In my seven years as editor-in-chief of PRWeek I’ve never been able to report that Edelman underperformed against both Interpublic and Omnicom groups’ PR revenue growth percentage in any calendar year.
But figures released over the past couple of weeks show that is exactly what happened in 2016, with Edelman’s organic growth stalling at 1.7%.
Edelman is the largest PR firm in the world and is an undoubted bellwether for the industry. It has been on a seemingly unstoppable upward trajectory in the past six years toward hitting the magic and elusive $1 billion annual revenue milestone – posting respective organic growth of 7.2%, 8.2%, 11.4%, 9.6%, 9.8%, and 18.1% in 2010.
Interpublic Group’s Constituency Management Group, which houses its PR firms including Weber Shandwick and Golin, endured a weak Q4 but was up 3.6% in 2016 to $1.5 billion - Weber CEO Andy Polansky said his firm and sister shop Golin actually grew organically by mid-single-digits in the full calendar year.
Omnicom’s PR firms, which include FleishmanHillard, Ketchum, and Porter Novelli, had a very strong Q4 and posted organic full-year revenue growth of 2.8% in 2016, to $1.4 billion, admittedly against much weaker comparables than Edelman (Omnicom PR was down 1.4% in 2014.)
Edelman hasn’t posted such a small growth number since the dark days of 2009 following the global financial crisis, when the independent PR behemoth grew less than 1%. And it doesn’t have to service a holding company parent, so in theory its operational burden should be lower and diktat to achieve high profit margins less restrictive in terms of winning new business.
Don’t get me wrong, Edelman remains a gold standard for the industry, and growth of 1.7% still represents a revenue increase of $21 million in one calendar year, which many mid-sized firms would be delighted to post as a total annual tally.
But it certainly provides pause for thought.
President and CEO Richard Edelman dubbed 2016 a "transition year" and attributed the slowdown to a number of factors, including clients becoming more cautious and cutting spend or deferring budgets due to cost pressures, especially in the U.S., which accounts for 60% of the firm’s revenues.
According to Edelman, clients are taking more services in-house to achieve those savings, including corporate reputation, public affairs, and, especially, digital community management.
He noted that, in the last two years, the amount of billings at his Edelman Digital arm attributed to digital community management had fallen from 90% of its revenue to just 20% - a stunning trend. He said Edelman has evolved that business to encompass digital customer service, video influencer work, paid media, and digital consulting to bridge the gap.
Healthcare and pharma spend was also down, mainly due to fewer new drug introductions and approvals.
It may have been a tighter year, but Edelman remains fully committed to the "five year" journey toward communications marketing on which he has set his firm. This often involves a migration at the agency from providing comms services to the CCO to delivering more marketing-focused services to CMOs, brand managers, and marketing departments.
The world’s most high-profile PR agency executive said his firm had started 2017 on a much firmer footing and that growth in Q1 was set to hit 5% - he is optimistic about 2017 as a whole.
As PRWeek prepares to embark on our annual Agency Business Report, it’s one of many indicators that the PR services sector continues to be in a state of continuing evolution, revolution, and flux.
Just yesterday, Ogilvy put more meat on the bones of its decision to consolidate all agencies under one P&L, including its PR function.
Ogilvy PR is no more – the services formerly in that bucket now lie in a "PR and influence" domain led worldwide by former Ogilvy PR global CEO Stuart Smith and in the U.S. by former Ogilvy PR Chicago MD Michele Anderson.
On the health side, Kate Cronin, formerly global MD of Ogilvy PR’s healthcare practice, will now lead the Ogilvy USA health and wellness practice in partnership with the newly formed WPP Health & Wellness offering, the first time WPP has used its holding company brand to label a unit in what WPP CEO Martin Sorrell calls the "next evolution of horizontality".
In last year’s Agency Business Report, Smith said 45% of Ogilvy PR’s U.S. business in 2015 was healthcare-related – it is not yet clear in which part of the new Ogilvy and WPP matrices these revenues will now reside.
Meanwhile, over at Publicis, Arthur Sadoun prepares to assume the top leadership role from agency icon Maurice Levy.
Sadoun has already played a key role in Publicis’ restructuring into four "solutions hubs," aimed at fostering integration, with PR agency MSLGroup located alongside its sister advertising firms in a Publicis Communications hub.
The danger in all this is that PR once again becomes marginalized and returns to its role of having a few minutes at the end of the presentation after the rampant egos and big swinging dicks of the creative and media agencies have done their stuff.
Given all these developments and more, this year’s Agency Business Report is going to make more compelling reading than ever.
Edelman says his firm is "half way across the river" in terms of being a true communications marketing firm – let’s hope others in the PR agency sector don’t get stuck up a creek without a paddle.