Agencies delivered solid growth in 2022—why 2023 is more of a challenge

The agency business scored solid growth in 2022. Revenue growth is expected to moderate this year, but agency companies are banking on the burgeoning field of business transformation to help mitigate effects of a possible recession. U.S. revenue for agencies from all disciplines increased by 9.9% in 2022—robust growth, though below the rocketing revenue gain of 13.5% in 2021, when agencies rebounded from a 2020 pandemic pullback. Ad Age Agency Report 2023 Revenue, listings and analysis for agencies and agency companies Read more here Revenue growth is based on Ad Age’s bottom-up analysis of stated organic growth for the biggest agency companies and stated or estimated growth for other agencies in Ad Age Agency Report 2023. Organic growth strips out acquisitions, divestitures and the effects of exchange rates. U.S. revenue for agencies and agency companies captured in the Agency Report totaled a record $60.5 billion in 2022. Worldwide revenue rose and U.S. ad agency employment reached an all-time high. 5 key stats 2022 U.S. agency revenue growth +9.9% Agencies and agency companies tracked in Agency Report 2022 worldwide organic growth +7.5% Average for WPP, Publicis, Omnicom, Interpublic and Dentsu U.S. ad agency jobs 228,700 Employment in October 2022, all-time high Worldwide agency company employment 415,161 Year-end 2022 employment at WPP, Publicis, Omnicom, Interpublic and Dentsu, up 6.4% Non-U.S. headquarters 11 Agency companies in Ad Age's top 25 ranking with headquarters outside U.S. Two each in France, Germany, Japan, South Korea and U.K. One in India: Agency Report newcomer LTIMindtree U.S. revenue rose last year in every agency discipline tracked in the Agency Report. Promotion and experiential marketing led the way with a 23.7% revenue surge, propelled by the continued rebound in event marketing after 2020’s pandemic lockdown. Public relations revenue jumped 12.4%. Revenue from customer relationship management and direct marketing increased 11.7%, powered by data, digital and marketing technology. Media agencies, benefiting from demand for data and analytics, boosted revenue by 8.7%. Health care revenue for agencies increased 7.3%. That’s below double-digit gains in 2020 and 2021, when demand soared for marketing services tied to the COVID-19 pandemic. Ad agency revenue was up 4.6%, the slowest growth among disciplines in the Agency Report. In a market driven by data, analytics, digital and technology, ad agencies are no longer the masters of the universe. Ad Age Agency Report 2023 Agency listings in this report exclude agencies owned by a number of major agency companies that don’t disclose revenue by agency or network. Given changes in how agencies, networks and agency companies go to market, Ad Age no longer publishes revenue estimates for those agencies and networks. At the same time, Ad Age has expanded Agency Report's online Agency Family Trees, available to Ad Age Datacenter subscribers, to include content related to organic growth, disciplines, geographic revenue, client sectors and number of employees for agency companies where available based on financial disclosures and information provided to Ad Age by the companies. Organic growth in 2022 eased for the five biggest legacy agency holding companies—WPP, Publicis Groupe, Omnicom Group, Interpublic Group of Cos. and Dentsu Group—following a surge in 2021. Organic growth for the five firms averaged 7.5% worldwide and 7.6% in the U.S. in 2022. The average of 2023 worldwide organic growth forecasts for the five companies comes in at 3% to 4.6%, with comparatively little variance among the companies. Publicis and Omnicom last week announced first-quarter results. Publicis disclosed first-quarter worldwide organic growth of 7.1%, with growth in all regions (including 5.8% U.S. organic growth). Omnicom reported worldwide organic growth of 5.2% for the first three months of 2023, with growth in all regions (including 5.1% U.S. organic growth). Omnicom posted single-digit organic growth in all disciplines in the first quarter. On their earnings calls last week, Publicis and Omnicom confirmed the 2023 worldwide organic growth guidance range—3% to 5%—that both companies had forecast in February. WPP and Interpublic report on April 27. Agency companies face headwinds of slowing growth in digital advertising and a potential recession. Amid the warning signs, investors have been bullish on agencies. Omnicom shares last week reached an all-time high. Publicis last month came close to its 2015 record high. There were shifts near the top of Ad Age’s ranking of agency companies. Accenture Song vaulted to No. 2 from No. 4 based on fiscal 2022 revenue. Omnicom dropped to the fourth spot from No. 2. Publicis took the No. 3 spot in Ad Age’s ranking of agency companies, ahead of Omnicom for the first time. Ad Age’s ranking of agency companies includes both legacy agency holding companies and other firms such as Accenture Song. Looking more narrowly at only legacy agency holding companies, WPP is the biggest, followed by Publicis, Omnicom, Interpublic and Dentsu, based on 2022 worldwide revenue. On a worldwide basis, agency firms posted growth across nearly all disciplines in 2022. WPP and Interpublic, which break holdings into three business segments, reported single-digit organic growth across segments, with growth across regions. Omnicom reported organic growth across its seven disciplines. Experiential scored the strongest growth, surging 26.1% amid the event marketing rebound. For Dentsu operations outside its home market of Japan, customer experience management led the way with organic growth of 9.1%, powered by its Merkle unit, while creative declined slightly on an organic basis. Employment is a barometer of what’s up (or down) with agencies—and for a good reason. Talent is agencies’ biggest expense, and staffing tends to move with revenue. At Publicis, for example, personnel costs last year equaled 65% of net revenue. Total worldwide employment at five holding companies—WPP, Publicis, Omnicom, Interpublic and Dentsu—increased 6.4% in 2022, essentially tracking with organic growth. U.S. ad agency employment reached an all-time high of 228,700 jobs last October, according to the U.S. Bureau of Labor Statistics. Public relations agency staffing in October also scored an all-time high of 66,900 jobs. Tracking layoffs and budget cuts How brands and agencies are bracing for a recession Click here There are caution signs. U.S. employment in advertising, public relations and related services—a broad grouping including ad agencies, PR agencies, media buying and other services tied to advertising—fell by 2,100 jobs last month, its sharpest drop since the beginning of 2021. Consulting giant Accenture, the parent of Accenture Song, last month disclosed plans to cut about 19,000 jobs—2.5% of its workforce—over 18 months. Source: Bureau of Labor Statistics. Seasonally adjusted. Expanded jobs data: AdAge.com/adjobs. Credit: Infographic by Ad Age. Photo: iStock Agency companies are working to control staff costs through various means including agency mergers and restructuring, shifting jobs to lower-cost countries and automation. While WPP ended 2022 with a worldwide headcount about 6,100 jobs above its 2021 level, the company disclosed that last year it “made around 3,300 redundancies,” or job cuts, “largely as part of our transformation programme, as we merged and restructured some agencies.” Omnicom Chairman-CEO John Wren, speaking on an earnings call last October, said: “In terms of people and payroll, we’re taking [a serious] look at our processes at a very granular level through each of our subsidiaries, looking to offshore where it’s appropriate. And there’s a big push on automation in terms of some of the things that we can do from an automated basis that in the past we couldn’t.” Publicis last month bought Practia, an Argentina-based provider of technology and digital transformation services that is being folded into Publicis Sapient. Publicis said the acquired venture will “establish a foundation for a nearshore delivery platform … to better serve clients based in North America,” alongside Publicis Sapient’s existing “global delivery centers” in India and Eastern Europe. Michel-Alain Proch, chief financial officer at Publicis, noted on an earnings call last July that one-fourth of Publicis employees worked in its global delivery centers, which accounted for more than half of the company's net new recruits in the first half of 2022. The global delivery centers provide data and digital transformation services for Publicis Sapient and Epsilon as well as media and production. Publicis says it’s “positioned at every step of the value chain, from consulting to execution, combining marketing transformation and digital business transformation.” Interpublic says it provides “marketing, communications and business transformation services that help marketers and brands succeed in today’s digital economy” by “combining the power of creativity and technology.” The uber trendy stratagem of business transformation is a hard space to define, and some companies including Interpublic don’t specifically quantify revenue in that area. An Interpublic spokesman told Ad Age: “We don’t find the distinction meaningful because of the integrated nature of many of our client service relationships, which also make tracking such distinctions unproductive.” But business transformation—including consulting, data management and analytics, marketing technology and services related to commerce and experience—conceivably could help insulate agency companies from an advertising downturn and recession. In its latest annual report, WPP said: “Experience, commerce and technology are attractive faster-growth areas of the market, where client spend is forecast to grow at 5-15% annually, compared with 2-3% annually for traditional communications.” WPP CEO Mark Read is bullish on transformation-related opportunities in creating experiences, building e-commerce platforms and implementing technology solutions—but also cautious. “Now is that recession-proof? I don’t think anything in the world is recession-proof to be blunt,” Read said on a 2022 earnings call. While Read thinks “some clients will continue to invest in that area through what happens,” he expects “in other cases, clients will put big projects on hold.” On that earnings call, WPP’s chief financial officer, John Rogers, noted: “We can’t completely protect ourselves against the business cycle. But every move in that direction, every incremental piece of work we’re doing in these higher growth areas, helps.” (Rogers steps down as CFO this week and will be succeeded by Joanne Wilson, most recently CFO at Britvic, a U.K. beverage marketer.) For the first time since Ad Age began ranking interactive agencies in 1999, Agency Report doesn’t include a digital ranking. With digital pervasive across marketing and agencies, Ad Age Datacenter has stopped breaking out digital networks and calculating digital’s share of overall agency revenue. Digital has evolved from a siloed discipline to the core of marketing. But the integration of digital into marketing was in the making even at interactive's nascent stage. A column back in 2000 by the writer of this article stated: “The future of interactive marketing is simply the future of marketing.” Ad Age’s 2008 Agency Report noted: “It’s clear that digital services have become a way of life (or a way to avoid death) for agencies of all disciplines.” Ad Age estimated that digital accounted for about a fourth of U.S. agency revenue in 2009. By 2021, that rose to 64%. Dentsu, the last of the biggest legacy agency holding companies to break out digital as a percentage of business, stopped doing so effective with its financial results for 2022 as it puts more emphasis on customer transformation and technology. That’s where Dentsu is staking its future. Ad Age Agency Report 2023 Revenue, listings and analysis for agencies and agency companies Read more here Subscribe to Ad Age’s Datacenter for ongoing data and insights on marketers, brands and agencies.

Agencies delivered solid growth in 2022—why 2023 is more of a challenge

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