Top 10 advertising organizations (chart) Top 10 U.S. consolidated agencies (chart) Top 10 U.S. agnecy brands (chart) World's top 25 agency brands (chart) Top 25 U.S. cities by billings (chart) Top 10 non-U.S. cities by billings (chart) Ten-year gross income & billings review (chart) U.S. INCOME GROWTH OUTDUELS FOREIGN SIDE GLOBAL FIGURE STAGNANT AT $14.5 BILLION; WPP, MCCANN, BURNETT LEAD RANKINGS

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Copyright R 1994 by Crain Communications Inc. Quotation or reproduction in whole or in part without written permission is expressly forbidden.

Overseas returns of U.S.-based advertising agencies plumbed new depths in 1993, stranding worldwide gross income at $14.5 billion, down 0.4% from 1992, on billings of $107.3 billion, according to Advertising Age's 50th annual Agency Report.

The foreign tally, taken from the Top 500 U.S. agencies, measured $6 billion in gross income, down 5.7%, on billings of $42.2 billion. The U.S. side of the ledger showed a modest 3.8% advance, to $8.5 billion gross income on billings of $65.1 billion.

The non-U.S. performance marked the worst year-to-year movement since Ad Age added foreign agencies to its domestic coverage in 1959.

In that year, J. Walter Thompson Co.'s foreign billings of about $75 million, 25% of its total, ranked just behind Dentsu Inc.'s leading $101 million; today JWT ranks second in foreign returns among U.S.-based shops behind McCann-Erickson Worldwide's $737.7 million in gross income on billings of $4.92 billion.

U.S. growth was one of the lowest since 1987, when agencies fell 4.4%-the nadir of the advertising business since Ad Age began monitoring U.S. agencies in 1944.

Today's events read like carbon copies of seven-year-old stories: The economy was struggling; 40 of the top 100 U.S. agencies were initiating layoffs and shuttering offices.

But unlike today, the dollar was declining in 1987, and holding company acquisitions were rampant, producing redundancies that led to even more layoffs and office closures. Heavy debt, the effect of that acquisition binge, today is forcing a piecemeal unbundling of some of those megamergers.

The slowdown in global economies is echoed in another industry statistic: The number of foreign offices among the Top 500 U.S. agencies is down 32, off 2.5%, although employment is up slightly.

WPP Group, London, which catapulted onto the agency scene in 1987 with a hostile takeover of JWT, kept its title in 1993 as the world's largest advertising organization. At $2.6 billion gross income, up 1.6%, according to Ad Age's tabulation, WPP is well ahead of Interpublic Group of Cos., New York, at $2.1 billion, up 1.2%.

Such ad organizations include results from not only their agency units, but from other businesses, usually market research, public relations and design companies.

Leo Burnett Co., Chicago, remained the leading U.S. agency brand-a designation that finds the "core" billings by stripping off subsidiary levels and below-the-line activity (sales promotion and direct response). Burnett's performance-$304.8 million gross income, down 2.8%-left the agency with its slimmest lead since it overtook JWT in 1988, the third year of the ranking.

Fast-charging JWT pulled in second at $291.6 million, up 8.5%.

New York slightly increased its billings lead over Tokyo as the center of the ad universe. New York agencies generated $26.5 billion in billings, up 6%, compared with Tokyo's $25.4 billion, up 3.8%.

In yen, Tokyo shops declined on a collective basis. The yen was one of few major currencies to grow against the dollar, up 11.1%.

Not included in New York's mega-numbers, however, were the fringe ad hubs of Stamford, Conn., and the medical advertising-rich corridor running from central to northern New Jersey. Forty-two agencies in these two areas generated a combined $1.78 billion in billings.

New York is blessed with sheer numbers: Its 147 agencies quadruple the size of the Tokyo contingent-led by the world's largest single agency, Dentsu Inc., with billings of $9.8 billion attributed to its Tokyo shop, or 40% of that city's total.

Grey Advertising is New York's flagbearer, contributing $1.6 billion.

Exchange rate handicap

The dollar's relative strength against European currencies in 1993 wreaked havoc on year-to-year growth translated in dollars. AA methodology treats exchange rates historically, a procedure that retains prior-year exchange rates in computations rather than applying current rates to both years.

Among the leading ad nations, Britain, Germany, Spain and Italy suffered from struggling economies that softened their currencies. The average annual exchange for the British pound fell 14.2%, the German mark dropped 4.4% and the Spanish peseta plummeted 21.6%.

German and British agencies each contributed a collective $1.2 billion in gross income, down 1.5% and 6.4%; and Spanish agencies showed $464.1 million in gross income, down 20.1%. Even growth of 5.1% in the French franc wasn't enough to put French agencies in the plus column in dollars. They totaled $1.22 billion5.4%.

Brazil is the ultimate conundrum in currency machinations. Earlier this year, as the country's finance minister implemented a stabilization plan to stem runaway inflation (by phasing in a new currency among other things), he quipped: "I can't understand myself what I'm about to do."

The cruzeiro was devalued in mid-1993 (by chopping off three zeros) when inflation was spiraling 40% a month. It still is soaring. Most Brazilian agencies immediately convert cruzeiro reals, the name of the new currency, into dollars and have adopted the U.S. dollar for budgeting.

Apart from currency instability, Brazil has shown strong business growth in some sectors. Capitalizing on that growth is the country's third-largest shop, Duailibi Petit Zaragoza (DPZ) Propaganda, which made the World's Top 50 ad organization chart for the first time.

World's Top 50 ad organizations

Economic conditions contributed to declines in gross income for 19 of the Top 50; held growth at 3% or less for 14 others; and served to lower the entry point to the Top 50 in 1993.

Hamburg-based Springer & Jacoby, Germany's largest independent agency, became No. 50 on the basis of gross income of $43.2 million, compared with the $43.5 million return by the No. 50 shop for 1992, Jordan, McCrath, Case & Taylor, New York.

Six ad organizations exited the chart in 1993. Lost clients and reduced spending levels sent four tumbling from the ranks: Ally & Gargano, New York; Hill, Holliday, Connors, Cosmopulos, Boston; Admarketing, Los Angeles; and Nikkeisha, Tokyo.

GGK International, No. 34 in 1992, went into receivership in 1993. Management at leading GGK shops either have bought majority positions in their agencies or are negotiating for such. Ownership not in local hands will be pooled into a newly formed venture, GGK/GGT Worldwide, owned 80% by Gold Greenlees Trott (GGT), London, the 27th-largest ad organization.

FCA Group, the Paris-based holding company ranked No. 31 a year ago, was bought by Publicis Communication in late 1993. It is being merged into the European network (the No. 12 ad organization) shared by Publicis Communication, Paris (51% equity), and Foote, Cone & Belding Communications, Chicago (49%).

AA made a subtle change to the name of that network, from Publicis-FCB Communications B.V. to Publicis Communication/Publicis-FCB. The name shift reflects Publicis' larger holdings since it bought the FCA business without FCB participation.

How this plays out in the alliance struck between the two in 1988 isn't known, and the "plot" thickens this month with the merger of FCA Germany with Baums, Mang & Zimmermann, a large Duesseldorf shop snared by FCB just before it formed the alliance with Publicis.

Publicis-FCB, Duesseldorf, is Germany's fourth largest.

The FCA buyout demonstrates the global village mentality affecting the ad community worldwide. The acquisition not only is a union of France's No. 2 and No. 4 agency holding companies (FCA was No. 4) with U.S. agency FCB, but brings into the relationship Japan's sixth largest agency, Dai-Ichi Kikaku.

DIK owns 20% of Bloom/FCA, New York, a shop that came with the FCA purchase. Its name is changing to Publicis/Bloom.

One of the larger acquisitions of 1993 involved a tug-of-war between rivals WPP Group and Interpublic over the disposition of Scali, McCabe, Sloves. Eschewing the wisdom of Solomon, each came away with pieces.

Interpublic bought from WPP the SMS shop in New York (merged to resurface as Lowe & Partners/SMS), the Martin Agency and Stenrich Group, both Richmond, Va., and shops in Paris, Madrid, Mexico City and Toronto/Vancouver. The SMS-related shops were folded into IPG's Lowe Group.

WPP kept Scali shops in Hamburg, Amsterdam and Sao Paulo.

Interpublic's McCann-Erickson Worldwide got a big lift in gross income when it bought from Hakuhodo Inc. the 49% it didn't own in McCann-Erickson Hakuhodo, Tokyo. AA methodology permits agencies to claim only the gross income and billings equivalent to their ownership stake; it treats acquisitions on a pro-forma basis, folding in returns for two consecutive years.

For McCann, the buyout meant an additional $55.7 million in 1993 gross income and $52.3 million in 1992, i.e. an additional 49%.

The investment helped push McCann past Young & Rubicam as the largest U.S.-based consolidated agency with $1.004 billion in gross income, up 5.8%, to Y&R's $936 million, down 4.5%.

To rank consolidated agencies, Ad Age restores the units peeled away to form the agency brand, with the exception of PR.

While half the U.S. agency domestic gross income may be concentrated in only 32 agencies with returns above $50 million, growth is definitely the province of the smaller fry.

Agencies $15 million to $49 million in size, representing 85 shops, recorded average growth of 5.4% on total gross income of $2.2 billion.

Even more impressive was the 11% growth notched by the 96 agencies in the $7.5 million to $14 million gross income category. Their collective haul was $1 billion in gross income. This compares with 2.7% growth in gross income from the top tier.

The agency with the largest growth among top agencies, No. 115 Houston Effler & Partners, rests on the cusp between the second and third tiers. The Boston-based agency grew 83.5% to $15.5 million gross income.

It opened a New York office called Houston Effler Hampel & Stefanides with first-year billings of $10.4 million from accounts such as BASF Gruppe AG and Castro Motor Oil, while in Boston, business grew a dramatic 64.9% as work matured on the Converse athletic shoe account won in mid-1992.

Of course, such averages don't account for agencies that shut down during the year. McCaffrey & McCall, whose principals bought back their agency from Saatchi & Saatchi in 1991, was the largest closure in 1993. It was No. 69 among U.S. shops last year.

Venet Advertising, No. 116 a year ago, and Great Scott Advertising, No. 197, also went under. Comart-KLP, No. 61 a year ago, was bought by holding company Euro RSCG and merged into its Hadley Group sales promotion shop.

Much of Saugutuck Marketing Group, No. 188 in 1992, was siphoned off to Clarion Marketing & Communications, this year's No. 56.

U.S. city billings race

With less than a third of the billings amassed by New York, Chicago finished No. 2 among U.S. cities, at $7.7 billion. Its growth of 3.7% was one of the poorest performances of a major U.S. city.

Chicago's fortunes are tied largely to the billings of Leo Burnett Co., much as Tokyo's are to Dentsu. Burnett accounts for over a quarter of the city's returns. Its U.S. billings in 1993, all tied to Chicago, were flat. (See chart at left.)

London and Paris finished ahead of Chicago in the world's largest ad cities behind the New York-Tokyo colossus.

Media crowns

Saatchi & Saatchi Advertising replaced JWT as the top spender in network TV, the preferred medium among the Top 500 U.S. brands. The Top 10 agencies alone accounted for $6.9 billion in network spending in 1993.

Saatchi's $812.7 billion, up 0.3%, represented 44.7% of its total media purchases. Finishing second was Burnett at $783.7 million, down 1.7%.

Network TV is such a powerful contributor to total agency returns that its 3.9% growth among the Top 10 agencies using the medium virtually matched the growth of all advertising in the U.S. in 1993.

Staff for this report

Fred Danzig, Larry Edwards, Mike Ryan, R. Craig Endicott, Kevin Brown, Ilse Cermak, Susen Taras, Rich Trout, Geoffrey Shives, Jill D'Angelo, Sarah Polster.

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