Parent-company management of each brand denies any changes are imminent, but that hasn't quelled speculation that any or all could disappear from Madison Ave. in the next few years, victims of a consolidation trend that has concentrated 55% of the world's ad industry with four global holding companies.
"Sometimes agency brands are sacrificed to benefit a sister owned by the same holding company," said analyst Alexia Quadrani, managing director, Bear, Stearns & Co. "That is why some agencies have never turned around. Turning around a brand requires an investment in creative staff, but in this tough environment managements are focusing their dollars on what is already working," Ms. Quadrani added.
At a gathering in New York last week of two dozen search consultants, a recurring question was the future of two networks, Bates and D'Arcy. Could consultants safely shortlist them for new business? The answers they heard were ambiguous.
Judged by average annual growth in worldwide gross income over the past decade, of the top 10 agency networks, all but Publicis' Saatchi & Saatchi and WPP Group's Young & Rubicam outperformed D'Arcy (5.6%), Bates (3.0%) and Bozell (-5.3%). Each faces unique challenges.
With parent Bcom3 Group's merger with Publicis complete Sept. 25, all eyes are on D'Arcy. Visiting search consultants last week pressed Publicis Chairman-CEO Maurice Levy on his plans. "Everybody asks about D'Arcy's future," said Leslie Winthrop, managing partner, AAR Partners. "He said he really doesn't have an answer yet."
Deborah Morrison, director of membership services for The Incorporated Society of British Advertisers, London, added: "Many consultants are asking, `How can we persuade people to look at these agencies when there is such uncertainty about their future?"' Mr. Levy, she said, stressed that "no decisions have been made." Mr. Levy declined to comment.
Mr. Levy believes strongly in slashing costs that aren't directly linked to clients and may become the forerunner among holding companies in combining agencies and back-office functions like finance, legal and administrative. He is also committed to expanding the number of local agency offices operating under the "one office, two doors" concept as Saatchi and Publicis do in many countries. In Japan, for example, D'Arcy, Leo Burnett and a Dentsu unit already operate as a single agency, Beacon, to which Saatchi and its Procter & Gamble Co. business have recently been added.
Though its average annual growth rate of 5.6% over the past decade surpassed both Bates and Bozell, the past 12 months were difficult for D'Arcy. After management announced plans to shutter its founding office in St. Louis, longtime client Mars took its $100 million global billings elsewhere, miffed over the manner in which it was consulted about the closure.
One month earlier, P&G had moved its $75 million Pampers business. With no global wins to replace the losses, D'Arcy's future under its new parent is debatable. While Mr. Levy has said that he has no plans to close the network, he is holding a round of meetings with top management from D'Arcy, Burnett, Saatchi and Publicis to outline how he sees the group operating. He will also have a meeting with financial analysts Oct. 14.
Cordiant Communications' Bates Worldwide is tackling different issues, but similarly tough questions about its future. Founded in 1940, Bates' early years were marked by growth and stability. Ranked as the world's third-largest agency in 1986, Ted Bates Worldwide one year later was bought by the former Saatchi & Saatchi holding company, which split in 1997 into Saatchi and Cordiant Communications Group. Bates has since struggled to maintain its stature.
Ninth in 1991, with $630 million in worldwide gross income, the network 10 years later was fifteenth, with $728 million in worldwide gross income. Over the past decade, Bates' average annual growth was 3.0%; in the U.S., it was 1.0%.
It also failed to win any significant international clients. The agency in 2002 has suffered major client losses. Parent Cordiant in the first half of the year lost $20.3 million; last month, Cordiant CEO Michael Bungey said he'll retire in March 2003, as institutional investors clamored for change. David Hearn takes his place. (See Player Profile, page 32.)
On Sept. 30, the company unveiled a reorganization that combines advertising and marketing services under one profit-and-loss statement. As a new Bates Group forms, Mr. Hearn must move fast to convince investors and clients that the agency remains viable.
Like Bates, Interpublic's Bozell has slipped down the rankings in recent years. In 1991, Bozell revenues placed it fourteenth in the worldwide agency league, but a decade later Bozell had dropped to No. 31, largely due to mergers and management decisions.
Following Interpublic's purchase of its former parent, True North Communications, last summer Bozell was whittled down to one office in New York with over $1 billion in billings. Not surprisingly, Bozell's growth rate over the past decade is -5.3%.
Throughout the past year, rumors have swirled that Bozell might be absorbed by a sibling shop, particularly after the $50 million Datek account departed because of its merger with Ameritrade.
Still, Executive Creative Director Tony Granger, who joined the shop in late 2000, is transforming the agency's product: In a mini-creative renaissance, Bozell this year won five Lions at the International Advertising Festival in Cannes and more recently the grand prize at the 2002 Athena Awards for newspaper creative, although new-business wins have been few.
A big test for Bozell is underway, as the ex-network-cum-as-creative-shop defends its $135 million Bank of America account. Rather than being "distracted by anything the media has said about Bozell, we have continued to focus on our clients, our work and developing a new creative focus," said CEO Tom Bernardin.
contributing: laurel wentz