1999 THE YEAR IN REVIEW: Myriad mergers. Corporate restructurings Million-dollar accounts. The ongoing battle with advertising. It was a busy year for the industry. PRWeek looks back.

AGENCY ACQUISITIONS

AGENCY ACQUISITIONS

AGENCY ACQUISITIONS



There has never been a year like 1999 for mergers and acquisitions.



Most of the big guys got bigger, some of the independents went

mainstream, and nearly everybody else did the ’strategic alliance’

dance.



Major holding companies staked themselves out on the M&A frontlines.



Publicis Dialog, the US PR arm of French giant Publicis, was one of the

most active players, acquiring LobsenzStevens and San Francisco’s Purdom

PR, and closing in on the purchase of Chicago’s Selz/Seabolt

Communications at year’s end. Financial consulting operation Lighthouse

Holdings made the single largest purchase of the year, buying Financial

Dynamics (UK) for a rumored dollars 65 million.



True North’s BSMG had one of the biggest M&A slates of any agency:

following the Dec. 31, 1998 acquisition of The Financial Relations Board

for dollars 33 million, it purchased hi-tech giant The Benjamin Group

and UK food-and-drink firm Walker Williams.



Omnicom made a splash late in the year with the acquisition of Cone,

while its many subsidiaries also kept busy. Porter Novelli and Brodeur

parted ways in November, clearing room for PN to merge its tech practice

with Omnicom sibling Copithorne & Bellows (see above). PN also bought

public affairs specialist Goddard Claussen.



Fleishman-Hillard entered Cleveland with the purchase of the city’s

third-largest PR firm, Watt, Roop & Co., and also gobbled up healthcare

(London’s CPR Worldwide) and consulting (CA-based UpStart) firms.

Ketchum snared the largest employee communication practice, Sheppard

Associates.



The WPP Group’s Ogilvy acquired dollars 9 million biotech firm Feinstein

Kean Partners, Hollywood entertainment shop Baker/Winokur/Ryder and two

London agencies, Magellan Medical Communications and Sector Public

Relations.



Hill & Knowlton scooped up Blanc & Otus (estimated price tag: dollars 11

million) and five-person energy shop Sommers & Associates, among

others.



One of the highest-profile agency buys belonged to Interpublic’s lead PR

agency Shandwick, which bulked up its DC presence with the reported

dollars 80 million acquisition of Cassidy Companies. Shandwick also

added Washington, DC crisis communicators Rowan & Blewitt.



Entertainment agencies were thrust into the limelight not only with

Ogilvy’s B/W/R buy, but also when Momentum Worldwide, the

event-marketing arm of McCann-Erickson, bought publicity guru Pat

Kingsley’s PMK. Talent agency Creative Artists Agency, meanwhile,

acquired a 40% stake in Shepardson Stern + Kaminsky - the first time a

talent agency has invested in a PR firm.



Grey Advertising’s GCI acquired healthcare agency Dragonette, San

Francisco-based Kamer-Singer and Boxenbaum Grates, while sister company

APCO Worldwide stepped up its Asian presence with the acquisition of

Batey Burn.



Finally, as this issue was closing, rumors were circulating that

Cunningham Communications would be sold before the year’s end. Will the

M&A trend continue in 2000 and beyond? Judging by the number of agencies

who routinely tell PRWeek, ’We’re always willing to listen,’ it seems

likely.





BIG ACCOUNT WINS



The year in account wins can be summed up in three words: another great

year. This was not a year for client loyalty. Just about every PR firm

lit more than its share of victory cigars over the past 12 months -

while doing their best to ignore the ones that got away.



The government parceled out many of the year’s biggest PR accounts.

After a brisk three-month search, the American Legacy Foundation handed

its dollars 300 million anti-tobacco work to a team led by Arnold

Communications and that included, among others, Porter Novelli and

Bromley Aguilar & Associates. The National Institutes of Health’s

Institute for Neurological Disorders and Strokes gave a five-year,

dollars 8.2 million contract to Ogilvy’s DC office, while the Centers

for Disease Control selected Ogilvy, Fleishman-Hillard, PN and Prospect

Associates as its four ’preferred vendors.’



As always, the consumer and financial sectors teemed with

opportunity.



One of the year’s most prestigious assignments - the dollars 50 million

integrated account to revamp global chemical giant Dupont’s image - was

given to Shandwick and sister ad firm McCann-Erickson. In May, British

Airways allotted dollars 2 million for PR in North America and Europe to

GCI, while over the course of the year Quaker Oats assigned its

corporate business to Edelman, its Cap’n Crunch brand to Golin/Harris

and its flagship Quaker Oatmeal brand to Ketchum. Finally, after

contacting just about all of the top 20 agencies, PricewaterhouseCoopers

started the consolidation of its PR business by handing a plum dollars 4

million-plus branding account to PN in July.



Hi-tech PR once again resembled the Wild West. August saw Weber start a

hi-tech PR shuffle when the agency resigned the Gateway account in order

to get in bed with Micron. Two months later, Shandwick traded in Compaq

for rival Hewlett-Packard’s business PC arm. Compaq promptly moved over

to Hill & Knowlton, one of the few large agencies without a major PC

company on its roster, and HP handed out its dollars 6-to-dollars 9

million enterprise computing/e-services business to Cunningham

Communications and The Hoffman Agency.



Meanwhile, Microsoft’s lead agency, Waggener Edstrom, continued to win

business away from alternative suppliers like Shandwick, which lost the

dollars 5 million MSN account. The most unlikely hi-tech choice of the

year?



EdgeMail Technologies, which hired an entertainment agency, Warren Cowan

& Associates, to handle PR.



Overseas, the market was just as rich. Shell put a PR agency, London’s

Fishburn Hedges, in charge of its dollars 25 million (dollars 9 million

to PR) image revamp. In August, airline group the Star Alliance handed

its corporate PR account for Hong Kong and southern China to Fleishman.

A month later, competing alliance Oneworld promptly started looking for

a new agency.



November saw Publicis top Burson-Marsteller and H&K for a dollars 30

million PR campaign to explain the new euro currency, and the year ended

with a bang as South Korea’s Inchon International Airport meted out its

dollars 5-million-plus PR account - believed to be one of the largest

ever awarded in Asia - to Burson.





DEATHS



The PR community lost several luminaries this past year.



James L. Brunson, retired vice president at AT&T, died January 2.

Brunson joined the telecom giant in 1952 and worked in a variety of PR

positions, including employee communications and speech writing. He

retired in 1986 as corporate VP of advertising.



In February the PR community lost Hugh Connor, who earned plaudits for

his work in developing a communications program for the United Nations’

precedent-setting Earth Summit in Rio de Janeiro in 1992. He served as a

senior executive at Burson-Marsteller, Ogilvy, Bozell PR and Mobil, and

later co-founded his own agency alongside Richard Basini.



Phillip Fried, who was a principal of Dilenschneider Group from 1992 to

1996, also died this year. Fried worked at several agencies, including

Fleishman-Hillard and Hill & Knowlton, where in the seventies he was

director of eastern PR for Monsanto.



Rena Hamelfarb, long an active PRSA New York Chapter member, died on

February 6. Early on in her career she had been PR director of Lane

Bryant, and then worked freelance for a variety of agencies. At the time

of her death she handled PR for the Central Presbyterian Church in New

York City.



Ellen B. Kovak, a principal of Wilton, CT-based Kovak-Likly

Communications, died on Sept. 25. She had previously been principal of

Kovak-Thomas PR and before that executive VP at LobsenzStevens and

senior account supervisor at Creamer Dickson Basford.



Jim Moran, who earned legendary status with stunts like selling a

refrigerator to an Alaskan Eskimo and sending a bull through a china

shop, died in October at the age of 91. In 1989, Time magazine called

him ’the supreme master of that most singular marketing device - the

publicity stunt.’ Linda Pezzano, the founder of Pezzano + Co., who was

best known for launching Trivial Pursuit, also died in October. She was

54.



David Speer, Padilla & Speer co-founder, died in August at the age of

72. He was a key figure in the Minnesota PR community, serving as the

state’s commissioner of trade and economic development (see right).



Norman Weissman, international PR veteran and former president of

Ruder-Finn, from 1969 to 1986, died in May, at age 74. After leaving

Ruder-Finn, Weissman had his own firm. The New York Rotary Foundation

has established a Weissman scholarship.



Ernest Wittenberg, long active in Washington, DC and in the National

Capital Chapter of the PRSA, died on January 21. He established his own

DC firm, Ernest Wittenberg Associates, in 1963, which he merged into

Bruce Harrison’s PR firm in 1986. Wittenberg was coauthor with his wife,

Elisabeth, of a highly regarded book on lobbying, How to Win in

Washington.





PEOPLE MOVES



’Go West for Higher Salaries,’ read our splash in January and many took

the advice. Numerous PR execs at all levels jumped on the gravy train

wending its way through Silicon Valley. Edelman’s technology head, Paul

Bergevin, quit to join a consumer-oriented e-tailer called Backflip.com,

while hi-tech specialist John Berard left Fleishman-Hillard to head up

the San Francisco office of FitzGerald Communications.



Hill & Knowlton lost its third NY GM in three years, with Jeff Raleigh

returning to H&K’s San Francisco office after just nine months on the

East Coast. Raleigh moved to assemble a team for the newly won Compaq

account.



In common with many of the large agencies, Edelman wrestled with

staffing problems, particularly in its financial division. Carol Ruth,

chairman and CEO of Edelman Financial, quit to start her own firm

mid-year, while colleagues SVP Bob McDermott and VP Mark McCall also

checked out.



Tom Buckmaster’s arrival as Edelman New York president in May heralded

an attempt to restring the department. And Hollis Rafkin-Sax hung up her

coat and rolled up her sleeves in October as senior managing director of

Edelman Financial.



Some people checked out of the profession, most notably, former Hillary

Clinton press secretary Lisa Caputo, who joined Citibank, and Burson

chairman Graham Phillips, who returned to advertising, at Young &

Rubicam. Still others joined, such as The Wall Street Journal’s Patrick

Reilly, who went to PR firm Robinson Lerer & Montgomery.



Celebrity shops also saw their personnel doors revolve, with PMK losing

Mara Buxbaum to rival IDPR and Rogers & Cowan losing Desiree Gruber, who

took Victoria’s Secret to her new outfit, Full Picture.



Even Cohn & Wolfe saw the need to become leaner, letting go New York

vice chairman John Frew, Atlanta vice chairman Jim Overstreet and Los

Angeles CEO Chris Wildermuth.



And Porter Novelli co-founder Bill Novelli left his post at the Campaign

for Tobacco Free Kids to head up the American Association of Retired

Persons.



Unfortunately, PRWeek played its own small role in one firing.

Cleveland’s SeaWorld decided to give Karin Korpowski the pink slip after

she complained about salaries in our back page Q&A.





CORPORATE RESTRUCTURINGS



A booming economy didn’t spell boom times for every corporate PR

department in 1999. A variety of companies, prompted by mergers, changes

in business direction or just poor earnings, slashed PR staffs or

otherwise restructured them.



Insurance giant Allstate planned to cut its PR department roughly 25% by

the start of 2000. The move is part of a campaign to trim operating

costs so Allstate can switch its major sales efforts from

company-employed agents to the Web and telephone sales. The in-house PR

team will still be 60 strong at the end.



Raytheon planned an unspecified number of PR staff cuts and contemplated

moving some outside PR work in-house. Baby Bell Ameritech, acquired by

SBC Communications, expected at least 30 PR staffers based in its former

Chicago offices to take severance packages. SVP of communications Joan

Walker fled for Monsanto.



Fourteen of the 21 people working in the communications area at BP Amoco

in Chicago lost their jobs as part of a 1,500-person Chicago staff

reduction after the merger.



Japanese firm NEC laid off 1,400 staff and thinned its PR ranks

considerably.



The American Petroleum Institute also reduced its number of PR pros,

from 38 to 11. Sears Roebuck trimmed its annual PR expenses by more than

dollars 1 million, reducing the PR department from 62 pros to 35,

although VP Ron Culp now takes on responsibility for government affairs

with a team of five.



DaimlerChrysler AG went through a major blending of the former Chrysler

and Daimler PR departments early in the year. Daimler veteran Christoph

Walther came out on top. An exodus of former Chrysler PR hands followed

with several going to join their former boss, Steve Harris, at General

Motors. Steven Rossi, the former head of PR for Mercedes-Benz of North

America, moved to Detroit to fill the spot left open when Harris

left.



Chrysler’s PR saga continued when Roland Klein, a Daimler survivor who

had been named VP of global communications, said he was leaving DC in

February 2000 to join Ericsson.



Disney chief Michael Eisner relocated staff to the West Coast, forcing

ABC PR staff to choose between relocation or redundancy. Many, including

chief Patricia Matson, opted to stay in Gotham.



McDonald’s Corp. started the year with a new internal PR structure to

make it more responsive to worldwide media calls. Marketing

communications, general media relations and financial business media

relations were consolidated into a corporate media center.



Levi Strauss, trying to shake itself up in the face of slumping sales,

reorganized, having its head of product publicity start reporting to the

global marketing VP while leaving corporate communications and public

affairs on their own.





RESEARCH



Not a month went by in 1999 without publication of new research from

industry associations, PR agencies and their partner research firms - or

from PRWeek itself.



PRWeek’s inaugural Top 200 survey found a robust industry, as the top

200 agencies surged past dollars 2 billion in US fee income in 1998. But

the gap between large agencies and small shops is yawning wider than

ever, with the top 10 generating nearly dollars 1 billion, or 48.5% of

the market.



According to a salary survey conducted by Gould & Co, average salaries

in California - especially the Bay Area - were higher than those in New

York or Chicago. The highest-paid specialties were hi-tech, healthcare

and government; the lowest was travel.



The first annual PRWeek/Business Wire Journalist Survey found that

there’s less rancor between hacks and flacks than previously thought,

with PR pros garnering more respect than management consultants,

celebrities and lawyers. While 30% of respondents ranked PR pros ’less

than competent’ or ’poor,’ 40% were considered ’good’ or ’excellent.’ A

survey of senior managers at US companies conducted by Erdos & Morgan

for the American Advertising Federation showed only mild support for

advertising as a tool to help companies grow; only 43.1% of respondents

said that advertising would gain importance for them over the next three

years.



The PRWeek/Burson-Marsteller CEO survey found a clear majority (86%) of

corporate chiefs now believe that effectively managing their company’s

reputation affects the stock price. Four out of five CEOs believe that

PR is more important than it was five years ago, a figure backed up by

Chief Executive magazine, which found that 65% of CEOs devote more time

to this subject than they did five years ago.



In September, the Harris/Impulse Client Survey reported an average PR

budget of dollars 4.4 million in 1999, up almost 30% from the dollars

3.4 million spent in 1998. But the study didn’t examine what percentage

of marketing budgets are going towards PR.



Also important was the PRSA’s National Credibility Index concluded that

finding the right spokesperson is as important to a communications

strategy as conveying the proper message. The index found that the

public is more likely to believe a local business owner than a corporate

president, and dispelled the myth that the CEO is always the best

spokesperson.



Perhaps the most significant piece of research in the field came from

the Council of Public Relations Firms - its study that confirmed the

direct correlation between PR spending and corporate reputation. The

study polled companies from Fortune’s ’Most Admired’ rankings, and found

that the top 200 spend more than twice as much on PR than companies with

weaker reputations.





QUOTES



’Race and age have never mattered in hi-tech. You could be gay,

straight, male, female, barefoot ...’ Andy Cunningham CEO and founder

Cunningham Communications





’When you are following behind an elephant with a teaspoon, there’s only

so much you can do’ Scott Lorenz President, Westwind Communications, on

Microsoft





’TV is at an all-time low in terms of viewership. Ad people say this is

just a trend. It’s not. It’s behavior. People are moving to other media’

Larry Weber Chairman and CEO Weber PR Worldwide





’The hardest part of the job didn’t have to do with the president and

sex’ Mike McCurry Managing partner, Public Strategies





’A lot of people with great resumes can’t even lick an envelope’ Alan

Hirsch President of G+A Communications, on using signing bonuses to lure

recruits





’I would do anything to help get it for her. She would be a terrific PR

pro’ John Scanlon Manager of crisis communications, DSFX International,

on Monica Lewinsky





’McCann will find out they spent too much money and they won’t get PMK’s

people to do endorsements’ Bobby Zarem on PMK/McCann deal





’Providing counsel is the difference between conducting PR as a

professional practice and running errands for a client’





Alex Zavistovich PR director of Strategic Communications Group





’Anyone with a pulse did well in hi-tech in 1998’ Lou Hoffman CEO, The

Hoffman Group





POLITICS AND PUBLIC AFFAIRS



As the year started, the House Republicans were in the recovery stages

from the disastrous 1998 election in which the anticipated congressional

gains failed to materialize. The GOP has put forth a new look that is

perhaps quieter, less outwardly confrontational and more consistent than

during the Gingrich days.



While there were reports of friction between House Republican Conference

chairman J.C. Watts (R-OK) and House majority whip Tom DeLay (R-TX), the

days of raucous infighting over communications strategy are thought to

be over. The House Democrats have their own rising star in Erik Smith,

communications director for the Democratic Congressional Campaign

Committee.



PR became more important, earlier than ever, in the presidential

nominating process thanks to the frontloading of the primary system. The

candidates started picking their communications teams early this year as

the impeachment of President Clinton drew to a conclusion. The press

coverage of the race started picking up in the early spring.



Though Republican Texas governor George W. Bush leads in the polls, his

campaign had a flap when deputy communications director David Beckwith

left in mid-summer, due to a style that did not mesh with the always ’on

message’ Bush campaign hierarchy. Recently, Ari Fleischer, the former

communications director for Elizabeth Dole’s campaign, became the senior

advisor and spokesperson for the Bush campaign.



Vice President Al Gore’s PR pros seemed to be going through a revolving

door, but the campaign’s move to Nashville helped draw the media’s

attention to the candidate instead of the campaign staff gossip. The

message maestro is now Carter Eskew, on leave from BSMG’s Bozell Eskew

Advertising.



John McCain’s team, headed by communications director Dan Schnur and

consultant Greg Stevens, has been supplemented by consultant Mike Murphy

and political strategist Ken Khachigian. Bill Bradley has put together a

team that includes communications director Anita Dunn and pollster Diane

Feldman.



Steve Forbes recruited some strong staff, including Greg Mueller of

Creative Response Concepts, to advise on communications. But his

message, while delivered efficiently, has yet to demonstrate that it has

found a receptive audience among the GOP electorate at-large.



On the public affairs front, Porter Novelli bagged a large contract to

develop the PR element of a campaign to discourage youth smoking. The

campaign will be funded through the settlement of the lawsuit brought by

the state attorney generals against the tobacco companies. The client is

the American Legacy Foundation. (Porter Novelli acquired California

affairs firm, Goddard Clausse, as well as Nelson Communications Group,

also in California.)



Fleishman-Hillard won a five-year, dollars 10 million contract last year

from the Office of National Drug Control Policy. It also has a

multiyear, multimillion dollar account with the US Mint. Ogilvy has

proven successful in obtaining contracts from the National Institute of

Health and the Centers for Disease Control. Cohn & Wolfe received

dollars 2 million to plan the strategy for the Census’s PR effort, which

will begin next year.



Heathcare reform legislation was a hot-button issue. Despite a

well-funded, well-executed campaign by the HMO industry, bills passed

the House and the Senate and are now in conference. The American Medical

Association is becoming more active on this issue, and will be pressing

it in New Hampshire and Iowa, working to guarantee that healthcare

reform remains lively not just in Congress but also during the

presidential election.



On the global stage, Leslie Dach, GM for Edelman (Washington, DC),

helped the National Security Council develop its communications strategy

as it became apparent that the Clinton administration had to better

explain the country’s role and objectives in the Kosovo conflict. PR is

also grappling with how to communicate to a changing world unsettled by

rapid technological change where globalism runs up gainst more local

interests.



The successful ’guerrilla PR’ tactics at the World Trade Organization

conference in Seattle show that globalization is not always

welcomed.



Trade may become a hot issue in the coming presidential elections,

especially because Congress will consider several trade-related bills

next year.





ADVERTISING vs. PR



While advertising still wins a far larger piece of the marketing pie, a

growing percentage of marketing dollars is being targeted at public

relations, and as the 20th century - declared ’the advertising century’

by Advertising Age - comes to a close, a new order is emerging.



A survey of top executives by The American Advertising Federation found

lukewarm support for advertising: only 43.1% felt that advertising would

gain in importance over the next three years. Statistics for the PR

industry show that 85% of CEOs believe PR will become more important in

the next five years, according to the November PRWeek/Burson-Marsteller

CEO Survey.



And among CEOs of Fortune 500 companies, there is unanimous (100%)

agreement on its growing importance.



The AAF report also found that advertising ranked sixth in strategic

importance in meeting sales and marketing goals, ahead only of the legal

department, and ’badly trailing operations like product development,

strategic planning and public relations,’ according to New York Times

advertising columnist Stuart Elliott.



Reflecting the growing influence of public relations, PRWeek launched a

campaign called ’The Power of PR’ citing ’10 reasons why PR is entering

a golden age.’ There were stories about VNRs from Qantas and Pizza Hut,

both of which had more play than the respective companies’ Super Bowl

commercials. And PRWeek’s Super Bowl Fantasy challenged PR pros to come

up with PR campaigns using the same millions spent on Super Bowl

commercials to develop ’alternative’ or complimentary PR-based

strategies for Budweiser, Monster.com, Pizza Hut and Mastercard.



Evidence that the tables are turning is provided by the dramatic

investment in public relations by major advertising conglomerates like

WPP, Interpublic and True North. As well as acquisitions by the holding

companies themselves, such as Omnicom’s successful bid for Cone

Communications, PR firms are being given open check books to grow their

business (see ’Agency acquisitions’ for details).



One reason: public relations firms are growing faster - average organic

growth was 18% in 1998, and similar growth is expected in 1999. Ad

agencies reported 8.3% growth, the lowest annual percentage increase

since 1991, and that in spite of all the brand-building ad campaign

launched by Internet start-ups, not to mention the growth of healthcare

advertising following DTC deregulation.



And PR firms are more profitable than ad agencies - an in-depth analysis

of 80 PR agency mergers and acquisitions by the Council of PR Firms

showed an average multiple of six to eight times profit for PR firms,

against four to six for ad agencies.



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