"Had we not been an agency that was able to work in partnership with all of these disciplines, we wouldn't have been able to win the business," says Andy Hopson, U.S. president-chief operating officer of Publicis Dialog.
And there lies the sea change for PR practitioners: They're increasingly being expected to join forces with their brethren in related marketing disciplines to better serve clients. Demand for total marketing communications, a concept dating back to the 1940s, increased in the 1990s and continues as a paradigm today.
That has nudged more PR agencies into the gravitational pull of marketing communications conglomerates, many of whose major holdings are ad agencies. Of the 10 largest PR agencies identified by the Council of Public Relations Firms, only one is independent.
PR as a discipline is not new to ad agencies. Many ad shops, such as J. Walter Thompson Co. and Young & Rubicam, long operated PR shops. But as each of those agency networks became part of larger holding companies, the conglomerates bought additional PR outfits to manage client conflicts.
Many PR agencies welcomed the chance to take advantage of the resources that a diversified holding company could offer. John Graham, chairman-CEO of Fleishman-Hillard, recalls that before his agency's sale to Omnicom Group in 1997, "We needed to grow internationally, but we didn't have the financial capacity or the time to do it ourselves. We decided we'd be better off with a larger company that would let us operate our brand."
Since the sale, St. Louis-based Fleishman-Hillard has made 15 acquisitions, Mr. Graham says, expanding its geographic reach to 83 markets from 28.
Some PR executives argue that holding company ownership offers benefits that would be nearly impossible to obtain as a private company, such as access to research developed by sibling companies. "PR has in the past had a reputation as being marketing light," says Paul Taaffe, president of WPP Group's Hill & Knowlton, New York. "This helps us to be a peer at the table."
Demand for specialized PR expertise, such as investor relations or knowledge of specific industries, also has spurred acquisitions. Integrated marketing company Publicis Dialog, which derives well over half its revenue from PR work, was built through a series of recent purchases by Publicis Groupe. "Maurice [Levy, Publicis Groupe chairman-CEO] was eager to have a greater presence, quickly," says Mr. Hopson, adding, "Our strategy was to strengthen the areas we were weak in."
The potential to win business from clients of sibling agencies is, of course, the most obvious benefit of joining an agency conglomerate. Growth of major global marketers is spawning new approaches to fostering communication among various agencies. Consider the role of Matt Seiler, exec VP-chief insight and integration officer at Omnicom. After PepsiCo consolidated its business at Omnicom last year, Mr. Seiler came onboard to look after the PepsiCo business in all disciplines: PR, online, even media planning and buying.
Late in 2001, Cindy Alston, chief marketing officer for PepsiCo's Gatorade brand, tapped Mr. Seiler for help after her longtime PR agency resigned. Mr. Seiler briefed three Omnicom PR shops, and Gatorade participated in a review; Fleishman-Hillard won the day. "Had there not been consolidation of PepsiCo business within Omnicom, [Ms. Alston] would not have been as likely to call me," Mr. Seiler says. "We'd been working together on so much other stuff, though, it made sense."
REVENUE boost seen
Rising PR activity also caught the eye of holding companies pressured to demonstrate revenue and earnings growth to Wall Street. PR spending grew at a rate nearly double that of advertising in the second half of the 1990s, says Jaime de Pinies, chief economist at Interpublic Group of Cos.' Chicago-based Golin/Harris International.
Though a global recession caused worldwide industry revenue to drop 2.65% in 2001-discounting the once-popular belief that PR is recession-proof-Mr. de Pinies says revenue is expected to increase between 3% and 5% in 2002 and between 6% and 8% in 2003.
In the first half of 2002, however, PR suffered more than other marketing communications segments. WPP, for example, reported PR revenue fell 11.2% in the first half. "Over the years, we have said we thought PR firms would be less cyclical, and that's proven wrong," says WPP Chief Executive Martin Sorrell. He's more optimistic about the future though, saying that PR "is part of non-advertising marketing services that seems to be growing faster than other sectors."
The pace of PR agency mergers and acquisitions slowed significantly last year, and for 2002, Abe Jones, managing director at investment bank AdMedia Partners, says deals are fewer in number, smaller in size and major holding companies are the buyers in most cases.
Still, many experts believe the persistent interest in dealmaking is evidence that the PR industry will continue to expand, and that holding companies will continue to buy, particularly in markets less mature than the U.S. and western Europe.
For those PR shops still unattached, it's still possible to be prosperous and large. Chicago-based Edelman PR Worldwide, ranked as the sixth-largest PR agency in the world, and Ruder Finn Group, New York, the No. 15 PR outfit, have managed to expand globally with a private structure.
"Our model is working for us. We've decided first to remain independent and focus on our core business-public relations-and to target and develop core competencies where we are strong on a global basis," says Peter Finn, co-CEO at Ruder Finn. "We do have clients who work with our competitors that are held by holding companies. ... The idea of saying that a client will hire one firm for all of its needs is an oversimplification of business needs and business realities."