The report also found the industry averting a truly disastrous year-media billings were down 10% in the U.S. in 2001-expected in many quarters by generating U.S. gross income of $18.54 billion in 2001, down only 2.2% from the prior year. The decline in this critical U.S. agency measurement-an equivalent to revenue-was the worst recorded since a 4.4% drop in 1987. The non-U.S. component of this year's report also dropped, to $13.2 billion in gross income, down 3.1%. Its most recent down performance was a negative 5.8% in 1993.
This year may not be any better in the U.S. There is downward pressure on fees, the major component of gross income on agency books. Agency-client negotiations to set 2002 agency fees in large part took place in the fourth quarter of 2001, a period of reduced expectations. Those same negotiations, conducted in a stronger climate at the end of 2000, delivered constant fee income during 2001 even as agencies' media sides contracted.
To weather the storm, agencies cut costs largely by downsizing. The Agency Report counted 93,024 employees at reporting agencies, a 10.2% decline from a year ago. Grey Global Group's Grey Worldwide, the nation's top agency brand by gross income at $581 million, down 4.8%, dropped 31% in U.S. employment to 1,479. Ad Age brands agencies by unbundling ancillary advertising services to expose the core ad brand. U.S. employment at Interpublic's FCB Group dropped even more precipitously, to 2,091, off 40% from year-ago levels as it suffered from DaimlerChrysler and PepsiCo business losses.
It was Interpublic's acquisition last spring of True North Communications and its prime ad network, Foote, Cone & Belding Worldwide, that seemed to ensure apparent victory for Interpublic in the competition for top ad organization. (An ad organization includes all ad and non-ad ventures.) The purchase moved $1.54 billion in pro forma 2000 gross income from True North, the ninth-largest ad group in 2000, into Interpublic, pushing it from No. 3 to a comfortable No. 1 at midyear.
But a struggling FCB Group and Lowe network within Interpublic darkened its outlook, leaving the door open for WPP, powered by the acquisition of Tempus Group. Revenue from the $5.5 billion in media billings generated by CIA Medianetwork, Tempus' media specialist property, made the difference.
Ironically, those returns might not be there had WPP won its attempt to scuttle the deal. Citing "material adverse change" in the world's media markets after the Sept. 11 terrorist attacks, WPP petitioned the U.K.'s Takeover Panel to allow it out of the deal. The panel ruled against WPP.
WPP, Interpublic and Omnicom Group-the Big 3 ad organizations-became more dominant in 2001, claiming a collective 43.7% of the world's advertising and marketing services gross income of $39.28 billion, up nearly 6 share points from 38% in 2000. If Publicis Groupe, a fourth contender with its pending acquisition of Bcom3 Group, were added to the group, the resulting top 4 could claim 54.6% of global ad and marketing services spending, up from 48.6% a year ago.
Interpublic grabbed the lead in world market share for advertising and marketing services. Its 15.7% share rose from 12.3% in 2000. WPP is a larger ad organization because it draws more than $2 billion of its gross income from non-advertising business such as research and PR. Its share of the ad pot was 13.6% vs. 12.4% in the prior year. Omnicom, with a 14.4% world share, up from 13.9%, remains by far the stronger performer in the financial markets. Its market capitalization (share price times outstanding shares) of $17.7 billion in April gave it higher value than WPP ($13.42 billion) and Interpublic ($12.53 billion).
Gross income totals in this report differ from stated results at these public companies because agencies reporting to Ad Age claim gross income and billings equal to their ownership percentage, counter to generally accepted accounting principles. GAAP allows companies to claim the revenue stream only when ownership exceeds 50%.
Specialist players fared better than most in the report. U.S. healthcare agencies gained 10.5% in gross income; Hispanic shops grew by 17.3%; African-American shops, 11.0%; and Asian-American, 39.7%.