Agency Business Report 2008: Poised for challenge

Thanks to the combination of digital work and increased global assignments, PR's recent momentum continued in 2007. However, economic uncertainties cloud the future.

Thanks to the combination of digital work and increased global assignments, PR's recent momentum continued in 2007. However, economic uncertainties cloud the future.

Many agencies submitting rankings to PRWeek reported healthy double-digit increases, and some holding-company firms that declined to report revenues because of their interpretation of Sarbanes-Oxley likewise intimated very successful years.

Both general interest agencies and specialty shops reported successful years, bolstering the argument that PR is making strides in multiple industries. Agency CEOs tended to attribute these gains to an elevated perception of the discipline among CEOs, and to the opportunities garnered from the explosion of digital media.

Edelman CEO Richard Edelman said that his agency had a banner year: $262.8 million in US revenues, which represents a 21.6% increase from 2006. Digital media, CSR, and the agency's global work are the reasons behind that growth, he explained.

"We did well for [a couple of] reasons: we were very early in understanding the potential for digital," Edelman says. "People say, 'They really get that.' We're [also] no longer seen as just a marketing PR firm. We're seen as providing global work, corporate [strategy]."

Edelman points out that the PR discipline is the best marketing function to handle the digital realm. "The trend of multiple voices in media, [message] dispersion, and less belief in ads - [these] are all trends playing in our favor," Edelman says.

Hill & Knowlton CEO Paul Taaffe says that digital has elevated the entire industry, while admitting it's difficult today to know where "digital" ends and "traditional PR" begins.

"Digital [opportunities] in consumer marketing has led to PR agencies having far more dialogue with CMOs than [just] the heads of PR," Taaffe says, adding that digital is the fastest-growing practice at his agency.

"In public affairs, there have been a lot of advocacy initiatives that are shifting more resources to new media," says Qorvis principal Michael Petruzzello. Qorvis ran a successful new-media campaign in 2007 called Save Net Radio. "Clients are still trying to get their arms around how new media can play a new role."

Kaplow PR CEO Liz Kaplow, meanwhile, attributes the boon to the industry's heightened status in the eyes of CMOs.

"More and more, CMOs are smartly managing integrated marketing campaigns, and bringing us [in] early on in the campaigns, and using PR to elevate their programs," says Kaplow. "Three to five years ago, you would not see CMOs so involved in the PR process. In many cases, PR is leading the charge; we've expanded our offerings into the
new-media space."

Kaplow's global revenue, which includes the US, grew 23% to $10.35 million. The company also launched K:Drive in 2007, a service group focusing on new media.

"Everyone is trying to figure out how the changes in the media industry are going to affect [their clients]," says Caryn Marooney, partner and cofounder of OutCast Communications. "That is allowing an elevation of [the field, of] sorts. It's certainly not boring."

Jim Weiss, chairman and CEO of WeissComm Partners, which grew 74%, attributed his firm's success to his agency's management of resources.

"I don't do timesheets, except for the companies that say, 'We want to see your time," Weiss says. "I feel, theoretically, everyone should be billable. If you're not, then what are you doing here?"

Global opportunities
Global firms say that a significant portion of their growth now comes from multinationals tasking them with more work in multiple countries - beyond the work they initially may have been hired to do in the US.

While Hill & Knowlton did not disclose actual revenues, it did say that its US revenues were between $50 million and $100 million, while its global revenues were between $300 million and $400 million.

Taaffe says H&K's 2007 success drew, partially, from an "awful number of crisis and regulatory issues around the world."

"As the US dollar decline[s], foreign multinationals are expanding around the world," Taaffe says. "The US will become a cheap asset for international companies and funds. For those US agencies that have relationships with those agencies, that's an opportunity."

Qorvis gets about 20% of its revenue from overseas clients, including Saudi Arabia, which generates millions of dollars a year in revenue. Qorvis reported a number of new international clients, such as the government of Cyprus.

"International clients recognize the value and the necessity of PR and public affairs," he says, referring to how the market has changed after the Dubai Ports issue. "The world is getting smaller. International clients are seeing the need to have more modern, [US]-style PR and public affairs."

In January 2008, Edelman acquired Imageland Russia. At the same time, it purchased a 50% stake in Imageland Ukraine. Imageland Russia recorded more than $6 million in revenue in 2007.

"You have half a dozen truly global firms that are benefiting from the globalization of our clients," Edelman says.

However, Edelman cautioned that despite global expansion, the firm was still drawing more revenue from the domestic market.

"For us, the US is better than 60% of our fees, so the US has to be healthy for us to be successful," Edelman says, while adding that the agency continues to diversify its portfolio.

Economic uncertainty
Agency CEOs are cautious, but optimistic about the economic uncertainty on the horizon.

From agency CEOs to account supervisors, all those queried have reported being as busy as ever. The recession - if it's about to come or is already upon us -does make some agency bosses a little cautious, but they're not planning to go into retrenchment mode anytime soon.

"We do expect a more conservative growth across the board in the industry," Kaplow says. "With that said, in a tough economy, CMOs want value, so the industry needs to talk to the CMOs about the value of PR."

"We're being careful about things like raises and hires, but we're moving ahead," Edelman says. "We just bought a firm in Russia; we're more cautious, but we're going to keep trying to grow."

That's not to say that PR pros aren't cognizant of the risks.

"I don't believe that PR budgets will be the last to go; most of the PR industry is operating on a 30-day cycle," meaning clients can trim a budget in 30 days, Taaffe says. "If a majority of clients cut spending 10%," that's going to have significant effect on any agency.

"I am hopeful that we don't have a repeat of 2001 to 2003, which was bad for the business. PR firms were very industry-centric. I'm hopeful we're more diversified and better placed. I think the economy is still uncertain," says Edelman, adding that 2008 was unlikely to be as prosperous as last year.

Of course, it's understood that economic downturns will always affect different industries - and, therefore, agencies - differently.

Technology-specialist agencies are also cautious, given the effect that the last downturn had on their operations.

"You need to watch for signs and adjust, but if you live in fear, you're not going to be successful," says Marooney.

Marooney says a colleague at a startup firm conveyed to her that he's afraid to hire employees ahead of the curve - due to his experience getting burned after the tech bubble burst in 2001.

"You need to grow, to change, and to service your business," she adds. "You can't be held captive to what may happen."

Even though most sectors are becoming cautious, a recession may be a bit of a boon for the public affairs industry.

"Our business is a bit different - because we straddle the fence of PR and public affairs," Petruzzello says. "We haven't seen any impact of the potential downturn. We're about to finish the best first quarter in our company's history. The second half of the year still holds unknowns, but we're bullish on a strong first half."

"When the economy dips, Congress gets more active," he adds. "In a recession, the public affairs business tends to grow even faster - not that Washington is totally recession-proof."

Learning from the youth
What's most remarkable about the industry today is the constant changes brought by digital media and the rise and obsolescence of communications channels.

Edelman is one of many agencies that have created an internal think tank to educate its staff on digital developments.

Kaplow says that training has never been more important.

"Understanding this as you go is so important," Kaplow emphasizes. "You train one day on one thing and you have to keep evolving with it."

While the agency is obviously tasked with educating its employees, Kaplow points out that sometimes it's the employees who are the teachers.

"Millennials have a superb understanding of [the digital realm]," Kaplow says. "Sometimes the training is from the ground up."

Agency CEOs expressed how the industry was facing exciting - and opportunistic - times. Taaffe says that the industry needs to prove its value if it is able to garner a seat at the proverbial C-suite table.

"The people practicing PR have to be more effective... and continue to morph to where the value is," Taaffe says. "Any PR firm that now feels they're a category leader, and not make any changes to their business" is making a big mistake.

"The more you connect to sales, metrics, or anything you can measure, the more value you will provide and the more you will have a place at the table," Taaffe adds.

OutCast's Marooney adds that the opportunity is not only in elevating the PR function, but also in reinventing how PR pros view their jobs.

The industry "is vibrant, exciting, and [constantly] changing," Marooney says. "Our industry is embracing the change. It will be an other, different job in 10 to 20 years. If I were still just stuffing press kits, I couldn't do it."

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