PR gains revenue-and some respect

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Public relations, direct marketing and promotions-long considered the neglected stepchildren to advertising in many shops-are shaping up to be the stars of 2001 thanks to the fadeout in traditional media.

As holding companies posted healthy results for 2000, nearly all credited PR's contribution, and most CEOs forecast PR, promotions and direct marketing will increase their profile this year as traditional media suffer from clients' cautious spending habits.

When the last recession hit in the early 1990s, many alternative media, such as interactive marketing, did not exist, and others, such as promotions, were not as developed, said Cordiant Communications Group CEO Michael Bungey. Now clients are more conscious of the need to build brands in many ways, not just with TV and print ads, Mr. Bungey said.

Cordiant reported a healthy surge in 2000 profits March 8, with revenue up 43.3% to $780 million, up from $544 million in 1999. Net new business billings rose 79% to $750 million, from $420 million in 1999, and new business gains are running 50% ahead of 2000 during the first two months of 2001.

In its announcement, the company noted it has increased its percentage of revenue from nontraditional marketing communications in the U.K. and U.S. to over 60% of 2000 revenue, which will help it meet its growth targets this year.

"We would only echo what the management of IPG, WPP and Omnicom are saying," Mr. Bungey said.

Interpublic Group of Cos. posted a 13% increase in revenue for 2000, helped by business gains in its McCann-Erickson WorldGroup network and its specialized marketing-services units, which made up for a slowdown in revenue at Lowe Lintas & Partners and media agency Initiative Media.

But public relations and promotions/direct marketing were Interpublic's fastest-growing segments, with revenue growth of 26% and 35% respectively for the year; while media-buying and marketing-intelligence revenues rose only

10%. Interpublic's main PR agencies are Weber Shandwick Worldwide and Golin/Harris Communications; its primary promo/direct shops are Draft Worldwide and Jack Morton Worldwide.

Public relations was also the best-performing business segment for WPP Group, with a 75.6% revenue increase, compared to a still-healthy 33.8% increase in ad revenue. The results reflect the October acquisition of Young & Rubicam. WPP's main PR agencies are Hill & Knowlton, Cohn & Wolfe and Burson-Marsteller. Direct agencies include OgilvyOne and Impiric.

Traditional advertising revenue, which makes up 44% of Omnicom Group's revenue, rose 12% in 2000 while other marketing activities rose 27.1%. According to an analysis of results by Merrill Lynch & Co., Omincom public relations showed twice the revenue growth of advertising activities, 24.6% vs. 12%, respectively. Other areas showed even stronger revenue growth, such as direct response, which rose 28.6%, and sales promotion, with 27.9% growth. Omnicom's main PR shops include Fleishman-Hillard, Ketchum and Porter Novelli International. Its key direct shop is Rapp Collins Worldwide.

Grey Global Group posted a 17% increase in its 2000 revenues, to $1.25 billion from $1.07 billion in 1999. Grey's management credited a strong performance by its marketing-services units, which now make up 50% of the company's revenues. It singled out its direct-marketing, public-relations and health-care operations-Grey Direct, GCI and Grey Healthcare, respectively-as strong performers in 2000.

Grey's stock soared March 7 to an all-time high of $760 before settling at $713.44 a share, up about 8%, following disclosure that Brookside Capital Partners Fund, an arm of investment firm Bain Capital, acquired 57,479 shares-or a 5.6% stake.

Grey has been the subject of ongoing takeover speculation. Brookside typically makes passive investments in undervalued public companies, anticipating developments that will increase the value of their stock. Neither Brookside nor Grey would comment.

Some insiders fear the rate of growth for PR divisions could be affected if the economy slows further. They note much of PR's vitality in 2000 came from work done for technology companies, which changed their focus from paid media to PR and promotions as their own revenue flows slowed down.

"It's logical than in the high-tech area, we should see some moderation," said Interpublic Chairman-CEO John Dooner. But he added there are no signs overall that PR spending is slowing down.

Interpublic's PR and promotion units continue to show growth in revenues and profit margins into 2001 so far, said Interpublic Chief Financial Officer Sean Orr. "All our specialized marketing businesses are currently enjoying good growth momentum," he said.

That optimistic view is shared by other holding companies. Mr. Bungey noted when the former Bates Worldwide separated from Saatchi & Saatchi in 1998, 80% of its revenue came from traditional advertising. Today, revenues are roughly 50-50 split between ad and marketing services, and "the needle is ticking towards marketing communications," Mr. Bungey said.

Cordiant's management has targeted a revenue split of one-third advertising revenue and two-thirds marketing activities by 2003.

"They've gone from being Cinderellas to being mainstream," he said.

Contributing: Laura Q. Hughes

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