The last year of the 20th century was a good one for PR in Western Europe. Favourable economic conditions created a climate in which service businesses could flourish - confidence among clients boosted marketing budgets and most of the region's leading PR firms reaped the benefits.
Indeed, 1999 will be remembered as the year the new economy really sprung to life. E-commerce hit the mainstream, and as dot.coms struggled to build their brands amidst a digital gold rush, they turned to PR in droves.
For dot.com start-ups in particular, PR was a near-necessity. It was used not only to build brand awareness, but also to gain the attention of potential investors in an effort to secure second-round venture capital funding. Clicks and mortar businesses - with one foot in traditional retailing, the other on the net and a hand in the deep pockets of their old economy parents - were equally heavy users of PR, having reached the conclusion that advertising alone would not get them heard in a highly competitive, fast-changing marketplace.
This year, of course, dot.coms and their investors were forced to swallow a bitter reality pill. Several failed, and more will likely follow. The bubble has not burst, but it contains much less hot air. PR firms that rushed to ride the dot.com wave - sometimes overlooking shaky business models, hazy strategies and ill-conceived brands - may find themselves on rocky shores. The e-revolution is as exacting as evolution in the animal kingdom: only the fittest survive.
Strategy is still the key
One facet of PR that has benefited from the emergence of the internet is high-level strategic work. The internet has forced organisations of almost every kind to consider the importance of reputation management, now that so much information about them is instantaneous over the web.
And corporate brands are regarded as precious assets like never before.
The increased standing of PR consultants in boardrooms from Stockholm to Madrid and London to Berlin has been aided by a significant number of major corporate mergers and acquisitions (M&As), and by ongoing privatisation and deregulation in sectors such as energy and telecoms. Consequently, clients are increasingly calling on PR firms for assistance in change management, investor relations and crisis handling.
Cross-border accounts are also more common, which is good news for multinational PR firms as well as for networks of independent agencies. Many business leaders believe that pan-European PR is coming of age, driven by the declining importance to business of national boundaries: cross-border M&As call for agile and sophisticated communications, investors are more globally savvy and media - with the internet at the fore - has become more internationally focused. Local communication remains essential, but many large clients know they need to think and act globally as well.
Partially as a result of this, the ten largest multinational agencies in Western Europe saw their fee income for the European Union and Switzerland rise from about dollars 460 million in 1998 to dollars 500 million last year. As before, Porter Novelli International leads the way in PR Week's European ranking, although its four closest rivals - International Public Relations (comprised of Shandwick, Weber and Golin/Harris), Euro RSCG, Burson-Marsteller and Hill and Knowlton - all gained ground. Sixth-placed GCI Europe/APCO posted the biggest percentage rise in fees in the European top 10 - 58 per cent - while also claiming that its Europe-wide business shot up by 200 per cent.
The picture among independent agency networks was more modest, with the top two - Worldcom and Entente International - both experiencing a decline in fee income. To some extent, older groups of agencies are having to reinvent their roster of services in the face of strong competition from big multinational firms and a new generation of networks. Those networks with technology expertise appear particularly strong, as exemplified by a 37 per cent increase in fee income at Firefly's Fireworks network, and a 49 per cent rise at Embrace, created by UK agency Grant Butler Coomber.
For the purposes of this report, we have focused on the ten strongest PR markets in Western Europe: the nine major economies in the European Union, plus Switzerland. Consolidating the performances of the top 10 agencies in all of these countries results in an average increase in European fee income of 32 per cent. Some of this growth can be attributed to bigger agencies acquiring smaller ones, but much of the performance comes from organic growth through new business wins, an uplift in spending from existing clients and fees that have grown by almost a third.
Europe's largest PR market, the UK, shared with Switzerland the lowest percentage growth in fee income among its top 10 firms - about 15 per cent. Given the maturity of the UK marketplace, though, this isn't so bad. Number-one agency group International Public Relations grew five per cent to dollars 58 million in fee income. The UK's top 10 firms boast a combined fee income of more than dollars 280 million - well over double any European counterpart.
The top five are nearly four times the size of next-place France.
More broadly, the fee income for Britain's top 150 PR agencies rose 14 per cent to more than dollars 694 million. This follows a 17 per cent hike in fees in 1998.
A closer look at the UK
Significantly, the UK top 10 is now wholly composed of multinational companies, without an independent agency in sight. Edelman, the only independent to crack the top 10 a year ago, slipped out of group to 11th place after posting a meagre one per cent increase in fee income.
Although International Public Relations, which owns Shandwick and Weber, held on to the top spot ( with income of dollars 57,181,280 million), it saw the rest of the pack make up ground. Its three closest challengers - Bell Pottinger Communications, Citigate Dewe Rogerson and H&K - increased fee income by 14 per cent (dollars 50.9 million), 13 per cent (dollars 44.4 million) and 15 per cent (dollars 38.3 million), respectively. Bell Pottinger's increase represented an additional dollars 6 million in fees.
The highest percentage increase in the UK top 10 came from GCI UK/APCO, whose 55 per cent rise in fee income propelled it from 14th place to seventh.
This dramatic surge can partly be attributed to GCI's acquisition of consumer specialist Jane Howard PR, which brought clients such as Scottish and Newcastle and Carphone Warehouse into the fold.
After Edelman, the only other agency to fall out of the top 10 was Ketchum, which slipped from eighth to 12th after recording an eight per cent decline in fee income. Its Achilles' heel proved to be consumer division Life PR, the erstwhile former Lynne Franks PR, which was formally merged into Ketchum in October 1998.
There were small indications that power was spreading beyond the biggest agencies. Fee income for the agencies ranked 11 through 20 represented 15 per cent of the total market, up from 14 per cent the previous year.
A similar pattern was evident in the shops ranked 21-50: their total fee income accounted for 23 per cent of the market, up from 21 per cent the year before.
'CEOs and marketing directors have never understood the real and genuine role of PR better, and we're seeing realistic and sensible budgeting now,' says Graham Lancaster, Biss Lancaster chairman.
Among the top 150 agencies, the number of clients rose by six per cent while the number of staff climbed eight per cent. The latter figure belies the severe problems many agencies have had in recruiting and retaining talented, experienced staff. For some consultancies, difficulties in this area have undoubtedly been a brake on growth.
The German PR industry is growing rapidly - though it is still widely regarded as underdeveloped - as PR has become an accepted management function and consulting discipline. Income growth among the top 100 agencies was 23 per cent from 1998 to 1999. The 1998 general election campaign was strongly driven by PR, causing many in German industry to re-evaluate the potency of PR.
At the same time, the German media agenda has shifted to issues where communications have a major role, such as globalisation, the IPO boom, the New Economy, the impact of the euro and M&As.
On the merger front, PR was given a real fillip by the conquest of Mannesmann by Vodafone AirTouch, the first time a successful, long-established German company fell to an uninvited takeover by a foreign predator. The result was a reminder to many executives about the importance of communications in an increasingly borderless business world.
Germany's dominant agency continues to be Kohtes-Klewes, which posted a 20 per cent growth in fee income to more than dollars 28 million. Despite a hefty 73 per cent rise in fee income, second-place Hunziger PR, a Frankfurt-based independent, is a distant second with total fees of dollars 9.1 million.
Trimedia Reporter, BSMG Worldwide and ABC occupy the next three places, with fee increases of 48 per cent (dollars 8.1 million), 28 per cent (dollars 7.9 million) and 13 per cent (dollars 7.9 million), respectively. Two of these saw their fee income inflated by acquisitions -Trimedia, a subsidiary of Zurich-based PR group Trimedia International, bought top 10 consumer specialist Reporter, and BSMG took over Munich-based MPC. Another important acquisition saw H&K purchase IT specialist Hiller, Wust and Partners. Growth in German GDP is expected to average around three per cent during this year, so the overall economic situation continues to look good.
'The driving factors behind the boom of technology PR in Germany are the Neuer Markt (technology stock market) phenomenon and increased venture capital spending, which allows young entrepreneurs to invest heavily in their branding via PR,' says Fink and Fuchs managing partner Stephan Fink.
The online boom and increased corporate M&A activity were again strong drivers of the PR marketplace in France. Average fee income for the top 10 French agencies rose slightly more than 50 per cent, although this includes a 350 per cent increase by Porter Novelli France (dollars 4.2 million).
If Porter Novelli is taken out of the equation, the average fee increase among the nine remaining agencies is just under 17 per cent.
About two-thirds of Porter Novelli's massive increase is due to a reorganisation at Omnicom Group, which no longer keeps separate books for its hi-tech agency Copithorne and Bellows. Omnicom created Porter Novelli Convergence to cover the European hi-tech, the internet and telecom industries, with Dominic Lyle as chairman.
Confidence in the prospects for the French PR market has spawned a rash of agency takeovers and start-ups. Ketchum and Grayling both acquired hi-tech specialists: Ketchum took Gecko, and Grayling grabbed KOS. Brodeur, meanwhile, bought a 35 per cent stake in SRRP, the hi-tech agency established by SRRP president Sophie Renard. 'We are having to review our capabilities to adapt to the fast way dot.coms want to work,' says Renard.
UK hi-tech firms Firefly and Lewis have both opened offices in Paris, while Grayling has expanded its services to encompass public affairs.
In this it has a rival, APCO France, which at the start of last year stuck its neck out by positioning itself as the first international specialist lobbying agency in France.
One of the biggest PR stories last year was France's largest-ever hostile takeover bid - the dollars 40 billion play for Elf Aquitaine by Franco-Belgian rival TotalFina. Elf defended itself by retaining Britain's Brunswick for investor relations and New York-based Gavin Anderson for financial media relations. Mainstream media work was handled by French agencies DGM and Euro RSCG. It wasn't enough, though, as TotalFina prevailed, creating the world's fourth largest oil company.
In Belgium, where in 1999 the economy grew by three per cent and unemployment fell a full percentage point, PR firms averaged a 15 per cent rise in fee income. The bigger players performed even better: the average increase among the top 10 was almost 37 per cent, though this figure, too, was skewed by industry leader Porter Novelli's 137 per cent growth (dollars 5.6 million), a large chunk of which came through its purchase of Ellips Communications, the second largest independent agency in Belgium.
Number-two Burson-Marsteller managed a more modest 24 per cent rise (dollars 5.4 million), while fourth-place Interel Marien took its fee income to over dollars 4.6 million with 28 per cent growth, powered by new business from Nike and McDonald's and growth in its public affairs operation. Other noteworthy spurts in fee income came from fifth-placed GCI/APCO with a 59 per cent rise (dollars 4.4 million), sixth-placed H&K with 31 per cent, Ogilvy PR Worldwide in the eighth spot with 29 per cent and tenth-placed Edelman with 33 per cent.
Two high-profile crises last year made communications a hot topic in Belgium: Coca-Cola's carbonisation health scare and the recall of Belgian meat, poultry and dairy products when it was discovered that some animal feed was contaminated with carcinogenic dioxins.
'Before the (dioxin) crisis, few companies felt obliged to communicate, but all that has changed,' says Interel Marien managing partner Jean-Leopold Schuybroek. 'Belgians had assumed PR was about pushing products. Now they see it is about managing the reputation of a company.'
The Netherlands is also enjoying prosperity. Its economy has been one of the most successful in Europe recently, experiencing rapid growth along with low inflation and declining unemployment. Fears have arisen, however, that escalating wages could fuel inflation.
Multinational PR firms are gaining ground in the Dutch market. In November 1999, Euro RSCG bought second-ranked agency Bikker Communication Group.
Two months earlier, GCI Group had purchased a majority stake in corporate PR and public affairs specialist Van Danzig and Lichtenveldt.
At the end of May, fifth-ranked Schoep and Van der Toorn, part of the Brodeur network, created a new Brodeur Worldwide Amsterdam brand. Although parent Omnicom's Diversified Agency Services division owns 65 per cent of the Dutch shop, it is also retaining its Schoep & Van der Toorn brand to service public-sector clients.
The average fee income rise among the country's top 10 PR agencies was 28 per cent, although this was inflated by the 193 per cent rise in GCI's fee income, largely brought on by the addition of Van Danzig and Lichtenveldt.
If the GCI figure is discounted, average growth among the remaining nine firms was a more pedestrian ten per cent.
Interestingly, some of the strongest performances came from agencies just outside the top 10. Eindhoven-based Bex van der Schans, part of the ECCO agency network, saw a 40 per cent rise in fees to almost dollars 2 million, taking it to 11th place, while 16th-ranked Berenschot Communicatie pushed its fee income up 85 per cent to dollars 1.2 million. Big communications issues have been shareholder value and almost anything dot-com.
'We can't afford to be specialists,' says Shandwick Nederland managing director and CEO Joan Clements. 'There is a huge amount of competition and many of us are working the same waters.'
Arguably the most surprising PR performance of all came from Austria. PR took on new meaning when the country found itself in hot water with its European neighbours after electing a coalition government that included a right-wing extremist party. Austrian PR trade association PRVA swung into action to refashion the country's image.
Far from being hurt by the controversy, Austria's leading PR firms - a small group, it must be said - thrived: the average fee income growth among the top 10 of almost 55 per cent was the best performance of any European PR market.
The Austrian PR market is largely a domestic one and is mainly concentrated in Vienna. The country's largest agency, Shandwick affiliate Publico PR & Lobbying, had a fee income of just under dollars 6 million, following a 37 per cent rise in fees that it attributes primarily to work in lobbying and financial communications.
Privatisation of Austrian telecommunications has created opportunities for PR and advertising agencies, says Hochegger managing director Peter Hochegger, whose clients include mobile phone company Mobil.kom.
In Switzerland two agencies broke through the dollars 6 million in fees mark last year - Trimedia Groupe Suisse, whose fees rose 15 per cent to almost dollars 6.8 million, and Peter Butikofer, whose fees shot up 27 per cent to about dollars 6.5 million. Overall, the average increase in fees among the top 10 Swiss consultancies was 15 per cent.
Growth in the hi-tech sector has been the main engine driving economic improvement, exemplified by the opening last year of the SWX exchange, the Swiss equivalent of the NASDAQ. The gradual opening of Swiss telecommunications to competition has also brought PR opportunities.
'There is the deregulation of the electricity market still to look forward to,' says Farner PR board director Jean-Marc Hensch, 'and this will be an exciting time for PR, since we can expect lots of marketing programs to follow.'
The Swiss market is unusual in Europe in that few of the major multinational agencies have a significant presence. B-M is the exception, having acquired the outstanding shares in its Swiss partner Jaggi Burson-Marsteller in July 1999.
Only one of the top 10 agencies in Sweden failed to deliver double-digit growth - Jerry Bergstrom, which actually saw an 18 per cent decline in fee income. Number one Kreab lifted its fee income by 17 per cent to dollars 11.6 million. It also opened a London office last year. Second-place Journalistgruppen turned in an impressive 85 per cent surge, from dollars 3.9 million to dollars 7.2 million.
There was strong growth from just outside the top 10 as well, with 11th-placed independent Hallvarsson and Halvarsson lifting fee income by 53 per cent to nearly dollars 2.7 million, and 12th-placed Hill and Knowlton Sweden pushing revenues up by 42 per cent to dollars 2.4 million.
One of the biggest PR stories of the year was the demise of two of Sweden's top agencies. Lexivision went under after its backer, printing group Graphium, pulled the plug on it. Even more spectacular was the fall of Rikta Kommunications, which had previously been the number-three firm in the country.
Rikta was hired to publicise the visit to South Africa of Swedish prime minister Goran Persson and 700 Swedish business leaders. But the 70-employee agency over-extended itself and had to subcontract out several events, some of which failed disastrously. Rikta was totally discredited, and forced to close.
'It was a fantastic company,' says GCI Rinfo managing director Henry Rawet, 'and the sudden huge scandal was a real shock.' Out of Rikta's ashes, however, have sprung two new agencies: Spider Communications and Tattoo.
These two collapses aside, 1999 was a good year for Swedish PR and the economy as a whole. The country, which is home to mobile phone giant Ericsson, is one of the leaders in the hi-tech and telephony sectors. Swedish consumers have also lapped up e-commerce: according to a Boston Consulting report, Sweden ranks second only to the US in terms of e-commerce spending as a proportion of total retail revenues.
The economy in Spain likewise proved vibrant. According to the Spanish PR association ADECEC, industry revenues were up 40 per cent. The top three agencies in ADECEC's rankings - B-M, Shandwick and Sanchis y Asociados - all topped their 1998 figures by about 15 per cent. The group figures from Sanchis - around dollars 6 million - were not available at the time the main table was compiled In the process Burson broke the one billion pesetas barrier - its total fee income for 1999 was just over dollars 5.3 million.
'There is a trend in Spain toward devoting more resources to public affairs and reputation management,' says Shandwick Spain managing director Miguel Lopez Quesada. Last year, new business wins for Shandwick included Universe Online and monster.com, while existing clients such as McDonald's, and Danone all increased their budgets.
Smaller agencies also performed impressively. Fourth-ranked Llorente y Cuenca increased its fees by 60 per cent to dollars 4.2 million, while eighth-place Inforpress saw fees leap 66 per cent to nearly dollars 1.8 million.
'The Spanish economy is clearly in one of the best moments in recent years,' says Llorente y Cuenca managing partner Jose Antonio Llorente.
'Of course, there are new accounts in the dot-com area, but we would say that the business has grown in all the areas we cover.'
New clients in 1999 included Reuters, Thompson, Unilever, Pharmacia and bol.com. Llorente y Cuenca is also expanding aggressively in South America- it now has offices in Argentina, Peru and Colombia, as well as affiliates in Brazil and Chile.
'Markets such as health, technology, fashion or the environment are areas where the public is extremely well informed,' says Inforpress managing director Nuria Vilanova. 'Consequently, there is a higher demand for more detailed and sophisticated information. Plus, a growing number of companies are presenting themselves on the stock exchange with an increasing number of collective investors, either directly or through pension funds, which creates a need for more sophisticated financial communication.' In February 1999 Inforpress opened an office in Portugal.
In Italy, fee income growth was not as astronomical as in Spain, though it was still impressive. Average fee income growth among the top 10 agencies was 25 per cent, with none recording a decline - although this year Chiappe Bellodi chose not to submit numbers due to a restructuring of its business.
Number-one agency Barabino & Partners lifted its revenues 40 per cent, from dollars 5.5 million to dollars 7.7 million, while its closest competitor, Ketchum PR, managed to more than double its income to dollars 4.6 million. B-M, Shandwick Italia and Edelman are the third (dollars 4.4 million), fourth (dollars 3.9 million) and fifth (dollars 3.8 million) place agencies in PR Week's European tables, respectively.
Many PR firms benefited from a combination of a return to vigour of a number of traditional Italian business sectors and the dot.com boom that has been sweeping Europe. For Italy's largest hi-tech agency, Brodeur ImageTime, business from internet start-ups and other new companies was up 60 per cent over the previous year, leading it to open a second shop in Milan called ImageTime One.
'Marketing PR activities are now a basic tool in communications,' says Mavellia MS&L managing director Adriana Mavellia.
Industry privatisation continued, and there was strong growth in new entrants to the stock exchange, especially among web-based companies.
M&A activity generated PR revenue, most notably when Barabino advised Olivetti in its bid for Telecom Italia. The only dark cloud is Italy's perennial political instability.
All in all, 1999 was a very good year across the board for Europe's major economies, and the majority of PR agencies reaped the benefits. More of the same certainly would be a welcome prescription for the coming year.
EUROPE''S LEADING OWNED GROUPS
RANK AGENCY NAME EUROPE INCOME (DOLLARS) %
99 99 98 CHANGE
1 Porter Novelli International 83,672,593 93,009,521 -10
2 International Public Relations 80,177,520 70,906,800 13
3 Euro RSCG 66,591,120 53,858,680 24
4 Burson-Marsteller 64,131,360 63,616,320 1
5 Hill and Knowlton 1 62,911,840 52,470,440 20
6 GCI Europe/APCO Europe 45,021,600 28,578,800 58
7 Edelman PR Worldwide 32,077,921 28,716,061 12
8 BSMG Worldwide Europe 21,647,250 19,956,555 8
9 Ketchum 19,930,667 18,245,079 9
10 Ogilvy PR Worldwide2 18,537,000 11,786,720 57
11 Kreab3 17,952,400 16,442,800 9
12 Text 100 Group 4 17,356,318 15,537,670 12
13 Grayling Group 16,691,588 15,116,868 10
14 Fleishman-Hillard Europe 16,423,560 12,651,832 30
15 Trimedia International 15,804,920 14,060,000 12
16 Cohn and Wolfe 15,097,609 12,723,437 19
17 Manning Selvage and Lee 14,237,600 12,531,160 14
18 GPC Group 9,151,611 9,475,420 -3
19 Barabino & Partners 8,235,460 6,186,844 33
20 JKL Intressenter 7,907,640 6,476,480 22
Sources: PRWeek European Ranking
Notes: All figures converted from pounds at pounds 1 = dollars 1.48; Fee
income = PR fees only; 1 includes Hiller, Wust & Partners in Germany;
2 includes Sector PR and Magellan in the UK; 3 year ended June 1999;
4 includes August.One Comms