Last year provided a fascinating mixture of industry business trends that may bring more encouragement to young independent agencies than to the global conglomerates.
The industry as a whole suffered from declining revenues and most of the global players shared in that decline if measured on a like-for-like basis. Their thirst for acquisitions also dried up towards the end of the year despite the relatively low cost of borrowing.
Yet young, relatively independent agencies such as Mother, Delaney Lund Knox Warren & Partners, Clemmow Hornby Inge and Fallon London enjoyed a succession of major business wins and took home some very prestigious creative awards. Fallon won the IPA's gold effectiveness award for its Skoda work as well as best new agency, while DLKW won a gold for its Halifax campaign and best integration. Mother took Campaign's Agency of the Year.
So what does this tell us about the impact of market forces during a recession and what are the omens for the year ahead?
The popular view is that global clients are driving the consolidation of agencies into a few major groups. So why would a multinational such as Vauxhall favour DLKW? And why would Orange go to Mother? And did Sony choose Fallon because of its global links through Publicis while rejecting Bartle Bogle Hegarty, which is also partly owned by Publicis?
It is at least as likely that the pressure for consolidation is being driven by shareholder expectations among the conglomerates, expectations based entirely on a desire for swift and substantial growth in share prices, which cannot be achieved by organic expansion alone. The biggest deals last year had little to do with client expectations and a lot to do with the acquirers' own growth aspirations. The Publicis/Bcom3 merger was a consolidation of two global operators. So was WPP's acquisition of Tempus (and of Young & Rubicam in the previous year).
If a client wants global distribution, it does not necessarily need a global creative agency as well.
Media buying is now established as a discrete function, and every creative agency is able to link up with a media buyer if the client wants it.
Has the global gobbling actually squeezed out the bright young agencies or the niche players? Inevitably, some have sold out as they approach retirement or have taken up seductive financial offers. But that is not a new phenomenon - and it does not prevent new entrants replacing them.
The evidence at present is that start-ups and breakaways are still financially viable if the founders have the talent and business acumen. Interest rates have been low and the Willott Kingston Smith partner Mandy Merron says there has been a growth in the number of potential start-ups crossing her desk recently. Sometimes, it is even possible to fund a breakaway or buyout with the help of a loan from the previous owners - St Luke's and DLKW come to mind.
So are we seeing one of those rare occasions - occasions that arise no more frequently than every 20 years or so - when three characteristics have come in to play simultaneously to favour young independent agencies?
The signs are there. First, some of the global players may have become too preoccupied with profit and procedures, leading to an institutionalised and greedy approach to client relationships. Second, the global agencies' best creative talent may have felt frustrated by this atmosphere and by pressures to produce "safe" ads. Third, the financial climate may have been conducive to entrepreneurs seeking to set up on their own.
Turning to a young agency, clients may experiment with more adventurous ads on some of their brands, using proven talent no longer inhibited by the institutionalised environment of a global agency, and everyone except the global groups ends up a winner. The past few years have produced several examples of this trend, Mother being the most obvious one.
So where does this leave the global groups? Clearly they all have their own share of problems, although Omnicom has so far proved the most resilient to the industry recession, with revenue from both existing businesses and acquisitions still rising (and profits being helped a little by some nifty accounting).
Omnicom's recent acquisitions have been among the independent sector while competitors such as Interpublic, WPP and Publicis have majored on other existing global groups.
Interpublic saw its total revenue drop by 10 per cent in the nine months to last September, compared with the same period in the previous year.
Grey and Havas both suffered a 5 per cent fall and that was before eliminating the benefit to Havas of acquiring the balance of shares in Media Planning Group.
Those figures may seem disappointing, but the picture at WPP may be more so. Even after including income from Tempus for the first time, WPP saw revenue fall by 2 per cent in the same nine-month period. On a like-for-like basis, revenue is estimated to have fallen by 7 per cent. WPP blames much of the fall on market conditions and, in particular, on a poor performance in the public relations sector. But maybe market conditions do not provide the whole answer. It paid over the odds for Tempus and Young & Rubicam.
In time, both groups may yield a satisfactory return, but probably not yet. Mediaedge:cia Worldwide's chief executive, Mainardo de Nardis, claims there was no material business loss following the Tempus acquisition, but WPP may still be having difficulty making Y&R's Burson Marsteller subsidiary sufficiently profitable irrespective of market conditions.
Publicis too deserves closer scrutiny. Without the benefit of Bcom3 and other acquisitions, revenue for the nine-month period to last September would have fallen by about 4 per cent. A similar rate of decline would almost certainly have been recorded if Bcom3 and Saatchi & Saatchi had always been members of the Publicis Groupe.
Thus those groups whose main growth has come from acquiring other existing global businesses have suffered significant revenue losses in the recession and are unlikely to have had a materially adverse impact on the market share available to independent agencies.
Nothing can be said with certainty, but there is some evidence that good independent agencies can face 2003 with a little more confidence than their global competitors. At least they will be spared pressure from institutional investors for the delivery of ever-increasing profits, something that M&C Saatchi's founders are probably glad to be rid of.
- Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School.