Paul Maccabee often bumps into other PR firm owners when he works
out at his local gym. They usually exchange pleasantries without getting
into too much nitty-gritty business talk. But a recent mid-workout
conversation with the boss of another Twin Cities firm took Maccabee
completely by surprise.
While both headed for the stair machines, Maccabee, head of The Maccabee
Group, asked his competitor how business was. At first, he got the
standard response: "Great, just great." But then, says Maccabee, "we
both paused and he said, 'Oh God, it's been tough.'"
Indeed, for the majority of Minnesota PR shops, 2001 will go down as the
most difficult year in the past decade. At most of the major agencies,
revenues range from flat to down. The Minneapolis office of Weber
Shandwick Worldwide, by far the biggest local player, reported $22.2 million in income for 2000, but will come in at only $19.5
million this year.
"There's a general conservatism across the board with budgets," explains
Sara Gavin, president of WSW Minneapolis. "Clients are spending
carefully this year, and they need their dollars to count." The PR staff
at the office has fallen accordingly, from 180 last year to 114
today.
Number-two shop Padilla Speer Beardsley has also been feeling the
effects of "a tough year." CEO Lynn Casey is expecting low single-digit
growth, compared to a 24% gain last year and average growth of 19% over
the past five years. IR work from public offerings disappeared as
companies postponed or cancelled their IPOs. "This year, there were none
(in the Minnesota market)," says Casey. "I can't remember when that has
happened."
The St. Paul-based agency has been trying to reduce staff through
attrition rather than layoffs, she says. It's also taken on more
pro-bono work to keep the staff busy. "The majority of our clients are
paring back their budgets," says Casey. "Just about everything is being
pared back."
So much so, that many firms are satisfied with just matching last year's
revenues. Carmichael Lynch Spong, the fourth-largest PR operation in the
Twin Cities, is typical of this outlook. "Our attitude this year is flat
and happy," says managing partner Doug Spong. While revenues were up 2%
in the first half of the year, the office will end 2001 at about the
same $6.5 million in revenues it reported last year. The agency
has cut staff from 45 to 40, but like Padilla and most sizeable
Minnesota shops this year, reducing staff through attrition has been the
rule.
Fallout from the technology sector has also taken its toll, of
course.
At one time, Fleishman-Hillard's local office did 20% of its business in
tech accounts. "It's obviously been difficult for some of our clients
and, in a way, for us," says general manager Frank Parisi. He hopes to
see revenues up slightly from last year, thanks primarily to increased
work with food company Hormel.
The Garrity Group also grew in the seven years since its founding by
going after technology clients. As tech cooled, "this was probably one
of the most challenging years I've seen," says founder Ann Garrity.
Revenues this year will be $635,000, compared with $660,000 last year - a 5.3% drop.
Most firms, it seems, are preparing for a bleak winter. "If anyone says
they're doing just great this year, I don't know if I'd believe them,"
says Glenn Karwoski, SVP and managing director with Karwoski & Courage
Public Relations. Revenues for his shop will be down about 10% this year
to $3 million, but he says he'll still be profitable. "We have
not lost any clients, but almost across the board, everyone is spending
less."
Little guys showing strength
Smaller firms have fared a little better, however, with many managing to
stay even with 2000 revenues by going after small project work.
New School Communications, a $750,000 13-person shop, has seen
its revenues grow 50% this year as it works with such clients as the
National Institute on Media and the Family, producing that group's
annual video game report card. It also recently won an 18-month, $200,000 project with Metro Transit, a government agency that oversees
the mass-transit system in the Twin Cities area.
Maccabee expects his revenues to be within 10% of last year's, and is
still planning to give out bonuses. But his nine-person shop is also
stepping up new business development, and meeting with ad and
promotional agencies to see if they need PR help. "We're plugging deeper
into our network than ever before," he says. Expenses are also being
cut: "Every single outside expense that we would normally rubber stamp,
we're looking at," he says.
A couple of market sectors are providing real bright spots on the
Minnesota PR landscape. Public affairs is one. Himle Horner expects
revenues to climb 30% this year compared to 2000, thanks mainly to its
public affairs work. And with guber-natorial elections next year,
principal Tom Horner expects the demand for public affairs help to
escalate.
Healthcare has been another bright spot. However, a controversy earlier
this year involving PR firm GCI Tunheim and a major local healthcare
provider (the state attorney general questioned the fees that were paid
to the agency) could make healthcare executives think twice about using
outside public affairs help. But Kathy Tunheim, who sold her firm to GCI
earlier this year, insists the incident didn't hurt business. She
expects revenues to be 5%-10% ahead of last year's $6.5 million.
And she doesn't think the flap discouraged other firms from taking on PR
counsel. "There will always be controversy around the marketing of
healthcare," she says.
But others aren't so sure the incident hasn't had market
repercussions.
"The industry here was stunned when that story broke," says one local PR
person, who asked not to be identified. "Every PR agency was buzzing
about, asking, 'What does this mean for PR in this community?'"
Adds Horner, "Frankly, I think it's still in the back of a lot of
people's minds. It's going to be there for a while."
Sectors left out in the cold
Other sectors haven't fared well. The food and financial services
industries have long been mainstays of the Minneapolis PR scene, but
this year, even clients in those sectors have taken a careful look at PR
spending. The events of September 11, for many, triggered decisions to
postpone projects originally planned for the fourth quarter into next
year.
"We really haven't cancelled anything; we just postponed," says Kim
Olson, director of brand public relations at food giant General
Mills.
One major promotion scheduled for the second half of September has been
pushed back to next year, for example. "We're trying as much as we can
to go back to the (PR) basics," she says. That means talking about
family and basic needs that General Mills' food products address. With
media focused on the aftermath of September 11, hopes of getting
significant media play for new products has been scaled back. "We're
certainly setting expectations differently," she says.
The Minnesota PR world is waiting to see how the recently approved
merger of General Mills and neighbor Pillsbury will impact PR spending
by the combined company, as both have long used a variety of agencies
for branding work. However, Olson says it's too early to discuss the
merger's impact on PR usage.
The tough time ahead
As long as clients keep pushing back projects, agencies will continue to
have a tough time. And that's translating into the Minnesota PR job
market where salaries are falling and experienced people are willing to
work below their skill levels.
"Two years ago, you couldn't find good people," says Riff Yeager, SVP
and director of PR with Colle & McVoy. "Right now, there are very good
people looking for work." That has translated into lower salary requests
as well.
"We're getting people saying, 'here's my salary request, but I know
that's out of whack now,'" says Beth LaBreche, a partner at LaBreche
Murray Public Relations. Her firm expects revenues to be flat this year
at $1.9 million. Echoing the situation at most local firms, she
adds, "We haven't lost a lot of clients; there's just a lot that have
gone dormant."
LaBreche has started offering a series of fixed-rate PR services, hoping
that will appeal to clients worrying about controlling costs. She's also
seen clients ask to move from a monthly retainer arrangement to a
project arrangement, even though they often end up spending about the
same. "It's just a mindset," she says.
Maybe, but it's a mindset that could spell a rough 2002 in the world of
Minnesota PR.
MINNESOTA PR AGENCIES
Rank Firm Name Revenue (dollars ) Increase Staff Location
2000 2000 (%)
1 Weber Shandwick Worldwide 22,389,000 33 241 Minneapolis
2 Padilla Speer Beardsley 9,281,426 28 83 St. Paul
3 Tunheim Group 6,547,691 30 63 Minneapolis
4 Carmichael Lynch Spong 6,465,562 31 43 Minneapolis
5 Fleishman-Hillard 6,450,000 47 36 Minneapolis
6 Morgan & Myers 2,949,353 17 20 Minneapolis
7 Goff & Howard 2,240,610 4 15 St. Paul
8 PR21 413,716 536 N/A St. Paul
9 Connors Communications 90,664 -89 3 Minneapolis
Source: Council of PR Firms Auditing: No audit was required for
inclusion in the rankings. The CEO/CFO/principal was required to sign a
statement verifying the accuracy of the data and agreeing to possible
participation in a random audit Disclaimer: While every effort has been
made to ensure the accuracy of these figures, PRWeek cannot accept
liability for, nor make financial guarantees based upon the information
in this chart.
