MARKET FOCUS NEW YORK: The apple of PR's eye - Over the past year,New York's PR industry has been up and down like the city's elevators

New York may throb with glitz and glamour, but the city has its

seamier side. Behind every designer-label shop sign is crumbling

brickwork.



In every nabob's life are summer sewer smells. Underneath the most

luxurious parquet floor in an Upper East Side condo is a creaky

floorboard and a questionable damp course.



Much the same can be said of the city's PR industry: a pumping,

pulsating hotbed of talent, the one world market of which everyone wants

a piece, and the fulcrum of many global agency brands, it's the world's

PR capital, with 500 agencies catering to every type of business. New

York hosts every major national broadcaster; it's the hub of print

media; it's the financial center; and it's the artistic capital. Every

which way you want to touch the nation, or the globe, you can do it from

New York.



Under the bonnet



But underneath, repairs are needed. The first quarter of 2001 was a

sudden catastrophe. Clients downsized, cut budgets, and went bust.

Agencies disgorged surplus staff into a bewildered market, and even the

most seasoned CEOs wondered at the sheer speed and severity of the

adjustment.



As the table shows (see right), 2000 was a record year, with 23% growth

in New York City and 26% growth in upstate New York. As a mature market,

the Big Apple didn't grow at the same pace as the overall market (up

30%), and its share of the overall PR pie continues to slip (down one

point, to just under 24%). But with over dollars 150 million of extra

business going through New York offices, this isn't something to get too

upset about.



The market gave birth to a new tech market almost overnight (Silicon

Alley), with Ogilvy (up 56%), Middleberg EURO RSCG (56%), Peppercom

(102%), MWW (77%), PR21 (up 53%) and Sloane & Co (233%) all making hay.

However, New York was buoyed along by the confidence of an economy in

full flood.



Almost everywhere you looked, you could find a growth market: in

consumer (e.g. Stanton Crenshaw, up 67%), healthcare (Noonan Russo, up

37%), sports (Alan Taylor, up 42%), and in the historically secretive IR

market.



Unfortunately, it wasn't all rosy. Burson-Marsteller embraced the

dot-com sector, and it helped the old New York powerhouse hold on to its

No.



1 position - but only just, as revenues fell by 1%. Close behind is

Ruder Finn (an independent with its roots still firmly planted in New

York, which accounts for 80% of its revenues), which grew by 33% last

year.



Meanwhile, Edelman grew at the same canter, and if you include its

revenues from tech subsidiary PR21, it would now be the largest PR

agency in the city.



Burson EVP Peter Himler says the agency was running at reduced capacity,

but insists that good times are ahead. "The corporate and financial

practice have always been our strongest, and we were minus a leader for

most of the year," he explains. The arrival of new corporate and

financial chairwoman Judi Mackey from Edelman in April is expected to

turn the practice around.



Other agencies are left trailing well behind in the wake of the three

leading agency players. Hill & Knowlton (16%), Fleishman (13%), and

Weber Shandwick (7%) have a surprisingly small presence in this market

(although the mooted merger of Weber Shandwick with BSMG would clearly

boost its presence considerably), and there is still a strongly

independent feel to the local lineup, with Rubenstein Associates, Dan

Klores Communications, Chandler Chicco, KCSA, Devries, Makovsky, and

Peppercom all producing 100% of their revenues from New York.



Hung, drawn, and Q1



Ruder Finn, still resolutely independent itself, has continued in 2001

where it left off. While Q1 was an unmitigated disaster for many

agencies, chairman David Finn claims that revenues in the first quarter

were up by 42%; and he set up a new agency in April 2001 called RF

Binder Partners under the control of one of his daughters, Amy

Binder.



But while some optimism is returning to the market, Ruder Finn's Q1

experience was very much the exception, and the aftershocks are still

being felt. The most notable scalps have been in the tech sector,

obviously, with layoffs focused on many of the same players who made hay

last year.



The consensus is that tech revenues are down by 25% on average in New

York. And while multi-practice agencies have been able to rebalance

their rosters somewhat, tech specialists have been badly exposed.



Michael Kempener, CEO of MWW, has seen tech revenues shrink by 25%, but

predicts, "Many of the high-flyers, particularly the companies that got

acquired recently, will be shadows of their former selves. Lots were

staffed for 40% growth, but now they're going to make 10% or stay even -

or shrink."



"Every single tech entity in the New York area will end up losing money

(this year)," says Connie Connors, CEO of tech agency Connors

Communications, who has been redoing forecasts on an almost daily basis,

and predicts a "flat" year. "All the outposts, all the satellites, all

the big guys.



They'll tell you that they're going to enjoy a 10-15% growth, but Q1 was

so damaging that recovery will be very hard."



Layoffs have also hit hard, and while media attention has focused on

tech-heavy agencies such as Ogilvy and Middleberg, Ogilvy's New York MD

Paul Hicks says, "Even those who deny layoffs will admit to not having

replaced key staffers once they have left."



The chill winds of that Q1 recession have been felt far and wide.

Cause-related specialist Cone Communications has retreated to its base

camp in Boston after a brief foray in New York. Hicks believes that the

malaise started in tech, but ill sentiment has spread "in corporate PR

and marketing departments, (where) they hold or shrink budgets in

anticipation of being cut by their managers."



The light at the end of the tunnel?



Nevertheless, it's not all doom and gloom. GCI Group's New York

president Tom Reno points out that "many of the industries that

symbolize and drive the New York economy - tourism, real estate, and

financial services - are having years that range from strong to flat,

but certainly not devastating.



And some industries are proven to have recession-proof qualities, such

as healthcare. Where we have experienced the slowdown is in mid-size

consumer goods companies, who are in a wait-and-see mode."



At BSMG, COO Andy Polansky believes that his company's relatively slow

performance in 2000, when it caused few ripples with 9% growth, is now

paying off. BSMG focused on healthcare, snapping up PResence CEO Laura

Schoen to head the practice. "We were not exposed to the dot-com sector,

and we're now expecting double-digit growth in 2001," he says. In fact,

many people have predicted that the agencies that saw small growth in

2000 will end up better off in the long run, as they typically eschewed

short-term dot-com gains for long-term health.



Hicks is looking at state governments, professional services, and

financial institutions. Steve Frankel, MD at Abernathy MacGregor,

believes that international companies - European in particular - are

"prime targets for help. "There's a great need on the part of foreign

companies to accelerate their communications with the investment

community and the US media."



Rich pickings will also come from the telecom sector, Frankel predicts,

despite - or rather, because - telecoms are experiencing a serious

downturn.



Indeed, many agency chiefs believe like Frankel, by virtue of reverse

psychology, that companies in trouble - and there is no shortage - "are

going to need even more communications help," with change management,

employee communications, and IR all to the fore.



Upstate



Upstate New York is also proving resilient. There are more than 150

agencies outside New York City, and while the downturn has hit local

players, the blue-chip nature of the local tech-focused corporations in

the area (including Kodak, Xerox, and Corning) means that "Tech Valley"

(as the Hudson Valley is now known), "has not been hit as hard as other

tech markets," says Sawchuk Brown Associates president David Brown.



"We've seen some budgets cut, but the business is still solid with

established players such as Xerox," says Text 100 area president Linda

Parker. The office in Rochester has been forced to restructure, but she

remains "optimistic about growth."



Brown points to energy deregulation as one lucrative market: "New York

(state) is going through the same thing as California," he says.

Meanwhile, Mike McDougall, director of PR at Buck & Pulleyn (another

upstate firm that enjoyed a strong performance in 2000), predicts

continued growth, with health services, optics, and photography among

the local industries that bear fruit. But like many upstate

practitioners, McDougall says that while "we want to mine our own

backyard here in upstate, we also take business in the Midwest and

South."



Launches and acquisitions



In a market that's so mature, spotting new business opportunities is a

form of art. Connors says that anyone who's looking to come to NYC is

"nuts." Nevertheless, some agencies have plans to set up shop here in

the coming months, including two public-affairs powerhouses - APCO and

Public Strategies - the latter announcing that its New York office will

be headed by former Texas Governor Ann Richards.



The other key indicator, of course, is acquisitions. Hi-tech is off the

menu, but IR remains very much the plat du jour. After last year's sale

of Sard Verbinnen (to Incepta), Morgen Walke (to Lighthouse/Cordiant)

and Abernathy MacGregor (to Havas), the popularity of IR shops remains

evident, with Wyse Landau buying Wall Street Investor Relations, and

Publicis Dialog picking up the Hudson Stone Group. The dwindling number

of independents and the high margins make IR a hot sector. Joele Frank,

who set up with a handful of former Abernathy MacGregor staff on the

sale to Havas, is reporting that after coming in only behind Kekst and

Citigate Sard Verbinnen in transaction deals in her first year of

business, she's "if anything, ahead."



"Even though the economy has slowed down and the stock market is more

volatile, there are still big mergers, bankruptcies, restructuring, and

earnings warnings," says Frankel, explaining the resilience of this

market.



"The financial markets are more skeptical about growth strategies, which

makes strategic communications more valuable." Nevertheless, not all is

rosy in the IR garden, with David Walke following Lynne Morgen out the

door at Morgen Walke.



Looking into the crystal ball



Tech remains important to the PR industry because it's been an engine of

economic growth. Peppercom's Steve Cody believes "the worst is over,"

while predicting flat growth. Connors agrees: "Tech isn't dead; it just

smells funny," she says. "There are still opportunities in consumer

electronics, b-to-b - lots of verticals, from toys to financial

services. And the next wave is more human-centered construction. There's

a new convergence coming."



But the sheer scale and diversity of the New York market means that

whatever happens in tech, New York is likely to hold up as well as - or

perhaps even better than - any other market.



"This is the greatest PR market in the world, and always will be," says

Hicks. "We'd be foolish to look anywhere else for growth. We get hired

by lots of companies that want New York agencies even though they're in

Dallas and Omaha. We're happy to fish."



NEW YORK CITY TOP PR AGENCIES

Rank Firm name Revenue (dollars) Increase Staff

2000 1999 2000 (%)

1 1 Burson-Marsteller 64,929,000 -1 404

2 2 Ruder Finn 60,993,000 33 421

3 3 Edelman Public

Relations Worldwide 60,108,566 33 454

4 4 Ketchum 34,476,000 7 215

5 8 Fleishman-Hillard 34,334,000 38 181

6 5 BSMG Worldwide 34,028,843 9 167

7 11 Ogilvy Public

Relations Worldwide 30,151,900 56 184

8 6 Porter Novelli International 29,842,000 6 238

9 9 Hill & Knowlton 28,452,000 19 211

10 14 GCI Group/APCO Associates 25,841,339 34 186

11 13 Manning, Selvage & Lee 23,571,122 17 35

12 15 Cohn & Wolfe 23,130,000 25 145

13 12 Morgen-Walke 22,189,902 8 132

14 19 Middleberg Euro RSCG 17,736,696 56 117

15 NEW Weber Shandwick Worldwide 15,946,081 13 111

16 NEW TSI (Golin/Harris) 15,203,557 19 125

17 NEW Magnet Communications 15,090,000 - 116

18 7 Rowland

Communications Worldwide 13,359,000 -4 79

19 20 Chandler Chicco Agency 12,576,088 15 57

20 23 KCSA Public

Relations Worldwide 12,300,000 15 73

21 24 Golin/Harris 11,896,000 37 65

22 26 Noonan/Russo Communications 10,570,000 37 57

23 22 Devries Public Relations 10,024,393 14 48

24 25 Makovsky & Company 9,610,000 19 70

25 33 Peppercom 9,275,456 102 58

26 36 The MWW Group 7,715,000 77 33

27 NEW Lippert/Heilshorn

& Associates 7,407,788 51 38

28 38 Stanton Crenshaw Communications 6,999,562 67 61

29 31 Alan Taylor Communications 6,542,101 42 49

30 30 G.S. Schwartz & Co. 6,000,878 20 46

31 29 Gibbs & Soell 5,986,100 13 52

32 27 Connors Communications 5,638,492 20 43

33 35 M Booth & Associates 5,325,896 - 40

34 NEW Mindstorm (Golin/Harris) 5,074,740 2 24

35 37 Patrice Tanaka & Co. 5,067,000 17 41

36 44 PR21 4,917,550 53 37

37 43 Southard Communications 4,850,500 41 40

38 64 Sloane & Company 4,700,000 233 25

39 39 Publicis Dialog 4,496,942 9 51

40 42 Lou Hammond & Associates 4,151,914 19 32

41 40 Hunter Public Relations 4,133,812 10 31

42 52 Neale-May & Partners 3,972,000 94 16

43 45 Cone 3,668,874 24 14

44 46 Vorhaus & Company 3,327,769 23 22

45 57 Linden Alschuler & Kaplan 3,195,000 69 27

46 NEW Geduldig & Ferguson

Public Relations 3,104,000 11 10

47 47 Development Counsellors

International 2,744,532 18 28

48 51 Bliss, Gouverneur

& Associates 2,730,000 30 19

49 61 CooperKatz & Company 2,310,146 54 16

50 56 Spring O'Brien & Co. 2,252,076 14 2

51 63 Access Communications 2,068,000 45 12

52 65 Belsito & Company 2,000,340 55 15

53 NEW Adam Friedman Associates 2,000,000 100 10

54 67 Bender/Helper Impact 1,907,109 55 12

55 NEW Fitzgerald Communications 1,770,991 - -

56 60 Schwartz PR Associates 1,700,000 31 12

57 70 Clifford PR 1,651,443 58 12

58 66 Donley Communications 1,628,634 23 10

59 NEW Plesser Associates 1,624,899 96 8

60 NEW National Media Group 1,600,000 7 12

61 69 Nichol & Company 1,520,000 37 14

62 NEW The Weiser Group 1,445,830 42 8

63 NEW NYPR 1,420,281 124 12

64 NEW Lewis & Neale 1,279,771 7 10

65 NEW LVM Group 1,278,409 35 7

66 68 Earle Palmer Brown/PR 1,238,262 2 10

67 NEW Phase Two Strategies 1,190,795 85 7

68 NEW mPRm Public Relations 1,007,677 41 -

69 NEW McBride PR 1,000,000 - 6

70 NEW Padilla Speer Beardsley 796,296 -9 6

71 NEW Walsh Communications 549,000 5 2

72 NEW Sullivan & Associates

Public Relations 430,233 8 4

73 NEW Stephenson Group 400,000 - 2

74 NEW Text 100 42,499 - 7

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

UPSTATE NEW YORK TOP PR AGENCIES

Rank Firm name Revenue (dlrs) Increase Staff City

2000 2000 (%)

1 Rowland

Communications

Worldwide 11,762,200 10 85 Rochester

2 Eric Mower

& Associates 3,011,752 48 25 Syracuse,

Rochester,

Buffalo, Albany

3 Text 100 2,177,524 105 15 Rochester

4 Sawchuk Brown

Associates 2,172,200 27 31 Albany

5 Collins & Co 1,814,830 10 14 Buffalo

6 Douglas Gould 1,242,553 34 13 Larchmont

7 John Mallen

Communications 1,135,921 60 10 Kingston

8 Marketing

Communications

Connection 668,128 39 8 East Greenbush

9 Buck & Pulleyn 628,000 175 9 Rochester

10 Robin Leedy

& Associates 596,122 29 7 Mount Kisco

11 Levin Public

Relations &

Marketing 490,000 1 5 White Plains

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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