The answer: sideways. The Big 3's total revenue last quarter dipped 3%, one more proof point on how sluggish the ad biz is. And given their clout-Ad Age data show Omnicom Group, Interpublic Group of Cos. and WPP Group last year controlled 43.7% of the global advertising and marketing services sectors-these three superagencies are a good industry barometer.
The numbers reveal the Big 3's global ad revenue dropped 4.9% in the first quarter, while total revenue for other disciplines-direct, promotion, PR, research-dipped 1.3%. That supports the theory that marketing services outperform advertising in a downturn.
"Other" adds up: Advertising brought in less than half-49.5%-of the Big 3's quarterly revenue. Those who toil in what used to be derided as "below the line" disciplines are now the majority.
On a regional basis, the U.S. fell farther (2.7%) than the rest of the world (down 1.9%), the Big 3's results show. But there is some noise in the data; for example, last quarter's non-U.S. numbers got a boost because WPP's results include revenue from Tempus, the U.K.-based media buying venture it bought late last year.
The Big 3 are in the same club, but they are distinct. Omnicom is the biggest in revenue and the standout performer in profits. For revenue, it's dependent on the U.S. (59%); more than half its business is in marketing services. Interpublic is second biggest in revenue, reliant on the U.S. (58% of revenue) and traditional advertising (59%). WPP follows Interpublic in revenue; it gets more than half of revenue from abroad, and more than half its revenue comes from operations outside traditional advertising.
Omnicom's first-quarter results were reliable, as Wall Street expected. As it has every quarter since 1994, Omnicom delivered an increase in year-over-year net earnings per share. It met analysts' EPS expectations dead on. WPP reveals quarterly revenue but not profit; the stock dipped on its report.
Interpublic's U.S. revenue skidded 18% vs. combined Interpublic/True North Communications revenue a year ago, a steeper drop-off than it saw abroad-a problem, considering the company is so dependent on the home market. Interpublic's ad business crashed 17%, again a bigger fall than in its other ventures-another problem, since Interpublic is so reliant on traditional advertising. (Then again, think of the upside when the U.S. ad business rebounds.)
So what about that lousy revenue? Sean Orr, Interpublic's chief financial officer, offered analysts a convoluted explanation on how Interpublic measured up: If WPP (including acquisitions) and Interpublic had the same geographic mix, they would have had similar declines in revenue.
But it's also true that Omnicom and Interpublic are equally reliant on the slumping U.S. market, yet Omnicom's U.S. revenue soared 14% while Interpublic's crashed 18%.
The divergent tale of Interpublic and Omnicom is remarkable. Interpublic began last year with 48,000 employees. At midyear, it bought True North Communications to create the new industry leader. Except it didn't work out that way.
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After account losses, layoffs, office closings and client cutbacks in spending, Interpublic's first-quarter revenue was up only 9% from what Interpublic reported one year ago (before it owned True North).
Omnicom got nearly that much growth (8%) without having to buy True North. (Though Omnicom, by snaring clients such as Quaker Oats Co. and DaimlerChrysler, has ended up owning a good chunk of True North's old business.) Interpublic last year cut 5,200 jobs and eliminated another 1,000 in the first quarter, leaving it with about 53,000 employees. Omnicom added 1,000 jobs last year, giving it more than 57,000 employees.
Interpublic last quarter met Wall Street's earnings expectations through aggressive cost cutting. Over the long term, though, a business cannot grow by shrinking.