The good vibes just keep on coming where the digital sector is concerned. Last week, figures produced for the Interactive Advertising Bureau by PricewaterhouseCoopers showed that online spend reached a record £151.6 million in the first half of 2003: a year-on-year growth of 85 per cent. The IAB is now predicting that online advertising for the full year of 2003 will top £300 million for the first time. It will thus account for 2 per cent of UK display advertising revenue, almost double the share held by cinema.
But that's not all. There seems to be good news on the spending side of the balance sheet, too. A report from the consultancy Financial Intelligence, assessing financial performance at the UK's top 25 new-media agencies, suggests that the sector is managing to get a grip on costs - and for costs, read salaries. After all this is, as the cliche has it, a people business.
It's not all good news though. The report highlights the fact that, even two years on from the madness of 2000 (by and large, the report is compiled from Companies House data pertinent to 2002), some agencies still don't appear to have got their heads around the notion of good housekeeping.
Appear is the operative word here, though. Different companies obviously have different accounting practices and, when the digital outfits concerned are parts of larger entities, the waters become even more muddied. In fact, the report has thoroughly irritated many of the agencies it covers.
"These numbers are at best dated," one chief executive says. "For instance, it refers to numbers relevant to companies' financial years rather than calendar years, so many of the figures are relevant to 2001 and are not reflective of what is happening now."
Others point to the fact that some advertising holding companies levy management services charges on companies in their groups. This can distort the balance-sheet picture.
It certainly makes it harder to compare the performances of independently owned agencies with those of holding company subsidiaries.
Which is, of course, exactly what the Financial Intelligence report attempts to do. Bob Willott, the editor of Marketing Services Financial Intelligence, is unapologetic about this, saying that "a sensible approach" has been taken in tweaking the figures to allow like- for-like comparisons to be made.
Still, the managers of Arnold Interactive will not be happy to read the report's conclusion that 108 per cent of its revenues are blown on wages.
If strictly true, that puts it up there with some Premier League football clubs in terms of generosity towards employees. "Nine of the 25 agencies spent more than 75 per cent of their income on staff, virtually guaranteeing there would be no profits afterwards," the report states.
But, by and large, there has been an encouraging determination to keep the ratio of staff costs to revenue within more sensible bounds. Not before time, some would say.
Brad Fairhead, the managing partner at the WPP agency Outrider, says that within the big advertising groups, the problem in the past was often structural: "Some agency groups didn't expect their digital operations to be profitable, so people used them as a dumping ground for costs. They'd do a pitch and take on business at a certain percentage (commission), forgetting that this has to cover internet as well. So that would have to be run at a loss. In the broad scheme of things, it may not seem a bad loss but when you extract the digital figures and look at them alone it doesn't look very good. If you believe that digital should be profitable, then you will set it up with its own profit and loss."
So are the big agency groups most at fault? Perhaps. But the reverse isn't necessarily true - being in a big group doesn't guarantee bad management.
Daniele Fiandaca, the chief operating officer of the independent agency Profero, argues that salaries across the industry are still far too high. "There's nothing that surprising in this report, but some of its conclusions are slightly misleading when it comes to wages. The business is certainly well managed in that respect compared with where it was. But I still think when you look at the sector in general, they are still high. There are still remnants of the wage inflation of 2000 left in the system," he says.
But he does grab this opportunity to fly a flag for the independent sector.
"Some agencies - and they are mainly the independent ones - were never able to pick up that sort of tab. Our first thought had to be about stability and we never had the luxury of chucking money about," he says.
Others, though, imply that the report is blinkered. Ajaz Ahmed, the chairman of AKQA, states: "As in all sectors, some companies will have stronger financial planning and management disciplines than other firms. A lot of this is to do with the focus of the business and their long-term plan. It often makes more sense for a business to be investing in the short term so that it is creating a stronger company or building a network for the long term. Every agency, especially in digital, needs to invest in the work, the people and the technology. The best-run companies will have management metrics that are goals and important for them and these can be compared with the wider services sector."
The big question now, though, is about the upturn and the continued revenue growth that is forecast for the sector. That alone is going to help undo all the good work, isn't it? With growth, talent will be at a premium once more and agencies will be forced to break the bank to sign it.
Not necessarily, Fiandaca says. "You don't need to throw money around. People want to work here because there's a greater realisation than ever that new-media agencies are exciting places to work," he argues. "I can't see a situation where we would have to buy in top talent because we already have top talent in place. So as far as I can see, as revenues pick up, margins should be picking up too. Also, as spend goes up, you can get greater economies of scale."
Fairhead, though, isn't so sure. He sums up: "I think the truth is that there have never been a lot of really good people around. For instance, there are lots of nerdy guys who know the nitty gritty but don't know about the big picture. I think we'll see a lot more people with a broad advertising experience coming into this side of the business - and, for someone like that doing, say, digital media planning, you wouldn't necessarily break the bank. But for convergence guys or people with real specialisms, then, yes, maybe."
TOP 25 UK NEW-MEDIA AGENCIES RANKED BY REVENUE (gross income)
Rank Company Ultimate parent Year end Gross Operating
by or major income profit margin
rev investor(s) pounds pounds on
000 000 revenue
1 Sapient Sapient Corp'n 31/12/02 16,451 -2,384 -14.5%
2 SBI & Company Framfab AB 31/12/01 13,353 -1,378 -10.3%
3 Conchango - 31/12/02 13,212 -5,822 -44.1%
4 Quidnunc Group VCs & others 31/03/02 12,475 -2,401 -19.2%
5 AKQA AKQA Inc 31/12/02 9,273 401 4.3%
6 Wheel/Foresight - 30/06/02 8,117 -1,024 -12.6%
7 Global Beach Global Beach Grp 31/01/02 8,016 3,133 39.1%
8 Rubus Detica Group 30/04/03 7,553 -2,378 -31.5%
9 Agency.com Omnicom 31/12/02 7,261 2,013 27.7%
10 Oyster Partners Seneca/Com
Vergit 31/12/02 6,942 -2,201 -31.7%
11 Rufus Leonard - 30/04/02 6,046 117 1.9%
12 IS Solutions - 31/12/02 6,041 -1,377 -19.5%
13 3T Productions RM 31/09/03 4,592 1,038 22.6%
14 Nettec Aspect Group 31/12/02 4,563 -4,991 -109.4%
15 Modem Media Modem Media Inc 31/12/02 4,483 -2,963 -66.1%
16 Syzygy UK Syzygy AG 31/12/02 4,102 426 10.4%
Partners Interpublic 31/12/02 4,010 340 8.5%
18 Hyperlink Cable &
Wireless 31/03/02 3,740 -1,638 -43.8%
19 Agency Republic Omnicom 31/12/02 2,960 260 8.8%
20 Good Technology WPP Group 31/12/02 2,908 279 9.6%
21 Profero - 31/03/03 2,864 208 7.3%
22 CCG.XM WPP Group 31/12/02 2,505 -206 -9.0%
23 Zinc Havas
(60 per cent) 31/12/01 2,287 -1,039 -37.4%
24 Dowcarter - 31/01/03 2,184 21 0.9%
Interactive Havas 31/12/01 2,177 -1,766 -81.1%
Source: New-Media Agencies Financial Intelligence *Revenue (or gross
income) means turnover less cost of bought-in goods and services
supplied to clients. Where this information has not been published, or
the published figure appears to have been reduced by direct staff costs,
an adjustment has been made to arrive at the closest approximation
TOP TEN BY OPERATING PROFIT PER HEAD
Rank Rank Company pounds per head
1 - Global Beach 66,662
2 15 Agency.com 31,451
3 - 3T Productions 16,219
4 - Agency Republic 11,834
5 8 Syzygy UK 7,896
6 4 Zentropy Partners UK 6,667
7 7 Good Technology 5,168
8 5 Profero 3,588
9 1 AKQA 3,285
10 6 Rufus Leonard 1,356
Source: New-Media Agencies Financial Intelligence.