2008 Brought Brutal Cuts To Ad Firms, PR Agencies

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Last year was devastating for the ad business nationwide, and Los Angeles didn’t escape the carnage.

The Business Journal’s annual list of the 20 largest ad agencies shows seven had shrinking revenues and two registered zero growth. Although 11 agencies reported higher billings, the gains were small compared with the losses at other agencies. As a group, the top 20 agencies reported a $15 million decrease in revenues.

Agencies shed jobs with the idea that they won’t be rehiring anytime soon.

“We have let people go because the only way an agency can save money is by reducing personnel,” said Gerald Bagg, chief executive at Quigley-Simpson, the No. 4 agency on the list.

At L.A.’s largest local agency, the downturn is seen as a long-term condition.

“We are in a prolonged recession and even when things turn around, we expect a gradual uptick, not a surge,” said Bill Hagelstein, chief executive at RPA Inc., the largest local agency with billings of $1.4 billion. “We have reduced our headcount slightly.”

Bagg cautioned that even people who remain in advertising will have to work for less money to stay in the game.

“We see people today who are working for a fraction of what they earned just a few years ago,” he said.

Down-pricing isn’t limited to job-seekers. Media outlets that rely on advertising dollars also face a future of reduced cash flow.

Advertisers and their agencies simply won’t pay the same price to reach consumers as they would have a year ago, Bagg explained, because of the shrinking economy and competition. Fewer advertisers want to buy TV time or print space, so over time the price must come down.

Nationally, advertising expenditures declined 2.6 percent in 2008 versus the previous year, according to data from the Nielsen Co. Robert Coen, a well-known forecaster at New York research firm Magna, predicts a 4.5 percent decline in 2009.

The biggest issue for L.A. agencies is dealing with clients who have dramatically reduced their ad spending. The cutbacks are in the sectors hardest hit by the downturn: automotive, tourism and real estate.

At the same time, agencies report a shift in media spending away from traditional media toward direct-response ads and the Internet, which don’t cost as much as print and TV. New media also provides better metrics for advertising effectiveness.

“Clients in general are looking for more value in their marketing and more scientific data to validate their decisions. Digital, and particularly search engine marketing, fit the bill,” said RPA’s Hagelstein.

The shift benefits agencies with the right expertise. For example, Wongdoody, a digital ad agency in Culver City that ranks No. 8 on the list, reported revenue growth of $43 million, or 29 percent, in 2008. Inter/Media Advertising, an Encino firm that buys TV time for direct-response campaigns, increased billings by $50 million last year.

But the shift away from traditional media works against so-called conglomerate agencies, which have divisions that specialize in every niche of marketing and media, but still derive most of their income from TV and print.

“The economy will challenge agencies to make good on that claim of being a true one-stop shop,” said Marlene Morris Towns, professor of clinical marketing at the USC Marshall School of Business. “Marketers want more nontraditional ways to promote their brand.”

Most big brands have a main agency, a multicultural agency, a digital agency and a few boutique specialists, said Towns. “It would be to the big agencies’ best advantage to offer those services in-house.”


Public Relations

The Business Journal’s annual list of public relations agencies shows a gain in overall revenues of $10.5 million, a much better performance than the ad shops.

But all is not well in PR land.

“A lot of people in the business are hurting. They’re making less money and taking project work that they usually wouldn’t touch,” said Bob Shea, president of PR for PR, a Studio City company that finds clients for public relations firms.

Barbara Casey Sayre, chief executive of Casey & Sayre, No. 14 on the list, said she was spared from having to fire employees because natural attrition reduced her work force by four. The agency now has 10 PR professionals. Although she isn’t hiring, Casey Sayre has been approached by a “significant number” of former corporate PR people who are looking for work.

As for 2009, “it will be a slow-growth year,” she said, “but it’s not looking as severe as I thought even a few months ago.”

“In auto, travel, retail, real estate and in general, companies are taking a wait-and-see attitude,” said Shea. “In terms of landing clients, you can lead them up to the 5-yard line, but you can’t get them across the goal line. They won’t spend the money.”

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