AGENCY RANKINGS 2002: Leaner, fitter, stronger - After enduringlast year's layoffs, budget cuts and closures, PR agencies have emergedhealthy and wise - and the recovery has just begun. Jonah Bloom reports

Like an athlete who casts aside the steroids and goes back to the fundamentals of working out and eating well, the industry has emerged from 2001 fitter, wiser, and more resilient.

Like an athlete who casts aside the steroids and goes back to the fundamentals of working out and eating well, the industry has emerged from 2001 fitter, wiser, and more resilient.

Gorging on the influx of anabolic big bucks from the hi-tech sector, some PR agencies grew unnaturally fast in the late '90s and 2000. Indeed, that kind of growth was inevitably unsustainable, and although many admit to having been shocked at how sharply it all came to a halt, 2001 may yet prove to have been an important tonic for the business.

That is not to say that last year was a pleasant experience. Not only did agencies have to contend with the collapse of the dot-com sector and the first contraction of budgets in 10 years, but they also endured the results of arguably the most devastating attack ever on the American nation.

And there were PR casualties. As the rankings show, the top 10 agencies lost nearly $200 million in revenue between them, almost 10% down from their total earnings in 2000. (The top 20 as a group were down a similar percentage.) Further, the top 100 lost almost 8% in total revenue, falling from $2.88 billion to $2.66 billion. And, if you take all 279 agencies that filed their figures for the rankings this year and compare them with the 283 that filed last year, total revenues were down from $3.18 billion to $2.96 billion, a drop of just under 7% for the agency world as a whole.

Accordingly, it was no surprise that staff numbers were also reduced - the top 10 alone had to let just short of 2,700 employees leave their shops, a cut of 24%, while the number of people employed by the top 20 fell from 15,071 to 11,344, a 25% decline. Some famous agencies exited the PR stage as well, perhaps most notably the once-gold-standard Niehaus Ryan Wong in San Francisco.

But the pioneer tech PR firm was the exception, not the rule. As Elliot Sloane, CEO of the $5.2 million Sloane & Company, opines: "Agencies dealt with tremendous upheaval and we can be proud that we came through it.

In fact, we probably suffered less than the ad industry - certainly less than many other sectors. Twenty years ago, perhaps, such a tough year would have killed off a bunch of firms, but there are plenty of agencies out there now that have been around for 30 or 40 years. They are not going anywhere, and they proved it last year."

Those thoughts are echoed by Steve Schwartz, president and cofounder of Schwartz Communications, one of the largest independent players in the US. "PR agencies turned out to be pretty resilient in my view,

he says. "When an industry is under the kind of stress that this one was last year, you usually see a Darwinian shakeout. That didn't happen, which suggests PR agencies are better managed, better funded and more scalable than anyone ever imagined."

Strength through adversity

It wasn't just a question of survival either; many small firms continued to grow despite the economic blizzard blowing around them (see pp.46-53), and many chiefs felt that PR grew in stature - if not in budgets.

Harris Diamond, CEO of the largest PR agency, Weber Shandwick Worldwide, comments: "We're closer to the top table than we have ever been before, and there are more companies realizing the value of PR to their businesses."

Sloane agrees: "We've never been so valuable to our clients as we were last year. Showing them that we were prepared to stand by them through the tough times - sometimes being forced to take temporary fee cuts to do so - will pay dividends in the long run. Sure there may have been two or three PR pros who put out ill-conceived press releases in the wake of Sept. 11, but there were many thousands who proved their value way beyond anything the clients had expected."

Howard Rubenstein, who founded Rubenstein Associates 48 years ago and still runs it today, was worried that in the aftermath of the terrorist attack young PR pros would feel their field was superfluous. In practice, however, he found that the younger staffers in his firm and other New York agencies took a real - but not boastful - pride in helping the city recovery from the initial impact and economic shockwaves. "So many businesses and sectors relied on the efforts of PR pros in the wake of 9/11,

he comments, "and that proved our value not just to clients but to the young people working in the business."

Even in the battered and much-maligned tech sector there is a feeling that PR has a stronger story to tell and that it will rebound. Corporate communications chiefs and marketing officers in hi-tech firms have a better understanding of what PR can achieve for their businesses, says Maura Fitzgerald, president and CEO of recently acquired Fitzgerald Communications.

Andy Carney, CEO of FitzGerald's acquirer, Brodeur Communications, believes that the converse is true, too - that PR agencies have come away with a better understanding of how to deliver for clients. "We have a better product now and more of a business head on our shoulders,

she explains. "We learned the value of the client relationship."

This is a recurring theme of discussions of the past 12 months among chief executives. Although agencies already knew the importance of client relationships, as Sloane points out, many feel that last year's events served as a reminder that service is still king, and that you can never be too devoted to demonstrating a return on investment for the client.

That simple philosophy got lost in the melee of the late '90s, notes David Kratz, president and CEO of Magnet Communications. "I started in my own apartment and have always had that sense of needing to serve clients and get results, but for a while there we found ourselves coming against, and hearing about, agencies that were talking about firing clients who proved too awkward, or refusing to take clients who didn't have big enough budgets. Particularly in the tech sector there was this incredible hubris. What people learned in 2001 is that you have to approach this business with some humility and great client service. The client is in the driving seat, and it's crucial we don't forget that."

Smaller agencies have simply had to take that lesson on board, says Marco Greenberg, founder of NYPR marketing and communications, a small agency that achieved impressive growth last year. "We managed to grow by picking clients and outservicing them with functions they didn't originally realize we were equipped to handle, like adapting our media training to their sales forces, writing reports and presentations for investors and conducting branding campaigns that other types of agencies might have charged ten times more for. Service is always important, but that was underlined last year."

Trimming the fat

Greenberg also points out that while redundancies have been lamentable for those concerned, they have helped PR agencies that were hiring people who, frankly, were not worth the money they were being paid. As Greenberg puts it: "The upside is not having to grovel for the services of a 26-year-old who demands six figures and can barely write a press release."

While CEOs will not go on the record admitting it, the events of the last year also allowed them to trim the fat - also known as the employees who did not deliver the necessary revenues for the agency or ROI for the client. Although revenue per employee tends to vary wildly from agency to agency depending on the type of work the firm does for its clients and the seniority of its employees, it is still regarded by many as a good measure of any agency's efficiency in using its practitioners.

Last year, the average revenue per employee of the agencies that submitted figures to the Council of PR Firms was $141,878, but this year that amount rose to $166,252. While there are a number of possible explanations for this uptick, it certainly suggests that although earnings may have crumbled, many PR agencies actually worked out how to use their employees more efficiently and possibly even improve their profitability.

While some agencies have always been well managed, experienced CEOs like Kratz and Rubenstein feel that the events of the last year also underscore the importance of paying close attention to spending. "Managers of PR firms became even more serious about superfluous spending,

says Rubenstein.

"Not just attrition, but looking at other outlay such as the cost of leases on their properties."

PR shops were tested to the limit last year, and the majority proved impressively resilient. If they really have, as many claim, invested in staff training, improved their client service and become more focused on achieving measurable change, then the future is bright. Hopefully the testosterone-filled days of pumping up for its own sake have given way to a leaner, meaner era of flexing muscle only when it helps the client.

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