Businesses are reining in spending as a confluence of financial crises have battered the global economy. Since marketing budgets are often considered a cost center, ad and PR spend are among the first to experience budget cuts. Many PR agency executives continue to report few shocks to the system, but others in the industry, like executive search firms and brand consultants, believe 2009 will not be an easy year for anyone. Just how bad it will be, though, is still unclear.
Omnicom Group was the first major market services holding company to release Q3 earnings. Omnicom Group EVP and CFO Randall Weisenburger said PR was “experiencing some general softness,” reporting that the company, which includes Fleishman-Hillard, Porter Novelli, and Ketchum, had a 1.2% decrease in PR revenues for Q3, which ended September 30. Year-to-date, though, PR has contributed $962.5 million to Omnicom's overall earnings, a growth of 3.1% from the same period in 2007.
“I think any agency that says things are hunky-dory is living in a fantasy world,” says Bob Feldman, CEO of Feldman & Partners. “Virtually every... area of spending is coming under scrutiny.”
Steve Boehler, founder of Mercer Island Group, a marketing services consulting firm, notes that companies are “cutting or freezing things across the board.”
“The first thing that happens is the budget stays flat, the second thing that happens is budgets get hammered,” Boehler says. “There'll definitely [be] cutbacks in every industry.”
However, Boehler says cuts will depend on the type of company. “A... long-term focused customer like a P&G, I would be shocked if there were significant cuts,” he notes.
Those interviewed said the travel, consumer, b-to-b, retail, financial, and some tech and entertainment practices are likely to be hit, though it might depend on the situation. Digital, though, is expected to continue to thrive.
Dan Orsborn, senior partner of the PR practice at search and resource management firm Select Resources International, points out the “double-edged sword” of work in financial services, where some might have lost clients in the round of bankruptcies and mergers, yet, “there has been some increased business there because they've been in crisis mode.”
Under scrutiny, even clients who are not looking at budget freezes or cuts are nonetheless analyzing the efficacy of their programs.
“We see some companies coming in that want to review some or all of their agencies, [asking], ‘Are [we] getting enough bang for [our] buck?'” Orsborn says.
Boehler points out that big reviews have been down for a while, which will likely continue as companies focus energy on economic issues rather than the “big distraction of review.”
Chastened from the dot-com bust and post-9/11 recession, where some firms were caught off-guard, industry experts say agencies have prepared for a turbulent future this time.
“They've really been preparing for this by pulling back spending, selective layoffs, and choosing better business opportunities,” Orsborn says.
Hiring for communications positions on the agency side is generally flat except for key hires, says Don Spetner, EVP of corporate affairs at Korn/Ferry International. And Karen Bloom, principal at executive search firm Bloom, Gross & Associates, says the PR side of her business is down some because companies are putting off hiring decisions until the new year, when they'll reassess.
Despite uncertainty, experts say there are ways for firms to pursue opportunities.
Boehler recommends taking a proactive stance to seek out new business, rather than waiting for RFPs. And Orsborn adds, “If you've got a client, just do an even more incredible job for them. The big bank companies [and] the big retail companies can't stop marketing. They still have to get out to the consumer.”
Yet, there's no doubt 2009 will not be easy.
“I think PR agencies should be prepared to adapt,” Feldman says. “Inevitably, there'll be some winners and losers.”