REGIONAL FOCUS - SOUTHERN CALIFORNIA: Getting through in SoCal - Aninflux of auto firms, a buoyant real estate market and planneddevelopment of San Diego is isolating the Southern California PR scenefrom the worst of the downturn. David Ward reports

Southern California has long been considered slightly out of step

with the rest of the country, ahead of some trends, and behind on

others.



While most Americans are shoveling snow and bundling up during the

winter months, the residents south of Los Angeles continue to work on

their tans, worry about earthquakes, and embrace new-age lifestyles.



This seeming disconnect with the rest of the nation extends to business

and PR as well. When the Bay Area - along with the rest of the country -

was intoxicated by the consumer potential of the wired Internet, Orange

County and San Diego were for the most part embracing other

technologies, including biotech, wireless, and high-speed b-to-b

solutions.



As a result, the Southern California economy and its PR industry missed

some of the gold rush of the past few years, but is avoiding the PR

downturn currently hitting other parts of the country. Yes, there have

been layoffs, and no PR agencies are complaining about too much work.

But despite an energy crisis that has sent gas and electricity costs

soaring, the area continues to chug along quite nicely, riding on the

continued strength of segments such as the automobile industry,

residential real estate, and the growing trade across the US-Mexican

border.



So you can forgive Southern California's PR professionals if they seem

pleased to be there right now. "It's a public relations practitioner's

dream because of the diversification of industries and this awesome

quality of life," claims Karen Hutchens, managing partner of San Diego's

Porter Novelli office. "There's a fairly nice media market, and when one

segment falls out, there's another to balance it."



In 2000, the region's PR firms experienced 39% growth over 1999,

although no one expects that type of growth to continue this year given

the current state of the economy. "The market capped in April last year,

but we didn't see a slowdown until the fourth quarter," says Michael

Besemer, general manager of Fleishman-Hillard's San Diego office. "We're

going to grow this year, but it's going to be very moderate growth."



For many firms, 2001 continues to be busy, but with a surprising

twist.



"It's been a crazy year," says Jackie Townsend, president of San Diego's

Townsend Agency. "I've had more prospects looking for our services than

I've ever had, and yet the type of service they want is shifting back to

the long-term relationships, the way it used to be."



The great PR divide



While they have common characteristics, namely plenty of beaches and

intolerable traffic, Orange County and San Diego remain fairly distinct

as PR markets, separated not just by a 36-mile stretch of Highway 5 and

the huge Camp Pendleton military base, but also by completely different

cultures and economic foundations.



"We have some business in Orange County in community and government

relations, as well as residential real estate work," explains John

Spelich, who recently left computer maker Gateway as head of corporate

communications to become executive vice president at Stoorza

Communications. "But Camp Pendleton is like a doorstop in terms of

preventing the markets from blending."



BSMG remains the top agency in the area. It bought into the market with

its acquisition of the Benjamin Group two years ago. With its tech

focus, the BSMG Orange County office recorded an impressive 38% growth

in 2000 to $6.8 million, which senior vice president and general

manager Lisa Zwick credits to the resilience of the area's hi-tech

firms. "It's not Silicon Valley or Silicon Alley, but we have some heavy

hitters in Orange County - Connexant, Ingram Micro, Broadcom, and

Toshiba," she says. "These are strong players, and they've weathered the

storm ... and what we're doing now is preparing for the upswing."



But Paine PR President David Paine suggests that while Orange County

isn't in a slump, it's also not likely to be booming again anytime

soon.



Paine PR grew 75% in 2000 to $5.6 million, but was off for the

first half of 2001 - in part because it voluntarily gave up major client

Iomega early in the year. But the agency has rebounded nicely in recent

months, picking up video game company Infogrames, a piece of Polaroid's

Digital Consumer Products group, and XM Radio, one of two satellite car

radio services poised to launch nationally.



"The only reason we continue to grow as an agency is that we have

expanded beyond this marketplace," Paine says, crediting the opening of

an office in New York as a major factor in the XM Radio win. "The firms

that have stayed centered on this marketplace ... have had virtually no

growth over the last five years."



The national economic slowdown has slowed the number of mergers and

acquisitions among area firms. The only major move felt last year was

the formation of Magnet Communications by the joining of a number of

local, regional, and national firms, including ACG Communications,

Creamer, Dickson Basford, Kratz & Jensen, and Bay Area-based Capstone

Communications. Magnet's two area offices in Corona and Irvine (run as a

single unit under general manager Rick Miltenberger) made a total of

nearly $2.4 million in business in 2000.



Miltenberger says nearly 90% of his office's clients are in Southern

California, and he argues that you can thrive and grow with strictly a

local focus - but only if you pick and choose your clients

carefully.



In Magnet's case, that means staying away from dot-coms. "We made a

conscious effort two years ago not to overdo going into that arena," he

says. "Here in Southern California, we have a diversity of clients ...

so we end up with a pretty eclectic mix of clients and services."



Doug Freeman, partner with Freeman-McCue, says his firm had to lay off a

handful of workers after some Bay Area business went under. But the

agency recently scored by winning the Volvo Cars of North America

account, one of a host of automobile companies that continue to move

from Detroit to Orange County. Freeman adds that while Orange County has

a resilient economy, "the reality is that the huge growth is not going

to continue.



I'd be really happy with 10-12% growth this year, which is good, but not

as good as last year."



Not-so-smooth sailing ahead?



There are a few signs that things aren't completely rosy along the Gold

Coast. Orange County is going through its first commercial real estate

slump in years. Also, Disney's new California Adventure theme park has

failed to ignite tourism, and is discounting admissions less than a year

after it opened.



But while Orange County is facing a real estate glut, San Diego is

poised for one of the largest real estate transformations in its

history. After years of legal wrangling, city officials have finally won

approval to build a new downtown baseball stadium that could enable it

to finally shake its image as America's biggest small town. "A lot of

the PR firms have chosen to locate in (northern San Diego County) where

the traffic is a nightmare," says Besemer. "The whole downtown

redevelopment will give firms a real reason to have offices

downtown."



But with the new ballpark not scheduled to open until 2004, it still may

be another 5-10 years before San Diego has anything that resembles a

thriving urban environment. And because there are few major companies

headquartered in San Diego outside of Gateway and Qualcomm, most

agencies have to build their businesses through mid-size clients. "We've

been working with much smaller companies than many of our sister offices

in larger markets," says Besemer, whose office still managed to generate

an impressive 83% rise to $3.2 million in 2000. While Fleishman

opened its office in 1998 and Porter Novelli moved in shortly after

through its acquisition of Nelson Communications Group, it's unlikely

that other multinational firms will follow into San Diego anytime soon.

"San Diego remains a mid-size PR market, and for many of the larger

firms, there are bigger cities they'll move into before they look here,"

says Besemer.



Expanding beyond SoCal



To continue to grow, many Southern California firms have spent the last

year not only competing for new business across the nation, but also

diversifying their services to provide added value to their existing

client base. "We've added international services, competitive research,

and IR," says Lorraine Iverson, CEO of Cooper Iverson, which grew 37%

last year to $1.6 million. "It's a buyer's market. You have three

or four agencies competing for the same clients, and the clients know

this, so they're demanding more for their money."



San Diego firms are benefiting from the PR slump elsewhere, as talented

professionals realize that given a choice between the sunshine of

Southern California and stock options at other companies in other

regions, only one of the two is a sure thing. The region had seen a

steady stream of its PR talent migrate to the Bay Area in the latter

half of the '90s, but now finds many people moving back, easing what had

been a chronic labor shortage. "We had over 500 people answer a single

ad, including over 100 that had senior experience," says Formula PR

president Michael Olguin.



That's not to say all the area's PR staffing issues have been

solved.



Ed Stevens, SVP and managing director with the biotech/medical device

specialty firm PResence Euro RSCG, says, "It's still hard to get good

medical people in Southern California." Stevens' office recently added a

fourth staffer after picking up several national accounts, including

Indianapolis-based Roche Diagnostics. He says the area's huge biotech

and medical/device infrastructure "is more long-term, and that's why the

region seems recession proof."



While not quite the land the rest of the nation forgot, Southern

California will likely continue to exploit its differences from the rest

the country.



The area's PR firms realize that while these may not be booming times, a

little bit of economic growth and nightly Pacific sunsets go a long

way.



SOUTHERN CALIFORNIA PR AGENCIES

RANK FIRM NAME REVENUE INCREASE STAFF LOCATION

2000 (dollars) 2000 (%)

1 BSMG Worldwide 6,844,895 38.12 30 Santa Ana

2 Paine PR 5,604,991 75.49 31 Orange County

3 Stoorza Communications 4,568,085 15.54 33 San Diego

4 Fleishman-Hillard 3,220,000 83.16 16 San Diego

5 The Gable Group 2,442,354 3.80 18 San Diego

6 Magnet Communications 2,392,000 N/A 17 Corona/Irvine

7 Porter Novelli

International 2,012,000 - N/A San Diego

8 Cooper Iverson Marketing 1,629,987 36.93 3 San Diego

9 Berkman Communications 1,318,000 38.16 N/A San Diego

SOURCE: Council of PR Firms Auditing: No audit was required for

inclusion in the rankings. The CEO/CFO/principal was required to sign a

statement verifying the accuracy of the data and agreeing to possible

participation in a random audit Disclaimer: While every effort has been

made to ensure the accuracy of these figures, PRWeek cannot accept

liability for, nor make financial guarantees based upon the information

in this chart.



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