59th Annual Agency Report

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The U.S. advertising industry in 2002 showed resilience in the face of Enron Corp. scandals and recession and war concerns. In the process, the U.S. ad business barely averted a second consecutive year of decline by eking out 0.6% growth in advertising and unbundled media shop revenue to an estimated $10.22 billion.

Agencies and their unbundled media combines rallied-mostly at the end of the year-to cut into their 2.2% decline in 2001, the worst year and only negative reading recorded since the industry dropped 4.4% in 1987, according to the 59th annual Advertising Age Agency Report.

Omnicom Group remains the top global ad organization and the J. Walter Thompson Co. unit of WPP Group is the largest core U.S. agency brand in the AA rankings.

The U.S. led the advance in 2002 as international revenue grew 0.1% to an estimated $8.85 billion, leaving worldwide revenue up 0.4% to $19.07 billion.

Beneath the numbers, however, looms a darker cloud that could question the performance of advertising. The advertising-only component-the fee income agencies get for creating campaigns (and a number often tied to the sales performance of those efforts)-dropped 0.1% from 2001 to $8.76 billion in U.S. revenue. Internationally, the ad-only component was down 1.6% with worldwide revenue down 0.8% to $15.79 billion.

The tallies for the advertising and media segments of all marketing communications were the lion's share of the business, which fell 0.6% to an estimated $17.45 billion in U.S. revenue. Marketing communications dropped 3% to an estimated $16.86 billion internationally, to leave worldwide revenue down 1.8% at $34.30 billion.


Though only slightly positive, advertising and media's performance looked downright rosy compared to integrated marketing's part of the marketing communications composite.

Integrated marketing remained mired in the slump it entered in 2001, recording an estimated $6.5 billion in U.S. revenue in 2002, down 4.8%. Its international revenue segment plunged 10.1% to an estimated $3.04 billion, placing worldwide revenue at $9.54 billion, down 6.6%. A comprehensive look at this integrated marketing segment will appear in Ad Age's 16th annual Integrated Marketing report to be published May 19.

Among the world's top ad organizations, Omnicom Group grew 9.4% to $7.54 billion to claim the lead in worldwide revenue from its full line of business, well ahead of Interpublic Group of Cos.' $6.2 billion, down 8.7%. Among the top 10 global giants, only Omnicom and Publicis Groupe recorded positive growth, the latter gaining 24.3% due to the inclusion of the Bcom3 Group acquisition in Publicis' financials in the fourth quarter 2002.

In past years, Ad Age would have ranked Publicis on a pro forma basis by merging two consecutive years of Bcom3 Group totals into its revenue. But AA switched methodology this year to flag only the full-year historical revenues recorded by agency groups using generally accepted accounting principles (GAAP).

The change in methodology was necessitated by the refusal of most of the big ad organizations to release revenues of agency brands. Those decisions were tied to their interpretation of the Sarbanes-Oxley Act, passed by Congress in July 2002 in the wake of the collapse of Enron and other failures of corporate governance. The act tightens the rules on financial disclosure.

In this environment, the amount of revenue based on agency estimates was sizable. Of advertising-only revenue for agency brands in the report, the agencies of the top six ad organizations alone accounted for 58.2% of all U.S. ad-only revenue, 89.2% of international and 72% of worldwide revenue (see methodology on Page S-13). The top six are Omnicom, Interpublic, WPP, Publicis, Dentsu and Havas.

Media units were the strength of most ad organizations in 2002. This group, minus Dentsu, recorded an estimated $3.21 billion in worldwide revenue, up 2.3%, whereas the ad-only sector of their shops hit an estimated $11.33 billion, down 1.9%.


As might be expected with such low growth from the parents of the agency brands, it was a mixed year for their brands-the soul of the big ad organizations. Ad Age estimated WPP's Big 3 agency brands, JWT, Ogilvy & Mather Worldwide and Y&R Advertising, at a collective $785.1 million in U.S. ad-only revenue, down 3%. JWT was the nation's largest agency brand at an estimated $393.7 million in revenue, down 1.8%. WPP Group, its total revenue down 0.3% to $5.78 billion, found growth in healthcare, media and research.

Leo Burnett Worldwide finished a strong No. 2 among U.S. shops at an estimated $379 million in ad-only revenue, up 8%.

McCann-Erickson Worldwide, ranked No. 3 among agency brands, dropped 10.7% to an estimated $327.1 million in ad-only revenue. Its parent, Interpublic, was buffeted by a spate of bad news in 2002 and 2003-accounting irregularities at McCann in Europe and an investigation by the U.S. Securities & Exchange Commission.

Foote, Cone & Belding Worldwide plunged to an estimated $193.2 million in ad-only revenue, down 29.5%. FCB, which lost the $1.2 billion DaimlerChrysler account just months before it was bought by Interpublic in June 2001, proceeded to lose Quaker Oats and other business representing annualized billings of about $860 million. FCB also cut employment 28.1% in the 12 months ended in October.

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