U.S. Revenue Rises 3.7% (but Watch Out for '09)

Agency Report 2009: Big 4 Account for Nearly Half of Revenue; Digital Agencies Grow 15%

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CHICAGO (AdAge.com) -- Amid the downturn, revenue for U.S. marketing-communications agencies -- advertising, marketing services, media, health care and public relations -- ticked up 3.7% to $33.7 billion in 2008, according to Ad Age's Agency Report.

A disconnect? Not exactly. Real gross domestic product eked out 1.1% growth last year, with gains in the first half and a sharp drop in the second half. Real agency revenue last year dipped 0.1% (after subtracting the 3.8% inflation rate from agencies' 3.7% growth).

Agency revenues, employment

Agency revenue growth from 2001 to 2008; employment from 2007 to 2009

Agency Report 2009:

Full Report
Ranking of 900-plus agencies. New for 2009: fast facts, top executives and web links for each agency, plus deeper rankings on digital and other specialties.
Agency Family Trees 2009
Holdings of the world's top 50 agency companies, including agency profiles, revenue breakouts and links.
So even though last year was no walk in the park, the big problem for agencies is 2009, not 2008. For the first time since 2002, U.S. agency revenue likely will show a decrease in 2009, mirroring declines in the economy and media spending.

Agencies big and small showed some revenue growth last year. The top four agency firms -- WPP, Omnicom Group, Interpublic Group of Cos. and Publicis Groupe -- accounted for just less than half (49.2%) of U.S. agency revenue, according to Ad Age DataCenter's analysis. U.S. agency revenue for the Big Four rose 3.8%.

Much of the growth was fueled by digital services. U.S. revenue at digital specialty agencies jumped 14.8% in 2008, and Ad Age estimates that the Big Four agency firms derived 16% of their 2008 worldwide revenue (or close to one in six dollars) from digital services, up from 12.3% in 2007.

Agencies across disciplines -- advertising, direct marketing and promotion, for example -- are building out digital capabilities. Of the more than 900 agencies ranked in the 2009 Agency Report, 60% reported digital revenue.

Revenue growth last year varied by discipline. Revenue for U.S. ad agencies rose 2.5%. Media-agency revenue edged up 0.9%, with digital providing some insulation against weakness in traditional media. In marketing services, direct-marketing agency revenue increased 2.8%, while promotion revenue slipped 0.8%.

Other key points from the 2009 Agency Report:

  • WPP ranked as the world's largest agency company (2008 worldwide revenue: $13.60 billion), edging past Omnicom ($13.36 billion). WPP snared the top spot with revenue from Taylor Nelson Sofres, a market-research firm it bought in October. (On a pro forma basis, which shows what WPP would have looked like with 12 months of TNS revenue, WPP had revenue of $15.4 billion.)
  • Omnicom's BBDO Worldwide topped the ranking of U.S. agencies across disciplines. The ranking shows how agency brands stack up regardless of whether an agency gets revenue from advertising, marketing services, media or a combination of disciplines.
  • Omnicom's DDB Worldwide Communications Group and Interpublic's McCann Worldgroup tied for first place among consolidated agency networks, each with estimated worldwide revenue of $2.8 billion.
  • The volatility of the agency business can be seen in job data. Average employment at U.S. ad agencies declined 1.5% last year from 2007's average, according to the Bureau of Labor Statistics. Employment at year-end 2008 was down 3.2%, or 6,100 jobs, from 2007. Ominously, agencies cut 9,000 jobs in the first two months of 2009. Agency employment fell 8% from December 2007 (the official start of the recession) to February 2009, when U.S. agency staffing stood at 172,700.

    Economists say the economy will resume tepid growth in the second half of 2009 but expect GDP to show a 2.5% decline for the full year. WPP's Group M projects 2009 U.S. ad spending will fall 4.3% following a tiny gain in 2008.

    Stock analysts expect combined worldwide revenue for the top four agency firms to fall about 9% in 2009 (based on recent exchange rates), with organic revenue (factoring out acquisitions and currency shifts) falling 4% to 5%. For agencies, recession reality is still sinking in.

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