Steve Barrett on PR: Sky’s the limit for PR within agency holding companies

As the U.S. contemplates the next administration, recent Q3 financials show PR performing relatively well and holding companies targeting aggressive real estate realignments to reflect future working models.

WPP's campus-style agency office arrangements in lower Manhattan will accommodate more flexible working environments.

This was a big week of Q3 financial results on the marketing services holding company front and also the major tech and social media platforms.

Having buckled up for a tough ride ahead when COVID-19 struck, Omnicom and WPP’s results showed encouraging signs for their PR segments, with the former reporting an organic revenue decline of 3.4% year over year in Q3 and the latter sliding 2.9%.

Nobody’s going to get too excited by revenue declines, but in the context of this extraordinary year these performances are a cause for quiet satisfaction, if not celebration. And they outperformed the other business units in their companies as well as the overall numbers.

WPP praised PR for being the company’s “strongest performer,” fueled by ongoing demand for strategic comms advice, and gave a shout-out to BCW and Hill+Knowlton Strategies for “recovering well” in the quarter. It also helpfully renewed and extended its $600 million global relationship with Walgreens Boots Alliance late on the eve of the Q3 results announcement.

Omnicom’s PR numbers always prosper in election years due to the bump it receives in revenues from its FleishmanHillard-owned media planning and buying shop GMMB, which specializes in political advertising. It also won new assignments with J&J Pharma, New Pen Medical Center and KKI Pharma in the period.

Financial reports are not all about revenue, however, and the John Wren-helmed holding company also did well on the profit front, so the former accountant’s remorseless focus on margins is paying off on that front.

All of the holding companies also benefited from a decline in costs, with the lockdown cutting back on T&E considerably and the running costs of empty buildings shrinking due to lower heating, lighting, power, cleaning and catering expenses.

CEO Mark Read said his company is “on track to achieve cost savings towards the upper end of our £700-800 million target.” Of course, WPP also said goodbye to 5,000 people in response to COVID-19.

Indeed, both Omnicom and WPP made it very clear that a fundamental reassessment of their real estate strategies is underway and there will be big moves on this front in Q4.

WPP stated that it will cut offices by up to 20% as elements of remote working will continue after COVID-19 finally goes away. CFO John Rogers said: “The way we use our space moving forward is going to change. It’s going to be much more collaborative, as opposed to people sitting at desks answering emails, which they can do as easily at home as they can at the office.”

Hence, the holding company “won’t expect people to be in the office five days a week, but it won’t be zero either – it will be somewhere in between.” It noted that its strategy of grouping firms in campus-style communities such as One World Trade Center in New York and Sea Containers in London would be conducive to this new property strategy.

This week also saw a first indication of a reversing of former CEO John Seifert’s One Ogilvy strategy at the iconic agency. Kate Cronin was appointed CEO of Ogilvy Health to lead the firm’s global capabilities in this area, including PR and influence. A new global lead for the PR segment is being recruited and it seems grouping activities in terms of disciplines is back in fashion at Ogilvy HQ.

Interpublic Group also had a busy week, finally unveiling its rebranding of the anodynely named Constituency Management Group segment, which includes most of its PR firms, to IPG Dxtra – a derivation of the Latin word for skillful and adroit with big nods toward diversity and difference and the ability to do more (or extra) by working together across agencies and disciplines.

Anchored around five umbrella brands – Weber Shandwick, Golin, Octagon, Jack Morton and FutureBrand – the 28-agency, 7,000 person collective is already working together effectively to bring in business such as Micron Technology, a PR and marketing account led by an IPG consortium headed by Golin.

Led by CEO Andy Polansky, Dxtra already feels like a much more productive holding company construct than, for example, Omnicom PR Group, which still seems to be searching for a fundamental function and mission. A new OPRG CEO is apparently finally imminent and perhaps that will give the unit renewed focus.

While IPG’s PR firms Weber, Golin and Current have been on a new business tear recently, Q3 revenues released last week were down in the mid-single digits according to Polansky, so slightly underperforming their rivals at Omnicom and WPP.

With a new CEO transition from Michael Roth to Philippe Krakowsy imminent IPG is also seriously reviewing its property portfolio and plans to take “additional actions” in Q4. It took 500,000 sq. ft. out of its real estate footprint in Q and office and other direct expenses decreased from 17.8% to 15.8%, $60 million less than a year ago, about half due to a “sharp decline” in T&E.

Roth stated that “the majority of our fourth quarter actions will be related to real estate.” Adding that “we have probably more client consultations than we ever had before” but that “we don’t get on airplanes to have these meetings.”

Echoing WPP’s Read’s comments, Roth added: “The office will remain a very important place, but there are definitely some key learnings and we can have more hybrid models. We’re really encouraging our agencies to take advantage of that opportunity and looking at exiting some leases.”

Despite the relatively encouraging holding company numbers, especially in the PR segments - which to be fair typically only make up around 10% of overall revenues - the markets remain unconvinced as to the potential of the marketing services sector.

All five major groups (WPP, Omnicom, Interpublic, Publicis and Dentsu) are performing tepidly on the exchanges and just don’t seem to be capturing the imagination of analysts and stock buyers.

The street is not yet completely clear as to the direction in which the holding companies are heading.

But, from a PR, reputation and influence advocacy point of view, as the country surveys a post-election landscape next week there will be strong demand for high-level and effective communications and advocacy counsel as brands, companies and organizations work out how to most effectively engage with the new administration.

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