From the basement to the penthouse

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Peek inside the offices of Middleberg Euro RSCG, and you'll see 160 employees working the phones, surfing the Internet, preparing for client presentations as well as adhering to the time-honored tradition of taking clients to lunch.

But if you pay close attention, you'll soon realize that it's the Middleberg public relations professionals who are grilling the client, not the other way around. Because, increasingly, it's the PR people who are calling the shots for clients when they're choosing an advertising agency or meeting with Wall Street rainmakers.

"PR has changed fundamentally, forever and for the better," says CEO Don Middleberg, who last year sold his agency, Middleberg & Associates, specialists in communications for Internet companies, to Euro RSCG Worldwide. "To which I say hallelujah, our time has come."

Public relations, says Mr. Middleberg, is no longer the backwater refuge for journalists who couldn't cut it in the media or creatives who dropped out of advertising. The era of digital communications and the hype and buzz surrounding high-tech and dot-com companies have ushered public relations into the limelight -- so much so, the industry believes it can never again be considered the Rodney Dangerfield of marketing communications.


"What all of this dot-com PR stuff has done is validate PR as a very important and vital part of the marketing mix," says Toni Lee, who has handled corporate communications for ad agencies, including Grey Advertising, and now runs her own PR agency, TL Communications, Wilton, Conn.

"Up until this point, [PR has] always been seen as a somewhat second sister or second cousin to advertising," Ms. Lee says. "Companies spent a lot more money on advertising. It was seen as the bigger expenditure, the image building way to go.

"But with Internet start-ups and dot-coms finding that PR could help create bigger buzz than advertising, it really has validated PR in the eyes of many," she adds. "The biggest result is a lot of PR companies have been bought by advertising agencies and PR firms are buying other PR firms."

Among the acquisitions in recent months:

* Bcom3 Group's Manning Selvage & Lee, New York, bought Advance Planning & Communications, Toronto.

* BSMG Worldwide, New York, purchased consumer PR agency Lyons Waddell, London.

* Omnicom Group purchased the Washington Speakers Bureau, Alexandria, Va.

* Lighthouse Global Network acquired London PR agency Clarion Communications.


Advertising agencies themselves trumpet their acquisitions of PR shops and the resulting bottom-line growth. London-based WPP Group, whose U.S. agencies include J. Walter Thompson USA, Ogilvy & Mather and Young & Rubicam, reported a 19% rise in first-half revenue to $1.82 billion, with 54% of its business coming from higher-margin, below-the-line activities such as marketing services and public relations.

In the first half of 2000, its margins were highest in public relations and public affairs operations, at nearly 16%.

"PR, at its core, is influencing opinion and creating environments for people to buy things, whatever those things might be," says Larry Weber, chairman-CEO, Allied Communications Group, an integrated marketing communications unit of Interpublic Group of Cos., pointedly noting that Interpublic revenues are up to 47% non-traditional advertising.

"PR builds dialogue and relationships between companies and consumers, a concept that the dot-coms were quick to grasp and that ad agencies and others are now only coming to understand," Mr. Weber adds.

"I've always argued that PR was validated before the Internet, but what's become clear in the last couple of years is that we're not the second sister anymore. If anything, PR professionals are leading the way toward what I call the morphing of marketing, which has at its center a PR effort which is emotive."

Budgets, Mr. Weber contends, are up more than 300% for Internet companies buying PR services; among PR agencies, it is not uncommon for the top-line companies to charge a monthly minimum fee of $30,000 to $50,000.

"Sure, we set a monthly minimum fee," says Doug Spong, managing partner, Carmichael Lynch Spong, the public relations unit of Interpublic's Carmichael Lynch, Minneapolis. "Dot-coms that are in those first or second rounds of financing are inherently bad risks. We've been burned well into the six figures, so it's as much to protect us from high-tech companies that are small cap, big risk and in their first round of funding as to indicate to these companies that this is serious business, that they need to make a commitment."


High-risk clients also are asked to pay cash upfront before the agency agrees to start any assignment, and clients are expected to stay with the shop for more than a month or two, preferably at least four months.

Despite the risks, the high-tech and dot-com explosion has been very beneficial to Mr. Spong and his agency. The agency took in $5 million in fees in 1999, a 44% increase from 1998. Projections for this year are robust as well, with Mr. Spong predicting fee revenue growth of 25% to 26%. Where the shop handled virtually no high-tech or dot-com companies four years ago, those clients now account for 25% of the agency's revenue.

"We've gone bananas, hiring people in the last few months to meet and keep up with the demand from the online world," he says. "I don't just mean the dot-coms themselves, but all the online media that now exist that create their own content."

For Mr. Spong, that means his shop no longer simply angles to get a corporate executive on the evening news or headline a story in the Minneapolis Star Tribune. It now means bringing in media relations specialists who work with online media, whether it's an e-zine or Channel4000, the online companion to WCCO-TV.

The company earlier this year also added a partner, Bill Fuesz, to chair its new technology practice. "He gets to deal with all the dot-coms," says Mr. Spong.

"What we've figured out is that every dot-com CEO must have attended a seminar in which venture capitalists said the first thing you do is hire a PR agency because they'll create a presence for you both online and in the traditional media," says Mr. Spong. "And every dot-com in the world has gone out and done just that.


However, the rush to PR has been fraught with its own pitfalls. Maureen Gillespie, CEO at smartpr, New York, finds that while everyone "now wants PR," her shop spends just as much time educating clients as to what PR can actually accomplish.

"Everyone wants to run out and tell their story to The Wall Street Journal, and for many of the companies we work with, that's the last thing they should be doing," says Ms. Gillespie, whose shop specializes in public relations for start-up businesses and those in the pre-initial public offering stage. "Even when we think they understand what they're doing and how they should be doing it, we find we have to re-educate clients about what PR is all about. We could make a lot more money if we were willing to compromise, but we're willing to turn down clients and turn down jobs if the clients don't live up to our standards and expectations."

Managing client expectations has become a major component of the job, says Fred Pfaff, president of Fred Pfaff Inc., New York, a business PR boutique. "We're now in a stage where dot-coms especially are coming to us, they're pointing to the buzz that other companies have generated using publicity, and they expect us to immediately do the same for them. There are things PR can do that advertising can't do, namely build grassroots recognition, but it's not a panacea."

According to a recent study by A.T. Kearney Inc., 78% of 500 CEOs interviewed said their business has been fundamentally changed by the Internet. For PR executives such as Don Middleberg, this means his PR people are now sitting next to those CEOs, advising them on everything from picking an ad agency to deciding on the right time to do that IPO.

"We're dealing with the top management, the CEOs, the marketing people," Mr. Middleberg says. "They're finally understanding the value of what PR and marketing communications really means. They're seeing advertising become so expensive, and it often doesn't do what it's supposed to do, which is shape brand loyalties and create relationships between consumers and companies.

"What is creating those relationships, especially with young people, is the Internet," he adds. "The smart marketers, not just the dot-coms, are understanding that this is the communication vehicle of the future, and what it does best is communicate information."


Information is the currency of the Internet age, says Mr. Middleberg, whose shop charges a monthly minimum of $30,000. "PR always has been about connections, about bringing people together," he adds.

"Certainly the perceptions of what PR is and what it can do have changed significantly with the Internet," agrees Carol Boyd, an independent PR consultant who spent many years as a corporate public relations executive with Procter & Gamble Co. "There's a sense that PR can accomplish goals much more quickly than advertising."

When asked whether the dot-coms have significantly changed the PR industry, Dan Prince, president of the Prince Group, New York, just sighs.

"No, the dot-coms really haven't changed the way I do PR. Nor have they changed the way PR is done," he insists. "A brand is a brand is a brand, and a dot-com doesn't deserve news coverage for simply being a dot-com. What they need to have is a unique selling proposition, just like any other brand."

With so much attention focused on the high techs and dot-coms, most of what PR executives do is try to figure out who the client is trying to influence: Is it the consumer? Is it the high-tech community? The venture capitalists? The media?

"Once we figure out what their goals are, then we can tailor a program for them," says Mr. Prince. "That kind of PR hasn't changed since the beginning of PR."

Now that the Internet has helped PR companies earn their place in the nation's boardrooms, executives are determined to make that change permanent.

"I really do think we're seeing the demise of advertising," says Mr. Weber of Interpublic's Allied Communications Group. "What helps companies build their businesses is hard-working PR. Advertising is not going to build community for companies, the Internet and PR[are]."


For the first time, PR is on the radar screen of new college graduates, many of whom earned a degree in public relations. "PR is now a viable career option, not just a place to go if you couldn't do advertising or journalism," says Mr. Middleberg. "We're getting a better quality person into the profession, and that helps all of us."

At the same time, the growth of the PR industry is continuing. Just as its rebirth correlates with the onset of the technology revolution, says Mr. Spong of Carmichael, as the technology revolution continues, so, too, does growth in PR. In 1999, he says, the top 50 PR agencies grew, on average, 29%.

"That's dot-com-type growth," he says. "And it continues to be robust and to grow."

Says Mr. Middleberg, "PR is in its golden age today. You've got to be almost dead not to be successful in PR today."

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