Global Rankings - Western Europe - Dot-com mania and a surge in client confidence have been a boon for PR, and EU agencies are feeling good

The last year of the 20th century was a good one for PR in Western Europe. Favorable 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.

The last year of the 20th century was a good one for PR in Western Europe. Favorable 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.

The last year of the 20th century was a good one for PR in Western Europe. Favorable 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. Click-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 prominent dot-coms 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's 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 organizations 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 privatization and deregulation in sectors such as energy and telecommunications. 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 in 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 10 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, although its four closest rivals - International Public Relations, Euro RSCG (comprised of Shandwick, Weber and Golin/Harris), Burson-Marsteller and Hill & Knowlton - all gained ground. Sixth-placed GCI Europe/APCO posted the biggest percentage rise in fees in the European top 10 - 58% - while also claiming that its Europe-wide business shot up by 200% (see sidebar, p41).

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% increase in fee income at Firefly's Fireworks network, and a 49% rise at Embrace, created by British agency Grant Butler Coomber.

For the purposes of this report, we have focused on the 10 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%. 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, Great Britain, shared with Switzerland the lowest percentage growth in fee income among its top 10 firms - about 15%. Given the maturity of the UK marketplace, though, this isn't so bad.

Number-one agency group International Public Relations grew 5% 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 (see sidebar, p39).

More broadly, the fee income for Britain's top 150 PR agencies rose 14% to more than dollars 694 million. This follows a 17% 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 meager 1% increase in fee income.

Although International Public Relations, which owns Shandwick and Weber, held on to the top spot, 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%, 13% and 15%, respectively.

Bell Pottinger's 14% 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% 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 brewer Scottish & Newcastle and big retailer 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 8% decline in fee income. Its Achilles' heel proved to be consumer division Life PR, the erstwhile Lynne Franks PR (inspiration for the outlandish Brit comedy Absolutely Fabulous), which was formally merged into Ketchum in October 1998. Senior sources say that Life's somewhat unconventional corporate culture did not sit well with Ketchum's more traditional approach.

There were small indications that power was spreading beyond the biggest agencies. Fee income for the agencies ranked 11 through 20 represented 15% of the total market, up from 14% the previous year. A similar pattern was evident in the shops ranked 21-50: their total fee income accounted for 23% of the market, up from 21% 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, chairman of PR agency Biss Lancaster.

Among the top 150 agencies, the number of clients rose by 6% while the number of staff climbed 8%. 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 situation isn't unique to Britain. Bullish economic circumstances have made it a continent-wide problem. Leading German agencies say it is easier for them to get five new IPO clients than it is to find staff to work on the business.

Germany

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% from 1998 to 1999. The 1998 general election campaign - which saw Chancellor Helmut Kohl's government coalition ousted after 16 years - 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 globalization, 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% growth in fee income to more than dollars 28 million. Despite a hefty 73% rise in fee income, second-place Hunziger PR, a Frankfurt-based independent, is a distant second with total fees of just under dollars 9.2 million.

Trimedia Reporter, BSMG Worldwide and ABC occupy the next three places, with fee increases of 48%, 28% and 13%, 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 & Partners. Growth in German GDP is expected to average around 3% 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 & Fuchs managing partner Stephan Fink.

France

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%, although this includes a 350% increase by Porter Novelli France. If Porter Novelli is taken out of the equation, the average fee increase among the nine remaining agencies is just under 17%.

About two-thirds of Porter Novelli's massive increase is due to a reorganization at Omnicom Group, which no longer keeps separate books for its hi-tech agency Copithorne & 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% 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.

British 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 beginning of last year hung out its shingle 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.

Belgium

In Belgium, where in 1999 the economy grew by 3% and unemployment fell a full percentage point, PR firms averaged a 15% rise in fee income. The bigger players performed even better: the average increase among the top 10 was almost 37%, though this figure, too, was skewed by industry leader Porter Novelli's 137% growth, a large chunk of which came through its purchase of Ellips Communications, the second largest independent agency in Belgium.

Number-two Burson managed a more modest 24% rise, while fourth-place Interel Marien took its fee income to over dollars 4.5 million with 28% 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% rise, sixth-placed H&K with 31%, Ogilvy PR Worldwide in the eighth spot with 29% and 10th-placed Edelman with 33%.

Two high-profile crises last year made communications a hot topic in Belgium: Coca-Cola's carbonization 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

Belgium neighbor 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 making increasing inroads into the Dutch marketplace.

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 & Lichtenveldt.

At the end of May, fifth-ranked Schoep & 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% 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%, although this was inflated by the 193% rise in GCI's fee income, largely brought on by the addition of Van Danzig & Lichtenveldt. If the GCI figure is discounted, average growth among the remaining nine firms was a more pedestrian 10%.

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% rise in fees to almost dollars 2 million, taking it to 11th place, while 16th-ranked Berenschot Communicatie pushed its fee income up 85% 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.'

Austria

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 neighbors 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% 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 about dollars 6 million, following a 37% rise in fees that it attributes primarily to work in lobbying and financial communications.

Privatization 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.

Switzerland

In Switzerland two agencies broke through the dollars 6 million in fees mark last year - Trimedia Groupe Suisse, whose fees rose 15% to almost dollars 6.9 million, and Peter Butikofer, whose fees shot up 27% to about dollars 6.6 million.

Overall, the average increase in fees among the top 10 Swiss consultancies was 15%.

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. Burson is the exception, having acquired the outstanding shares in its Swiss partner Jaggi Burson-Marsteller in July 1999.

Sweden

Only one of the top 10 agencies in Sweden failed to deliver double-digit growth - Jerry Bergstrom, which actually saw an 18% decline in fee income.

Number-one Kreab lifted its fee income by 17% to dollars 11.8 million. It also opened a London office last year. Second-place Journalistgruppen turned in an impressive 85% surge, from dollars 3.9 million to almost dollars 7.4 million.

There was strong growth from just outside the top 10 as well, with 11th-placed independent Hallvarsson & Halvarsson lifting fee income by 53% to nearly dollars 2.7 million, and 12th-placed Hill & Knowlton Sweden pushing revenues up by 42% 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 publicize 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.

Spain

The economy in Spain likewise proved vibrant. According to the Spanish PR association ADECEC, industry revenues were up 40%. The top three agencies - Burson, Shandwick and Sanchis y Asociados - all topped their 1998 figures by about 15%. 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, Samsung, Danone and Visa International all increased their budgets.

Smaller agencies also performed impressively. Fourth-ranked Llorente y Cuenca increased its fees by 60% to almost dollars 2.7 million, while eighth-place Inforpress saw fees leap 66% 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, Telefonica, Thompson, Carrier, Unilever, Pharmacia, bol.com and Apax Partners. 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 and professional financial communication.' In February 1999 Inforpress opened an office in Portugal.

Italy

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%, 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%, from dollars 5.2 million to dollars 7.3 million, while its closest competitor, Ketchum PR, managed to more than double its income to dollars 4.3 million. Burson, Shandwick Italia and Edelman are the third-, fourth- and fifth-place agencies, respectively.

Many PR firms benefited from a combination of a return to vigor 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% 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 privatization continued, and there was strong growth in the number of new entrants to the stock exchange, especially among Web-based companies. M&A activity also generated PR revenue, most notably when Barabino advised Olivetti in its bid for Telecom Italia. The only dark cloud is Italy's seemingly 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.

European revenues provided by the top 25 global agencies (see p30-31) may vary from figures in this report because they include income from Central and Eastern Europe and because of differences in the way some groups have broken down their numbers (such as International PR) or combined them (such as Euro RSCG).





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