MARKET FOCUS: Comeback in SoCal

Despite client caution, business is up in idyllic Southern California.

Despite client caution, business is up in idyllic Southern California.

For those outside of Southern California, the neighboring areas of San Diego and Orange County are often lumped together. Traveling south from Los Angeles, it's hard to tell where the wealthy neighborhoods and beautiful beaches of one county give way to those of the next. The areas also bear more than a superficial resemblance. Both are home to a strong base of small and medium-size businesses and a handful of larger names. Both are also seeing a brighter start to 2004 than they have in the past few years, when the decline of technology and dot-com companies left many PR firms in a precarious situation. "The past year has definitely seen the market coming back," says Michael Busselen, head of Fleishman-Hillard's San Diego office. "The OC-San Diego market probably peaked out in 2000 or 2001 in total revenues. During that cycle, growth was not really an option for most of us, so [it's been] very flat for a couple of years. But I'm hearing from my competitors in the marketplace that the tide is suddenly lifting all the boats." He isn't alone in his assessment of what Lewis PR VP Morgan McLintic calls a "fragile recovery" for the area. Bonnie Goodman, who heads Hill & Knowlton's operations in both Los Angeles and Irvine, adds, "We're seeing a lot more activity in that market than in the first six months of last year." She sums up 2004 in Southern California as "not a boom environment," but instead a "place where there are some terrific jewel-type accounts that are starting to spend money." However, like many recovering markets around the country, that increase in activity isn't translating into immediate new business. PR practitioners continue to mourn the death of the quick decision and recount numerous stories of extensive pitches for smaller budgets. "We're seeing that long pitch lists and decision cycles are quite slow, so competition is still fierce among the big local players," says McLintic, who adds that a good local account might average around $100,000 annually. He says that he has also noticed a trend of companies asking for references "right up-front," rather than in the last round of pitching. "I can only see it as a sign of [a continuing] lack of confidence, even in their own decision-making and in knowing whom to believe," he adds. "There is a slight sort of safety in numbers. They want to check that what you are saying is true." Porter Novelli's Irvine GM Linda Martin adds that many companies still have budget concerns. She points to a freeway project account that "was delayed over concerns of financing from the state." The account did go forward with alternative funding, but the episode illustrates the tenuous hold of the economic upswing. Signs of potential revenue growth However, there are some bright spots that PR pros agree will potentially grow in revenue in coming months. In government and public affairs, there have been a few RFPs issued this year. They have mostly centered on transportation and water issues, which are both big concerns throughout California. "In public affairs, it's need- and issue- driven," points out Martin. "We live in California, where it's highly regulated and we have a state that is undertaking a lot of public infrastructure projects. And in a lot of projects, PR is not optional any more. Things that five years ago you didn't do are just standard operating procedure now." Jeff Marston of San Diego-based Marston & Marston echoes that sentiment, noting that natural resources, land use, and energy production are always hot topics. "Energy is huge and water is huge," he says. "It creates a lot of work for people who are in PR and public affairs. Public-works projects are probably the biggest challenge you can face in this community and it's a slow methodical education process you have to do." Fleishman's Busselen adds that corporate clients are also beginning to reassess PR programs and are better able than in past years to commit to a budget. "As people begin to feel better about their business, they are willing to invest in marketing," he says, noting that some clients are moving from "one-month or two-month projects" and "evaluating people for long-term partners." Biotech is one area where virtually everyone involved in PR agrees there is much opportunity to be had. San Diego is especially known as both a hotbed for companies both large and small in this field and as a host for a number of growing telecom companies. "If anything, I think technology has been lagging," says Busselen. "Biotech and life science is going go be a big growth area for us." Formula PR head Michael Olguin agrees that biotech is a hot topic in the area, but he sees a drawback to its growth as a PR specialty. "The challenge in biotech is that it's just such a slow burn," he points out. "It takes forever before you see a product come to light, if you ever see it." Martin also points to multicultural marketing as an area of growth. "One of the things we're seeing a lot of is a greater need by both public and private organizations for multicultural outreach," she says. "Orange County is becoming a minority majority and the need for people who understand how to reach into multicultural communities is very important. Years ago, maybe we'd do something in Spanish and English, but now it's across a broad spectrum." In San Diego, multicultural issues also often involve the nearby Mexican border. "You've had ongoing efforts at least for the past 25 years to get people to understand that there is a fence there, but we are really just one big region," explains Marston. H&K's Goodman also says that the area is a prime target for marketing to younger generations. "Youth marketing is big because you have the surf culture," she explains. Another indicator of economic rebound is that fact that firms are again adding staff - albeit slowly and carefully. "There are jobs out there," says Joice Truban Curry, president of both the San Diego PRSA and C3 Communications. "Without question, people are hiring." Busselen says he has hired "literally all levels," but adds the caveat that "we're only talking a handful of people, not dozens." Despite that optimism, there hasn't been uncontested good news. Olguin says his billings are up by 28% over last year, but that most clients continue to come from national work, rather than the local front. From his perspective, San Diego continues to suffer from a bias from its big companies against hiring local agencies. "Most of the national brands in San Diego don't consider San Diego agencies as an option," he says. "There is a perception that you can't get quality PR here." Tapping into the local PR talent However, some of the handful of large companies that call the area home do rely on local talent. Bumble Bee Seafood, for example, uses the San Diego office of Fleishman. "Fleishman-Hillard has a whole office here, so you're not struggling with a small-town staff," says John Stiker, SVP of business development and marketing for Bumble Bee. Busselen says that the limited scope of the market does mean that agencies of all sizes need to be nimble. "If you're going to be successful in this market, you're going to be good at working midsize pieces of business," he explains. "You must be able to do it across a dozen or more at any point in time. You can't rely on one big client, or even a couple. There is no such thing as an all-you-can-eat client in San Diego." The size of the markets also means media outlets aren't plentiful. Each market has only a single major newspaper - The San Diego Union-Tribune and the Orange Country Register - and Los Angeles remains the major broadcast outlet for Orange County. Olguin says that reality often leads local clients to cycle through PR agencies searching for one that can continually deliver results, and ROI remains a critical issue. "Measurement is still key," confirms Lewis' McClintic. "People are looking to get sales from the PR that they do. Unless you can tie back the campaign you are delivering to how that is going to impact the buying cycle, you are not going to be successful." But Shawn Underwood, PR representative for San Diego-based Petco, which does all its PR in-house, says the small market can have benefits for companies such as his. Being a big fish in a small pond makes Petco more interesting to local media. "We probably have more stores in the LA market than the San Diego market, but it's tougher to get coverage there," he says. Stiker backs that assertion, pointing out that "there aren't that many Fortune 500 companies headquartered in San Diego and there aren't that many food companies. As such, it is easier to generate attention here." If there is one drawback to the Southern California region, it is housing prices. The median house price in both San Diego and Orange County is more than $400,000, making it hard to lure people to the otherwise idyllic setting. But, points out Underwood, "if I have to rent in paradise, I'll rent." Fact file ORANGE COUNTY Population, 2003 estimate 2,957,766 White: 64.8% Black or African American: 1.7% American Indian and Alaska Native: 0.7% Asian: 13.6% Hispanic or Latino origin: 30.8% Fortune 500 Companies: PacificCare Health Systems; Fluor; The First America Corp; Gateway; Pacific LifeCorp; Ingram Micro SAN DIEGO COUNTY Population, 2003 estimate 2,930,886 White: 60.18% Black or African American: 7.86% American Indian and Alaska Native: 0.62% Asian: 13.65% Hispanic or Latino origin: 25.4% Fortune 500 Companies: Sempra Energy; Qualcomm; Science Applications International Demographics Source: 2000 Census

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