Ad Age Agency Report 2019: Growth slows, digital reaches a crossroads and agency companies regroup
U.S. agency revenue rose a tepid 1.7 percent in 2018, the weakest growth since the ad market emerged from recession.
But there are positive indicators. Omnicom Group’s stock this month scored a multiyear high, a bet by investors that the big agency company will keep growing.
Digital revenue for U.S. agencies increased a healthy 7.2 percent in 2018. U.S. ad agency employment last summer broke through its year 2000 peak to reach a new all-time high, though agencies have trimmed staff since then.
Agencies can only hope the U.S. economy keeps rolling. The economic expansion, assuming it holds, will pass the 10-year mark in July, making this the longest U.S. expansion on record and putting the 2007-2009 recession (the longest downturn since the Great Depression) in the rearview mirror.
A brief (sort of) history of agencies
Big deals, big ideas and an 'odious little shit'
Check out Ad Age’s agency timeline. This is our 75th annual Agency Report, so we dug through the archives to see just how the agency business has (and has not) changed.AdAge.com/agencyreport75th
Five takeaways from Ad Age Agency Report 2019:
1. Digital crossroads
Number of times WPP mentioned “digital” in then-CEO Martin Sorrell’s 130-slide earnings presentation in March 2018: 63.
Number of times WPP mentioned “digital” in new CEO Mark Read’s 60-slide earnings presentation in March 2019: zero.
Read, formerly CEO of the company’s WPP Digital unit, isn’t taking WPP off the grid. Rather, he’s running a company for which digital is so omnipresent that there’s less reason to call out the obvious.
Among the world’s five biggest agency companies, only one—Dentsu Inc.—now discloses in its earnings presentations how much of its business comes from digital services.
Dentsu says digital accounted for 46.1 percent of worldwide revenue less cost of sales in 2018. It also says digital accounted for 60.6 percent of business in 2018 for Dentsu Aegis Network, which manages operations outside Japan.
Ad Age Datacenter estimates that digital work captured 53.6 percent of 2018 U.S. revenue for agencies from all disciplines in this Agency Report. That’s double the percentage from 2009.
2. Slow growing
Estimated revenue for U.S. ad agencies barely budged in 2018 (up 0.4 percent), and revenue for media agencies (excluding digital work) fell 2.1 percent, reflecting a weaker market for traditional agency services.
Case in point: MDC Partners, which attributed a revenue decline in its group of “global integrated agencies”—72andSunny, Anomaly, CPB, Doner and Forsman & Bodenfors—to, among other things, “cutbacks and spending delays from several existing clients and a slower pace of conversion of new business, partially offset by client wins.”
Agency revenue in customer relationship management/direct marketing increased 3.3 percent, and revenue for public relations agencies rose 3.0 percent.
Promotion revenue edged up a weak 0.9 percent. Experiential/event marketing, a subset of promotion, increased 2.1 percent.
Health care revenue for agencies grew a, well, healthy 4.8 percent.
Overall, U.S. agency revenue rose 1.7 percent, according to Ad Age Datacenter’s bottom-up analysis of organic growth for major agency companies and stated or estimated pro forma growth for other agencies in Ad Age Agency Report 2019. Organic growth strips out acquisitions, divestitures and the effects of exchange rates.
Total 2018 U.S. revenue for the more than 500 agencies and agency networks tracked in this Agency Report reached a record $57 billion.
3. Buy, sell, simplify
Publicis Groupe’s $4.4 billion agreement this month to buy Alliance Data Systems Corp.’s Epsilon-Conversant is the industry’s biggest deal since Dentsu bought Aegis Group in 2013.
Interpublic Group of Cos. made its own data play, buying Acxiom last October for $2.3 billion. Mark Penn’s Stagwell Group last month bought a minority stake in struggling MDC. Accenture Interactive this month signed a deal to buy Droga5, giving the biggest consultancy a high-profile creative agency.
Agency companies also are simplifying networks and jettisoning holdings.
In Ad Age’s first Agency Report in 1945, the top two ad agencies were J. Walter Thompson Co. and Young & Rubicam.
Last fall, those once-leading names were shunted to supporting roles when WPP combined J. Walter Thompson with direct-marketing and digital powerhouse Wunderman to form Wunderman Thompson (billed as “a new creative, data and technology agency”) and merged Y&R with digital play VML to form VMLY&R (“a new brand experience agency”).
After decades of buying, WPP sold 30 “non-core” investments and holdings in 2018 for $1.1 billion. WPP hopes to sell a big stake in Kantar, its market research business.
Employment at U.S. ad agencies and PR agencies last year reached record highs, but both sectors have trimmed staff since then, according to Bureau of Labor Statistics data.
Legacy agency companies are watching staffing closely. Interpublic, for example, in 2018 managed to increase U.S. organic net revenue by a strong 5.1 percent while its U.S. workforce (excluding employees at just- acquired Acxiom) grew 1.5 percent.
WPP aims to cut 3,500 jobs worldwide by the end of 2019 as it merges and restructures agencies and as a result of changes in its client base. It’s already eliminated 2,650 positions, with 850 jobs still to go.
Consultancies, meanwhile, are hiring. Employment for major consultancies tracked in this Agency Report jumped 19 percent in the U.S. and 25 percent worldwide in 2018, driven in part by acquisitions.
5. Stock answers
U.S. stock market indices last week climbed to near all-time highs, but it’s a mixed bag for agencies.
Earlier this month, Omnicom scored a multiyear high while Publicis slumped to a multiyear low before rebounding.
And Accenture? Last week, it rolled to an all-time high.