Management's worst fears in January were realized during the first half of this year. A bevy of marketers slashed ad spending, forcing advertising companies to respond with layoffs, cutbacks and adjusted earnings expectations. Although many agency executives put forth an optimistic front at the start of 2001, the direness of the situation became apparent to some as early as spring. During April's American Association of Advertising Agencies annual meeting, one head of a global agency privately admitted: "We've pretty much written off the year."
Some agency executives already are writing off part of 2002. Kieran Hannon, president-general manager of Grey Global Group's Grey Worldwide, San Francisco, said economic realities have begun to "stabilize," yet he anticipates the agency business won't pick up until the second half of next year.
Alan Jurmain, executive director of integrated media services for Interpublic Group of Cos.' Lowe Lintas & Partners, New York, said many agencies are looking past 2001 for the turnaround. "People have psychologically postponed the recovery until 2002," he said. "We were all hoping to see some recovery in the second half, but that's not the case."
There still are optimists. "I think the worst is behind us," said Jack Boland, president of Pickett Advertising, San Francisco. "There are opportunities to capitalize on," especially as clients prepare for 2002.
Yet areas where agencies once had high hopes-international spending and client reallocation of ad dollars to marketing services-haven't come to fruition. During a midyear review presentation, Interpublic Chief Financial Officer Sean Orr cited softening economies in Asia, Europe and Latin America, as well as a reluctance on marketers' parts to switch budgets from traditional advertising to direct marketing and sales promotions, among the troubles Interpublic has faced so far this year.
"The year 2001 is not going to be a pretty story, no matter what we do," Mr. Orr said.
Interpublic, the world's largest agency company with its acquisition this month of True North Communications, has twice lowered its earnings estimates. Interpublic stock last week hit its lowest point since 1998. However John Dooner, who took over as Interpublic chairman-CEO Jan. 1, refuses to throw in the towel. "We're gladiators. You don't write anything off."
Meanwhile, Wall Street's dampening effect on Madison Ave. remains pervasive. Mike Zeigler, New York chief financial officer of WPP Group's Y&R Advertising, cites the continuing spate of marketers' missed earnings as an ominous sign. "That's an indication," he said. "We feed off of them. Regardless of what people say, you know the direction we are going."
Lowe's Mr. Jurmain concurred: "Our business is so linked to Wall Street these days and information is so readily available about company earnings, until a succession of companies announces positive earnings and growth, I don't think we'll [see] a knight on a white horse emerge."
As for future growth, Mr. Zeigler said agencies have squeezed costs as much as they can-through layoffs, travel cutbacks and other measures-and now are concentrating on generating cash. "Basically, the business is more trying to focus on revenue," he said.
"The expense component has been handled fairly thoroughly in the first couple quarters. Now the focus is on new business and increasing business with existing clients."
Rick Colby, president of Dentsu's Colby & Partners, Santa Monica, Calif., said one thing is certain: There will be pitched battles for any crumb of new business that comes along, with big agencies marshalling all their resources for even pieces of business with billings in the $1 million range. "It's going to be sharks on a feeding frenzy," he said, "if for nothing else but a little excitement" to keep staff motivated and feeling they are moving forward.
Contributing: Alice Z. Cuneo, Kate MacArthur and Rich Thomaselli