As the economy slips downhill, advertising budgets will tighten. But companies will still want to get the word out to keep their products in the mind of clients, so spending on public relations will rise.

That's how insiders view the outlook for these sectors in the context of total billings for 2007, as compiled by the Business Journal on this week's lists of L.A.'s largest advertising and public relations firms (pages 23-25).

Billings for advertising agencies rose collectively by 3.9 percent in 2007. Some agencies reported stunning growth.

Quigley-Simpson, which ranks fourth among ad agencies, grew 61 percent last year, followed by InterTrend Communications, which grew 42 percent. In dollar terms, Quigley-Simpson grew by $107 million and Rubin Postaer & Associates, the largest ad agency in the county with more than $1.14 billion in billings, grew by $98.7 million.

But those gains already seem like ancient history, given today's housing slump and grim news about jobs, inflation and currency fluctuations.

"We're in a downturn now," said Gerald Bagg, chief executive at Quigley-Simpson. "There's a ripple effect that will touch everyone financially. We're helping clients trim budgets prudently, reallocate resources, use alternative media, re-purpose and change creative approaches all with a view to maintaining share of voice at lower expenditures."

Bill Hagelstein, chief operating officer at Rubin Postaer, hasn't seen the cuts happening yet, but he expects a rough year for his big-ticket clients, which include Honda, Acura and a number of regional dealership associations.

"Certainly in the auto category, the market is predicted to go down and supply will exceed demand," Hagelstein explained. "Some clients are putting money into incentives rather than advertising. For quite some time there has been a heavy dose of price-related advertising, from cash-backs to aggressive lease arrangements."

Seeing Opportunity

On the public relations side, agency leaders see the economic slowdown as an opportunity, based on the idea that PR is more cost-effective than advertising so companies use it more when budgets are limited.

"If I used to spend $10 million on TV, and now I only have $1 million, I can't get much exposure on TV, but that money will buy a big PR campaign," said Lynn Doll, president at the Rogers Group in Century City.

"PR has captured more of marketers' interest in reaching consumers because it can be so targeted," said Gail Becker, regional president for Edelman. "The pending recession exacerbates it, but the trend started long before softening of the economy."

Becker has noticed a pullback in spending by consumer goods companies, but in general she remains positive for 2008. To accommodate growth, her agency plans to move to a much larger space on Wilshire Boulevard in the Miracle Mile area.

Agency managers agreed that with the rise of the Web 2.0 sector, digital marketing offers the biggest opportunity of the current year.

"We see a continuation of experimentation in the online space, both in gradual percentage increases of budgets and in trying new things," said Hagelstein.

Online Challenge

Online assignments pose a challenge to agencies because the work demands cross-discipline teams that can deal with campaigns across various media. That's a change from the way traditional ad shops have been organized.

"One reason PR agencies are getting so much work in the digital space is because we know how to put messages in context and communicate through third parties," said Doll of the Rogers Group. "We've done it for years with the news media, and now through bloggers and social networks. It's the most exciting part of our business."

An example of a remarkable new media property is Hulu.com.

Edelman landed the high profile PR account for the site, which allows consumers to watch episodes of more than 250 TV shows. It's a new frontier in the advertising world.

The Hulu account exemplifies the potential of L.A.'s new media market

"You have traditional media companies leading the way with new technology and service," said Becker at Edelman.

Social networking sites are a key prospect. The popularity of MySpace and Facebook has spawned specialized versions, such as LinkedIn for professionals and Quepasa.com for Latinos.

Television should see a strong year for ad spending but it might be the last hurrah.

"We have the presidential and other elections, plus the Olympics, both of which are going to prop up media spending," according to Bagg at Quigley-Simpson. "This is likely to mask the reality of the downturn in media expenditures at least through early November. The last two months of the year will also be relatively strong as advertisers spend to generate sales during the holiday season. It's in early 2009 that we'll see the first major fallout in spending in the TV space."

Print advertising is also expected to continue a downward trend.

"Newspaper advertising will see the biggest decline," Bagg said, "due to the continuing drop off in circulation, and to the fact that many advertisers have already begun to divert their dollars to the new electronic media space."

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