $2.1 billion in 1999 compared to a decline of 10.2% in 1998. Dentsu draws 95% of its returns from Japan. South Korean shops grew 57.8% to $372.6 million in gross income vs. a 39.1% decline in 1998. Japan is the No. 2 ad country and South Korea No. 13.

New York had billings of $54.9 billion, up 16.6%, more than triple the $15.4 billion recorded by U.S. runner-up Chicago. Worldwide, Tokyo is No. 2 at $32 billion, followed by London, $20.5 billion in billings.

New York is home to the largest U.S. agency brand, Grey Advertising at $535.8 million gross income. New York claimed 13 of the first 15 U.S. agency brands.

Multinational agencies have unbundled media operations overnight into profit centers. In 1999, those media units accounted for about half the media bought by agencies in the U.S.

These media combines have brought economies of scale to the agency media business and are changing an agency's client pay system from media commissions to fees augmented by profitability and performance schemes. The big ad organizations own media specialists that made an aggregate $49 billion in media purchases in '99, or 88% of all media credited to media-buying shops.


The same ad organizations hold similar hegemony over PR. Of the top 25 U.S. PR shops, 18 are owned by ad organizations that represent 82% of the fees of this elite group. PR has become a more active partner in the integrated marketing mix, thanks in part to the growth in new media and its demand for integrated ways to reach customers, investors and recruits.

The ultimate act of consolidation-the merging of ad organizations-is gaining currency. Earlier this year Leo Group ( Leo Burnett Co.) and MacManus Group merged to form B Com3 Group, with Dentsu adding a 20% investment. Young & Rubicam recently broke off merger negotiations with WPP Group and may still have its merger card in play. Who's next?

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