TOP 300 AGENCIES: Reality check

2003 was a far from comfortable year for the advertising industry, at home and on the global front. Overall, the signs are positive, but anything like a real recovery seems a long way off. John Tylee reports.

How will 2003 be remembered in advertising's annals? Certainly as a melancholic and brutal year, when the wounded Cordiant stumbled into Sir Martin Sorrell's rescuing arms. But also as bizarre, one in which Boots rejected the comfort factor of Sorrell's WPP to place its £90 million integrated account with a consortium led by an agency that, not so long ago, would have been derided for even daring to suggest it could handle such business.

Is there a common thread connecting Cordiant's collapse with Boots' astonishing decision to align itself with Mother? Surely it is that the communications industry's mismanagement and failure to stop paying itself what it hasn't earned is pushing clients to think the previously unthinkable in their search for marketing solutions that combine creative potency with cost effectiveness.

As a result, 2003 may go down as the year in which clients no longer tolerated so-called "rewards for failure", epitomised by an exit payment of £1.9 million to Cordiant's departing chief executive, David Hearn, and showed themselves willing to align with smaller but hungry shops offering brainpower without the overheads.

Not that there's likely to be another deal to match WPP's £266 million purchase of Cordiant. For one thing, few recession-battered supergroups can afford them. For another, the end of Cordiant probably marks the end of the industry's global consolidation. Only Grey, the world's seventh-largest network, remains independent and firm in its intent to beat what it steadfastly refuses to join.

In fact, there's a poignant irony about Cordiant destroying itself by trying to replicate the scale and resource of rivals such as WPP, Interpublic, Omnicom and Publicis Groupe at a time when Boots may be causing advertisers to reappraise the packaged communications offerings of the behemoths.

If others follow Boots' lead, will the unbundling begin? Probably not to a significant extent. Not even Maurice Saatchi, who last year claimed the global agency network structure he pioneered in the 80s had become a "Frankenstein monster", predicts holding companies will break up. Nor does the Grey chairman, Ed Meyer, who dismisses the holding companies' preoccupation with size as "totally silly", but insists: "I've no quarrels with the megas."

Last year's events suggest networks will survive much as they are if only because they remain safe pairs of hands for the majority of global advertisers and because globalisation is the way of the world. As Mike Walsh, Ogilvy & Mather's chief executive for Europe, the Middle East and Africa, points out, you only have to look at the way the European Community is perpetually enlarging and the likelihood of European Union authorities imposing standardised pricing on the pharmaceutical companies to understand globalisation's relentless progress.

Nevertheless, 2003 underlined the need for evolution within the supergroups and an end to what commentators and clients alike regard as their lumbering bureaucracy. "The pace of change in the market place is speeding up," Andrew Mann, the head of marketing at British Gas, warns. "Clients are responding to that change. Agencies need to respond to it quicker than they're doing."

Certainly, the holding companies did show themselves willing to undergo drastic surgery last year, albeit that perpetual economic pressures left them little choice. Interpublic pressed ahead with a restructuring programme involving up to 4,000 job losses as it reported third-quarter losses of $327 million. This was mainly due to the $127.6 million set aside in stock to pay pending legal actions from shareholders after earlier accounting scandals.

At Havas, currently undergoing a massive reorganisation in the wake of its dire performance, the only crumb of comfort was that its 5.5 per cent drop in third-quarter revenues was the smallest of the year. It was an emphatic reminder that Havas is no match for rivals such as WPP and Omnicom, both of which posted optimistic third-quarter figures, as a powerful global business.

For all the global communications groups, however, there was some relief to be had from the fact that if things weren't getting much better, at least they weren't getting any worse. Inevitably, the Iraq war stoked up more economic uncertainty and precipitated widespread budget cuts, particularly in the travel sector, although by the year's end, the effect on adspends appeared to be waning.

Even the Sars epidemic, which swept through the Far East at the beginning of last year and threatened to halt Asian adspend in its tracks, turned out to be worse in perception than reality. In the end, it meant that most networks operating in the Asia-Pacific region had a flat 2003 rather than a catastrophic one. China's express-train economy was hardly affected, with growth currently running at 7.5 per cent year on year.

The best news, though, was the returning health of the US economy - the locomotive that pulls the rest of the world in its wake - which recorded its fastest growth rate in almost 20 years during the third quarter of 2003. This was mirrored in the confidence of the country's largest advertisers, which upped their combined spending by 16 per cent, according to ZenithOptimedia calculations.

Unfortunately, while the Asia-Pacific, African, Middle Eastern and Latin American markets showed consistent growth during the year, the networks found themselves held back by a Europe resistant to recovery. Maurice Levy, the chairman of Publicis Groupe, which owns Saatchi & Saatchi and Leo Burnett, summed up the widespread feeling. "Europe is a mess," he said. "It will take at least six months before we see the light of growth."

Once again, Germany, Europe's economic engine room, was at the heart of the problem. A reform package agreed by government and opposition leaders in December is likely to loosen "hire and fire" laws, a major stumbling block to foreign investors. But the archaic system of industry-wide collective bargaining remains and German consumers, hopeful that tax cuts would put more money in their pockets, are being hit by subsidy cuts and increased healthcare costs. Experts dismiss the reforms as mere tinkering that won't kick-start the economy.

On top of all that, agency networks found themselves having to get used to big pitches becoming more protracted, complicated and, sometimes, more disturbing. The contest for Electrolux's £50 million global account, eventually won by Lowe & Partners, took a comparatively short two months.

France Telecom's pan-European media pitch lasted from mid-April until early October, when Initiative was declared the winner.

Clients' determination to ensure they're getting the biggest bang for their bucks has a lot to do with it. DuPont, the chemicals giant, even went to the extreme of using an online reverse auction to help determine the outcome of a global creative pitch.

Under the circumstances, it was inevitable that 2003 should confirm the arrival of the client procurement specialist as a permanent fixture in pitches. Essential experts in complex fee negotiations or blunt instruments used by clients to screw down agency margins? The answer depends on whom you ask. The fact remains that the influence of purchasing departments in agency contracts has jumped from a third to a half in six years, according to ISBA research published in August. How long before other agencies follow the lead of Grey London and Abbott Mead Vickers BBDO in hiring their own procurement staff?

Very soon, perhaps, given the agonisingly slow pace of recovery in UK adspend. Research commissioned by the IPA and the Advertising Association has drawn pretty much the same conclusion - that budgets are still being cut but only by small amounts. In short, they agree the worst is over.

However, 2003 drew to an end with a warning that the climb out of Sorrell's bath remains long and slippery. Personal debt levels are still worryingly high and the fact that British consumers took a mind-boggling £5.4 billion from cash machines in the run-up to Christmas suggests they aren't bothered about it. The Bank of England could step in to increase interest rates to halt what it sees as an unsustainable consumer-spending boom.

All the more reason for agencies to be doing everything possible to sustain client confidence with powerful strategic and creative solutions and innovative ways of working. Doubtless many eyes will be on the start-up announced in November by Ben Langdon, the former McCann-Erickson Worldgroup regional director, and Mark Wnek, the former chairman of Euro RSCG group.

The pair promise an agency staffed by experienced people producing big ideas for clients not wanting the pain of a big agency. The big question is whether their past reputation for ruthlessness - some say downright unpleasantness - will haunt their future.

The Ingram Partnership was one of the more interesting launches of last year, and proved awkward for Campaign to categorise because of its uniqueness. It straddles both media and advertising worlds offering strategic business advice for brands, but perhaps of more interest are its people. Its creation marked the return of the former Tempus chief, Chris Ingram, and it hired the former COI Communications chief executive, Carol Fisher.

And what of Naked Inside, the communications and media planning company launched by Naked Communications and Clemmow Hornby Inge? The product of two industry iconoclasts, does the joint venture presage a return to a full-service offering in updated form?

Maybe. If 2003 proved anything, it's that size is no longer a barrier to capturing the glittering prizes if the talent is obvious. Just ask Boots.

HOW THE TOP 300 TABLE IS COMPILED

Compilation of the Top 300 begins three months before publication.

Agencies on Nielsen Media Research's database are contacted and asked to complete a questionnaire giving income, billings, the number of accounts held, accounts won and lost, and the media split of billings. Media measured on all tables include TV, press, radio, cinema and outdoor. More than 200 agencies responded this year. Returning a form does not in itself guarantee inclusion.

Agency client assignments are compiled from data supplied by agencies and media owners and that published in the marketing press. Press expenditures include an Advertising Association discount factor, varying by sector and quarter.

Agencies lobby to influence the presentation of data; the Top 300 tables and reports can affect share price, client perception and staff motivation. But objective representation of the market is crucial. The tables are rigorously checked to ensure the data is a fair reflection of the information provided to us.

Nielsen Media Research has used the same measurements as last year for consistency. Agencies are listed according to their 2003 trading name.

This year the Top 300 has been affected by the Sarbanes-Oxley Act 2002. The US ruling, passed in response to corporate accounting misdemeanours, prohibits public release of unaudited financial information. Sarbanes-Oxley has led many agencies owned by US-based public holding companies to withhold financial data, hence the absence of declared billings and income tables this year.

Campaign would like to thank Nielsen Media Research for its help in compiling the tables.

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