PR agencies face mixed future

Early indications from marketing services holding company group financial reports for 2015 suggest a mixed year for PR agencies - PRWeek is tracking down the essential knowledge you need to plan your 2016 strategy.

Image via  Niuton may / Flickr; Used the Creative Commons Attribution 2.0 Generic license. Cropped and resized from original
Image via Niuton may / Flickr; Used the Creative Commons Attribution 2.0 Generic license. Cropped and resized from original

It is agency holding company results season again as the likes of Omnicom, IPG, and Publicis release their full-year and Q4 numbers for 2015.

WPP is the only major group yet to unveil its data – it always reports last and will do so on March 4.

These releases are the precursor to PRWeek’s Agency Business Report, work on which gets fully underway from now on. If your firm has not yet entered its information, you should get on the case immediately, as the deadline for submissions is next Tuesday, February 23.

It is difficult to draw broad conclusions from the numbers unveiled so far - they are mixed. The strong dollar certainly proved something of a problem in 2015 and negatively affected the impact of currency rates at most large global PR groups.

But it’s fair to say Omnicom had a disappointing Q4 from a PR point of view, with organic revenue down 6.9%, compared to the group’s advertising compatriots, which posted a rise of 12.6%. No matter which way you spin it, that’s a disappointing performance and a massive disparity.

Full-year numbers at the group, which owns agencies including FleishmanHillard, Ketchum, Porter Novelli, and Marina Maher Communications, were slightly better, down 1.4% compared to the previous 12 months. But at a time when the market has supposedly moved significantly toward PR’s specific skill sets, you expect better than that - advertising was up 9.3% in 2015.

Ketchum CEO Rob Flaherty said his firm "outpaced" the overall Omnicom numbers and recorded positive revenue growth for the quarter and full year. Porter Novelli’s CEO Karen van Bergen also said her firm grew in Q4 and 2015 overall.

FleishmanHillard isn’t talking, but the logical conclusion from the other two CEOs’ comments is that Omnicom’s largest PR firm didn’t have the best of times in those accounting periods. Former CEO Dave Senay certainly alluded to that last October, when he said "after a strong first half, when we exceeded plan, the third quarter did not keep pace."

Interpublic Group, home to Weber Shandwick, Golin, and others, performed much better, posting full-year organic revenues up 3.6% and Q4 numbers rising 6.5% in its Constituency Management Group, which houses the two big PR firms.

Weber CEO Andy Polansky told PRWeek the PR firms within CMG achieved high-single-digit organic growth in both accounting periods, and that his own agency achieved double-digit organic growth in 2015 overall, as it did in the preceding 12 months.

FleishmanHillard may point to difficult comparables with a positive 2014 to explain its relatively poor performance in 2015, but Weber managed double-digit growth on top of double-digit growth, so it showed what is possible in the current market. Edelman has yet to reveal its 2015 figures; Publicis doesn’t break out PR numbers.

Golin also made an eye-catching acquisition this week when it bought British creative hot shop Brooklyn Brothers to add to its arsenal. This will add something like $28 million to Golin’s revenues, which are around $125 million, and at an estimated total purchase price of $42.8 million is a major acquisition for IPG’s second-largest agency.

It contains echoes of Weber’s purchase of Swedish creative PR agency Prime in 2014. Both acquired firms are high on creativity and integration and fit well within the PESO model that modern PR agencies espouse. Both have a history of attracting jury members’ attention at Cannes and have won Lions in various categories, not just PR. Both have good relationships with the elusive CMO and marketing community so desired by the big PR outfits.

Of course, business is not just about growing revenues. As WPP head honcho Martin Sorrell is fond of pointing out, you have to also make a profit, otherwise the whole exercise is pointless. But, in general, the biggest firms have to grow constantly to sustain their business models, and this can cause a syndrome of crunching through accounts, work, and people, and rolling on remorselessly regardless, like a large tank.

Using lowly paid account staff churning through accounts that come and go regularly because clients become frustrated with poor service is a common complaint. CCOs are seduced by charismatic leaders who pop up at pitch or review time and occasionally thereafter, but aren’t physically and emotionally connected to the account on a regular basis.

Big firms recognize this, but there is only so much senior counsel to go around when your agency gets into the multiple hundred million dollar bracket for revenues.

Revenue per head in firms that rely on consumer and marketing work is typically much lower than the tariff charged by corporate reputation and financial specialists and more niche consultancies.

PRWeek will shortly be publishing a profile of Mark Penn, who has set up what he claims to be a new style of holding company, called The Stagwell Group. He contends that the existing model is pretty much broken, and that there is scope to build a new operation based on senior consultancy and a strong understanding of the digital world.

His acquisitions so far include DC public affairs and political consulting specialist SKDKnickerbocker, digital creative agency Code & Theory, and movie research firm Nielsen NRG. It will be very interesting to see how this venture works out.

There is a lot to play for and I sense this is a watershed moment for PR agencies and, by extension, the wider industry. To reflect this moment, there is much more analysis to come in the Agency Business Report, which will be published on May 1 and will be more comprehensive and global than ever.

But if the early signs of the 2015 holding company financial results are anything to go by, it will be difficult to draw one fixed conclusion from this year’s numbers, which is just another reason why you will need to pay extremely close attention to the data, analysis, and profiles contained in the upcoming report.

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