Industry enters a new age: PR 3.0

Business confidence was abundant in the PR industry in 2006, dovetailing as it has over the past few years with the fundamental changes in marketing taking place in every sector. All in all, this seems to be a great time to be in public relations.

Business confidence was abundant in the PR industry in 2006, dovetailing as it has over the past few years with the fundamental changes in marketing taking place in every sector. All in all, this seems to be a great time to be in public relations.

The current trade is positive. The agency business is clearly playing an even more strategic role to meet its clients' every need - from corporate positioning to consumer launches to social networking. PR has gone through other incarnations in the past, but what is happening now is so fundamental, it can only be described as the next iteration of the industry - or PR 3.0, as we have designated it.

All of this is happening during a sustained period of strong growth, which has been apparent during the past several years. Turn to the first page of the rankings tables in this special Agency Business Report and you will see only five firms in the top 50 reporting a decline in revenues. In fact, minus signs are scarce throughout the list. But recall the situation in 2002, when 2001 revenues overall showed a 7% decline, and 32 firms in the top 50 reported decreased revenues.

Last year, we noted there was an average of 17% growth among firms that reported the previous year. In 2006, there has been a further 15% growth among those firms reporting previously, proving the sustainability of this market upturn year on year. Much of this growth was organic, as only a handful of acquisitions were recorded across the industry. It's also worth noting that new business was also cited by many in the agency profiles as a driver for growth, signaling an increase in spend by clients, rather than simply a reshuffling of firms.

Staffing has been on the increase, too, as agencies which have reported consecutively over last year show a 12% increase in total headcount. Along with that, some of the pressure on teams might be diminishing, as revenue per employee has in many cases declined somewhat over the previous year. In fact, within the top 10 agencies, staff numbers were up 17%, and these firms made up 40% of total staff numbers in the agency business. Edelman, for example, added 354 people, with revenue per employee dropping from $155,782 last year to $149,479 in 2006. Ruder Finn, however, added 25 people and increased revenue per employee from $186,471 to $196,108.

The unknown quantity, which would shed significant light on this staffing trend, is, of course, the holding company agencies, which with the exception of MWW Group continue to eschew the rankings, citing Sarbanes-Oxley interpretation by their parent companies. Some of these firms did offer a range within revenue brackets. But with the industry working hard to recruit expertise outside of traditional PR ranks, including bloggers and social media practitioners, as well as the war for talent that is pervading the profession, it is safe to assume that more investment has gone into human capital this year than has been possible during tougher times.

Edelman's astounding 26% growth is not surprising given the agency's acquisition of A&R Partners, its high-profile client wins, and ongoing relationships during the past year, as well as its continuing thought leadership in the areas of social networking and new media. But it is not alone in success stories, as tech-specialist Schwartz Communications pulled in 22% growth, Qorvis increased by 31%, Taylor (formerly Alan Taylor Communications) was up by 36%, and Integrated Corporate Relations showed a 48% rise.

Another notable point is that more firms than ever this year submitted third-party affirmation of their revenues from CPAs or other auditors. Sarbanes-Oxley does not directly impact most firms outside of the world of holding companies, but accountability is clearly more critical than ever in this era of perfect transparency. Also, one might wonder if some independents are dusting off their books for a possible acquisition market. If the PR industry continues to thrive, that could happen. But for the moment, the focus is on sustaining the client base - and the talent -each agency already has.

Julia Hood, Editor-in-chief, PRWeek
Michael Kriak, CFO, Haymarket Media

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