Edelman: PRWeek Global Agency Business Report 2016

Firmly on the path of communications marketing, this behemoth agency saw solid growth last year and expects more of the same.

Richard Edelman, president and CEO, Edelman
Richard Edelman, president and CEO, Edelman

Principals: Richard Edelman, president and CEO; Michael Stewart, president and CEO, Edelman Europe & CIS; Ed Williams, CEO, Edelman UK; David Brain, president & CEO, Edelman APACMEA
Ownership: DJE Holdings
Subsidiaries: Assembly, BioScience Communications, Edible, Krispr, and United Entertainment Group
Offices: Global 72; US 14; UK 1; Asia 21 wholly owned, 5 partner
Revenue: Global $854.6m (CY’15), $833m (FY’15); US $523.1m (CY’15), $505m (FY’15); UK £55.9m; APAC $107.1m
Headcount: Global 5,849; US  2,751; UK 474; APAC 1,323

* This article was updated on 5/5/2016 - Edelman's APAC revenue and headcount figures were originally mislabeled APACMEA.

U.S.

Edelman grew solidly again in 2015, increasing global organic revenue 5.2% to reach $854.6 million from $812.3 million the year prior.

Growth was down slightly from 2014, when Edelman posted organic calendar-year growth of 8.2% — it grew 11.4% in 2013, 9.6% in 2012. Edelman’s fiscal year runs from July to June. In 2014-15, ending June 30 of last year, it reported organic growth of 8.5%, with revenue hitting $833 million.

U.S. calendar-year revenue was up 8.5% organically to $523.1 million from $482.1 million, exactly matching growth during the prior 12 months.

A strong resurgence in Chicago that resulted in double-digit growth buttressed by continued strength in New York, Washington, DC, the Pacific Northwest, and the South, especially in Dallas, drove Edelman’s U.S. performance. Clients’ expanding requests for earned media services also drove this solid growth.

"We’re firmly on the journey to communications marketing," explains president and CEO Richard Edelman. "We’re trying to redefine the market so we’re not just competing in the PR business, and we’re part way across the river."

He illustrates this by noting the firm now employs more than 400 creatives and planners, with headcount up 40% in 18 months, including journalists and editors and investment in studio and video production. The year saw 40 projects in the video influencer space, such as a seven-part video blogging series for Disney targeting Hispanic audiences.

Other projects representative of the new PR included B2B work for Western Digital, a video series for Barilla that attracted 2.5 million viewers, and the creation of an emoji machine for Samsung.

Thirty-three people in the U.S. now specialize in paid amplification, including sponsored content and elevating earned or other content, some from a media buying background, others evolving through Edelman’s digital teams. The firm’s creative network also encompasses relevant businesses and services outside Edelman, and spans cities such as Chicago, DC, Seattle, and Los Angeles, as well as New York.

Edelman defines 30% of its business as PR-only, 40% as "modern PR" (mixed), and 30% outside that, in areas such as digital.

"The easy rise of digital has now ebbed," says Edelman. "The days of 20%-plus rises in digital are not happening anymore. We’re in double digits, but we’re not in the 20s."

Edelman’s United Entertainment Group joint venture has doubled in size, through notable big-thinking programming for clients including Shell and activating a Harlem Globetrotters–style Hispanic touring soccer team called Los Cheetahs for Frito-Lay’s Cheetos brand.

Latin America grew 9.6%, but actual revenue fell from $23.4 million to $20.1 million due to currency fluctuations. Canada was down 6% to $27.6 million, mainly due to the loss of the TransCanada account.

"The firms that are more marketing facing are doing better, which we’re one of," says Edelman. "Those that are more U.S. than outside U.S. are also doing better, because Europe’s a bit slow."

Edelman said goodbye to Chipotle last fall, having worked with the food outlet for seven years. The client grew concerned about conflicts when Edelman started working with KFC again and won the Taco Bell AOR brief across DJE Holdings last March.

"We have a long historic relationship with Yum Brands and we’re now doing KFC, one of my father’s first clients, and Taco Bell," says Edelman. "We had an honest conversation with Chipotle last fall."

Other notable U.S. client wins included Ticket­master, Samsung Mobile, Cracker Barrel, and the Florida Department of Citrus through its Edible unit. Last month, Edelman added PayPal’s U.S. business to its EMEA work.

High global turnover rate
Global staff turnover was 31%, higher than the 27% in the U.S. DJE Holdings vice chair Alan VanderMolen departed in September, having been placed on leave earlier in the year following an internal investigation into Edelman’s China operations. In the same month, Edelman New York corporate and public affairs MD Ron Guirguis left to become U.S. CEO at MSLGroup.

Edelman global chief strategy officer Glenn Engler left in August after 21 months; Carol Cone, chair of the firm’s business and social purpose practice, left in April. Edelman Dallas GM David Chamberlin moved to PNC Financial Services Group. Other senior leavers in 2016 include president of strategic alliances Gail Becker and global tech chair Maria Amundson.

Michael Berland departed Edelman in February 2016 to focus on political consulting. Berland was CEO of Edelman Berland, the firm’s strategic research and analytics business, which reconstituted as Edelman Intelligence under Antoine Harary, global MD of Edelman Berland and formerly GM and regional head of Europe at the unit.

At the start of this year, H. J. Heinz and McGraw Hill Financial veteran Ted Smyth transitioned from his role as vice chair and chief of staff at Edelman after five months to concentrate on senior consultancy with the firm’s clients in the financial and food and beverage sectors.

"The industry needs to reframe in terms of comms marketing rather than marketing services. The pace of innovation now is unparalleled," says Edelman.

UK & Europe

2015 was another strong year for Edelman’s European & CIS operation, with like-for-like revenue growth of 12.7 per cent on a constant currency basis.

"Most of the markets are growing pretty robustly," says Michael Stewart, president and CEO of Edelman Europe & CIS. As well as the UK, where like-for-like revenue grew around 10 per cent to £55.9m, he points to Sweden (+60 per cent), Germany (+17.1 per cent) and the Netherlands (+10.1 per cent) among the highlights.

Recent acquisitions have helped, with Stewart hailing the "phenomenal success" of Deportivo, the Swedish creative agency acquired in 2014, which he says has put that country’s business back in the black and with double-digit margins. It is still "early days" for Ergo, the German shop bought in December 2015, but Stewart says: "We’ve already won work together that we never would have won independently."

In contrast, Elan Edelman, created with the acquisition of French agency Elan in 2014, has been a "slower burn because our business there was so weak".

Stewart names Spain and Italy among the weaker performers in 2015, with revenue growth of around three and six per cent respectively amid the "massive headwinds" continuing to affect those economies. But they also have among the best margins in Europe, with Edelman targeting high-margin specialist areas there; for example, tourism in Spain.

Stewart says margins are holding up across the continent as Edelman puts a particular focus on "local play" business within individual countries, in response to the decline in foreign direct investment since the economic downturn.

This is reflected in client wins, and Stewart says there has been a focus on winning the biggest brands and companies in each country. Europe-wide accounts were secured with major clients including Marks & Spencer, L’Occitane, easyJet, ING Bank and Mars. The agency’s brief with PayPal was upgraded from UK to EMEA-wide. One major account loss was Carphone Warehouse, following the company’s merger with Dixons.

Having exited its wholly owned Russian operation in 2015, Edelman plans to do the same in Turkey in response to the country’s "unbelievably complicated" geopolitical climate, characterised by the migrant crisis, tensions with Russia and "some pretty draconian moves on freedom of the press".

Edelman’s Turkish operation is not big – it generated revenue of around $1.3m (£0.9m) last year – but is growing fast, around 40 per cent in 2015. It will be sold to Serra Turk Buyukfirat, currently general manager of that office. Edelman will maintain a minority stake and have first refusal to buy it back.

In April this year, Edelman also announced the closure of its Poland office. It will maintain a presence there through affiliate Lighthouse Consultants. Stewart says the affiliate model is the best way to "realise our comms marketing ambition while servicing clients at scale" in the market.

Meanwhile, he says the new generation of appointments are a "different breed", with expertise in creative planning and digital for its comms marketing drive, along with deep industry specialisms.

Examples include Esther Busscher, general manager at Edelman Brussels, a "phenomenal talent" hired from FleishmanHillard; Miguel Fernandes da Silva, director of food policy, Europe, who joined from specialist food and nutrition consultancy EAS; and former Reuters energy editor Andrew Mitchell, energy director, Europe & CIS, who joined from Brunswick, where he was partner in its energy practice.

Stewart explains: "If the macro economy is flat and most sectors are flat, the only way you’re going to be able to grow is at the sub-sector level. Where’s the growth going to be coming from? You’re not going to be able to do it with generalists."

Edelman UK maintained its role as the country’s biggest PR agency by revenue, generating roughly half Edelman’s European revenue.

UK CEO Ed Williams attributes this partly to moves towards the higher margin corporate advisory space, helped by senior hires including former City minister Lord Myners as chairman, Naheed Mehta of the Foreign & Commonwealth Office to head its global Government Communications department and Andrew Mitchell.

The more general move towards communication marketing also helped, he says: "The clients we’re engaging with now are much more ambivalent about channels and more engaged with ideas. Hence we end up pitching for work against ad agencies, marketing agencies, pure digital agencies. And the investment that we’ve made in creative, in production, in planning, is another contributor."

New UK hires in that category include Stuart Addy, formerly studio manager of BBH London, to run its studio; ex-Mother COO Matt Groves as MD of digital; and Jo Tatchell, strategic planning director, who joined from Saatchi & Saatchi. This is changing the work Edelman is doing; Williams highlights the new magazine the agency now produces for GE as an example. 

In terms of significant work in 2015, Williams highlights Edelman’s support of the London debut of the Women of the World summit, where the agency’s content marketing support drove 400m social media impressions and 659 pieces of earned media coverage; and its work on "myth busting" shale gas for its energy clients.

Williams says it is "so far, so good" for the integration of financial and corporate PR shop Smithfield, acquired last year. "There’s been a pretty decent amount of incremental additive work that’s come out of putting these two businesses together," he says.

Williams says consolidating Smithfield is among his priorities for 2016, along with moving from "third to fifth gear in the creative space" and announcing a new London advisory board. 

APACMEA

Having said last year that he would like growth to be nearer the 20 percent mark in 2015, David Brain, president and CEO of Edelman APACMEA, admits that that while it was a decent year, it could have been better.

"We saw 12 percent growth in local markets," he says, having been nearer 15 percent in 2014. "We would have preferred more, but that has certainly kept us cruising along."

Encouragingly, all markets that Edelman has offices saw growth in 2015, Brain says, though some obviously more than others. Particularly successes were Singapore, Japan and Korea, where Brain says the integration of the consumer and digital teams has worked very well. "It’s a substantial business for us," he notes.

Markets that had a few more challenges but still grew "in the high single digits", Brain points out, include China, Indonesia and Australia.  

Despite perhaps not meeting expectations, APAC was the region that grew the most across Edelman globally, proving to Brain that the investments made are paying off.

"It’s been a good year in the sense that we achieved a number of landmarks in the continual transformation of the business from its PR roots to a communications and marketing offer, something we’ve done over the last two years," he explains.

Digital has been at the heart of this transformation, and Brain is particularly pleased with the fact that in 2015, digital accounted for 21 percent of the overall Edelman APAC business.

"From pretty much a standing start three years ago, that has to be the standout," he says, closely followed by the sharp increase in corporate reputation and crisis work the APAC teams have taken on.

The ongoing transformation at Edelman feeds into all aspects of client work, Brain says, with evermore brands seeking digital and analytics capabilities in addition to more traditional comms services.

Building out the agency’s digital abilities has been key to retaining most of its big-ticket clients in APAC, Brain says, and also brought plenty of new accounts on board. Of particular note are Alvarez & Marsal across Hong Kong, China and Korea; Asus in Indonesia; and PayPal in four APAC markets. Edelman did lose Visteon Corporation in APAC, although at the time the company decided not to work with any agency.

More specifically regarding digital capability, the focus for Brain in 2016 is on paid social media. "To get to a brand’s audience, you now have to pay for that. If you are a PR company that produces great content, but you can’t buy behind that, you will be disintermediated and it will go to media companies or people who can," he states.  

As such, Brain is looking to hire a head of paid media in APAC, plus a team of around four staff, within the next six months. He believes this will add a significant string to Edelman’s bow, on top of the other major changes the firm has made.

"We’ve gone from producing content for social and optimising that," he says. "Now we’re promoting it and the scale at which that’s happening means you’ve got to have people who can plan and buy on all of the key social platforms in the region, at scale."

However, driving all of this is the main challenge that Brain says all agencies still face in APAC: talent. While Edelman has hired a lot of new talent in the region – creative directors, planners, analysis, researchers and the like – Brain says getting the best staff is hard.

"There are definitely markets where if we could find more of the right kind of people, we could grow quicker than we have done," he says.

Edelman’s turnover rate in APAC of 40 percent is the highest of any region, which Brain finds unsurprising given the difficulties faced by all firms in retaining mid-level executives.

That said, at the senior level, the firm brought in new talent that Brain is very pleased about. Carol Potter joined from BBDO as executive vice chairman for APACMEA, advising the agency’s biggest brand clients and helping deploy the new creative and digital resources the APAC teams have built up.

In addition, Robert Kay joined as Malaysia CEO and Steven Spur was promoted to Australia CEO. There were some departures, notably Alan VanDerMolen, former global vice-chairman of Edelman’s parent company DJE Holdings, and Stephen Lock, former Indonesia CEO.

Overall though, Brain says in 2016 in terms of top-line growth, Edelman will look to continue at least at the same rate in APAC, and possibly even more.

The agency will also move full steam ahead with its growth and digital transformation agenda, with plans to "rush to scale" in certain APAC markets.

"That’s not just growth for growth’s sake. We believe we have to get our teams in all markets to a minimum scale as fast as we can because then, whatever the currency, you can afford to have more of these specialist capabilities, which is what clients are needing to access to solve their problems," he explains.

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