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Copyright r1995 by Crain Communications Inc. Quotations or reproductions in whole or in part without written permission is expressly prohibited.

U.S. advertising agencies haven't had it so good in a decade.

Agencies entered double-digit growth territory in 1994, accumulating $9.38 billion in U.S. gross income, a 10.7% advance from the prior year, on billings of $71.84 billion, according to domestic returns of the nation's 500 leading agencies appearing in this 51st annual Advertising Age Agency Report.

This U.S. component shouldered growth in worldwide gross income of 9.1%, to $15.8 billion, on billings of $117.49 billion. Non-U.S. activity of these agencies hit $6.42 billion in gross income, up 6.9%, on billings of $45.65 billion.

Not since 1984-when U.S. growth soared a phenomenal 18%-have agencies entered the double-digit column in U.S. returns.

An improved economy in '94 was evidenced by heavy outlays in network TV (up 9.2%), spot TV (15.2%) and magazines (11.5%)-the backbone of agency media commissions. Advertiser spending pent up during a depressed '93 was unleashed.

Year-to-year growth in most key currencies also enhanced agency returns abroad.

Growth, of course, is stacked against a prior year, and 1993 was nothing to write home about: The U.S. side slipped that year to a 3.8% gain in gross income as the non-U.S. sector generated 5.7% fewer dollars than in the previous year.

Gross income, largely media commission and fee income, is agency parlance for revenue and generally ranges from 10% to 15% of billings.

Leo Burnett Co., the largest U.S. agency brand since 1988, retained its title by holding off J. Walter Thompson Co. with gross income of $322.1 million, up 5.7%, compared with JWT's $317.4 million, up 6.6%.

An agency brand is the core agency stripped of its independent subsidiaries, including specialty operations like direct response and sales promotion. Like the parent, these operations are standalone brands. Ad Age "brands" agencies because subsidiaries and specialty units have a clientele separate from the core agency and may even compete against it.

WPP Group remained the world's largest ad organization in 1994, a designation that couples ad returns with other business, usually market research, PR and design.

The London-based holding company had gross income of $2.77 billion, up 5.4%, on billings of $20 billion. Without its non-advertising contribution, WPP returned $1.8 billion in gross income-less than ad returns generated by No. 2 Interpublic Group of Cos. and No. 3 Omnicom Group, with worldwide gross income of $2.21 billion, up 4%, and $2.05 billion, up 7.5%, respectively-all from advertising.

Currency conversion ratios, given the historical treatment by Ad Age, bolstered returns for the world's largest agency, Dentsu Inc., which does most of its business in Japan. Dentsu had a good year in a struggling economy, but the yen's 11.1% uptick against the dollar gave Dentsu a great year (in dollars), up 17.1% to $1.64 billion on billings of $12.3 billion.

The world's ad capitals

Tokyo, seat of power for Japan's advertising community, made good use of that exchange-rate differential to slip past New York as the world's leading ad capital in total billings: $28.69 billion vs. New York's $28.49 billion. Some 7% of the Tokyo figure was from local shops of New York-based agencies.

The ranking is based on billings apportioned to local markets. In the U.S., for example, the JWT brand has $2.22 billion in billings but it generates only $650 million of that at its New York office. Detroit is JWT's largest office at $730 million. The ad business abroad is much more centralized, with most agency activity flowing from the national capital or business center into the provinces.

The 41 Japanese agencies in the report generated billings of $30.8 billion, up 13.2%. Given the 11.1% exchange rate boon, agency billings in Japan grew a little over 2% in yen.

New York can take solace in that its 148 shops in the report generated year-to-year growth of 6.3% in billings, and that was done within shouting distance of two other agency centers: Southwest Connecticut and Central New Jersey, autonomous regions since this worldwide ranking began in 1991 with the crowning of New York.

Southwest Connecticut, ranked ninth within the U.S. at $1.2 billion in billings, is a collection of 18 agencies, many heavily involved in sales promotion and direct response, headquartered in a triangular region framed by the New York State line, Long Island Sound and Connecticut's Housatonic River.

Central New Jersey, ranked No. 13 in the U.S. at $810.4 million, is a pack of 23 agencies-mostly medical-situated west and south of the Garden State Parkway.

Chicago remained No. 2 in the U.S. at $8.29 billion, up 8.8%. Chicago billings are moored to Burnett. It accounts for just over a quarter of billings from 67 agencies.

On a worldwide basis, London and Paris follow New York in that order at $11.36 billion in billings, up 8.4%, and $8.43 billion, down 12%, respectively. The French have been beset by a stagnant economy and wide fluctuations in the French franc: up 5.1% in '93; down 9.7% in '94 on an average basis.

World's Top 50 ad organizations

Acquisitions in the agency field by Interpublic and Omnicom can only enhance their numbers next year. IPG purchased Ammirati & Puris in '93 and merged it with Lintas New York to form Ammirati & Puris/Lintas, No. 15 among agency brands.

Omnicom bought Chiat/Day, No. 16, to merge with TBWA Advertising, No. 33. TBWA, its billings more substantial abroad, gained a stronger U.S. presence. Omnicom also purchased Griffin Bacal, No. 84, and will keep it independent under the DDB Needham Worldwide wing; and medical agency Dorritie Lyons & Nickel was reconfigured as Lyons/Lavey/Nickel/Swift when merged with Omnicom's Lavey/Wolff/Swift.

HMG Worldwide, the merger of MarkitStar Inc. and Howard Marlboro Group, rose to No. 43. among ad organizations.

Top 500 U.S. agency brands

The U.S. agency business is small and compact compared to most established industries. Thirty-seven agencies-the number with gross income above $50 million (about $350 million in billings)-account for $4.89 billion or 52% of the 500's total gross income.

That same collection of agencies gained $6.42 billion in foreign returns, virtually all the foreign activity of U.S. agencies.

A reflection of the strong year turned in by the 500 is that the number of employees and shops within those brands each increased just over 3%.

International hot spots

To U.S. agencies, Asia is the Oregon Trail and Eastern Europe the Oklahoma land rush.

The trickle of agencies into the Far East and Southern Asia has turned into a steady flow as part of the world's economy shifts to this densely populated and rapidly industrializing area.

Vietnam is an example of that steady flow; three agencies were founded in Ho Chi Minh City (Saigon) in 1994 by international networks McCann-Erickson Worldwide, Grey Advertising and Burnett. Agency billings in China, where Bozell and Batey Communications opened new shops, grew 87.8%. Startups had little impact on that growth.

Burnett and Saatchi & Saatchi Advertising Worldwide set up agencies in India, one of Asia's hottest economies, where agency billings grew 33.4% in 1994. Such growth was typical in the region.

International networks have been hot for Eastern European business, no more so than in Romania where startup activity came from Young & Rubicam, D'Arcy Masius Benton & Bowles, Grey and Ogilvy & Mather.

Hager Group and GGK Occidental are expanding Central and Eastern European networks based in Vienna and associated, respectively, with Lowe Group, London, on a non-equity basis, and GGK/GGT Worldwide, 20% owned by GGK Occidental and 80% by Gold Greenlees Trott, London-the world's 26th-largest ad organization.

Scholz & Friends, the Hamburg-based agency majority owned by Bates Worldwide, this month opened a six-office network that includes agencies in Vienna and Budapest. They will service the Reemtsma tobacco business, newly won from Saatchi & Saatchi Frankfurt.

During 1994, Grey, JWT and Bozell opened in Russia, O&M and DDB Needham in Bulgaria, Conquest Europe in Poland, Bozell in Slovenia, O&M in Slovakia and Publicis in Hungary.

What's in a name, anyway. A lot!

The events leading this March to the renaming of holding company Saatchi & Saatchi Co. to Cordiant, No. 5 among ad organizations, didn't come gently in the night.

The holding company voted the name change after founding brothers Maurice and Charles Saatchi left to form New Saatchi and pitch old Saatchi clients.

The "cor" in Cordiant expresses a form of the Latin root for heart, says Cordiant, but it's one that now ticks without the Saatchis.

Foote, Cone & Belding Communications rechristened itself True North Communications at the end of '94, to reflect a new course for the No. 11 ad organization-one headed true north into a diversity that the holding company says is not conveyed by the Foote Cone tag.

But early this year, Publicis Communication, the world's No. 13 ad organization, said the direction it planned to go with its True North bedfellow was due south.

Seven years ago, the two united their European operations, creating Publicis-FCB Communications B.V., majority-owned (51%) by Publicis. All the Publicis ad business was contained in B.V., that is until late 1993 when Publicis bought Paris-based FCAB Group, the "B" standing for Bloom Agency, a direct competitor to FCB in the U.S. The alliance agreement forbids territorial encroachment by either party.

The FCAB buyout broadened cultural and philosophical differences that had grown between the two organizations. Publicis is adamant that the relationship be dissolved or reconfigured.

The two now head for Court of International Arbitration in London to air grievances and see which way the relationship will go: vrei norde or directement sud?

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