Close-Up: After the pain of 2009, flat is the new up

Ahead of next week's Top 100 Agencies issue of Campaign, Dominic Mills does some crunching of the numbers.

Baths, showers, L-shaped, W-shaped or toilet bowls - pick your own analogy to describe the marketing services economy in 2009. Or just stick with the WPP chief executive Sir Martin Sorrell's simple description last week - "brutal".

The best indication of how the industry is bearing up can be found in next week's Campaign School Reports. As a precursor, however, this piece aims to pull apart some of the information gleaned from the supplement. Not just the Nielsen billings figures, though they tell their own largely gloomy story, but also the agency answers to Campaign's standard questionnaire about income, margins, staff numbers and upcoming initiatives and investments.

Let's get the caveat out of the way. The data covers 84 agencies, which is a good cross-section but biased towards creative and media agencies, plus direct/digital, pure-play digital and a few hybrids.

It covers both large and small, big-five network outfits, micro-networks and independents. The strictures of Sarbanes-Oxley sit large across this exercise, however, and mean that - headcount and billings information apart - there are few details on any agency owned by Omnicom, IPG, WPP, Publicis or Havas.

Lowe is one exception, though. The agency was kind enough to offer us a schadenfreude moment by spelling out its woes in 2009: income down 29 per cent, margins down 22 per cent, staff down 31 per cent to just 74.

Somewhat perplexingly, Lowe said "2009 ended by meeting financial targets". So have the IPG moneymen gone soft, or is this gallows humour?

What have we learned?- Flat (income, margins, staff levels) is the new up. Anything better is to be cheered.- What one analyst calls "scope-creep" is a threat. This occurs when, in order to win or retain business, agencies bundle up more and more services for free or in a single-price package. As a bid to improve profitability, it's self-defeating.- Network-owned agencies cannot report on income or margins, but given the way they have to please their Wall Street/City paymasters, staff reductions pretty much across the board tell the story. The need to protect budgeted profit promises offers little freedom to manoeuvre, hence the wielding of the axe. Add to this a squeeze from multinationals, such as Unilever's stated aim to cut agency margins to 5 per cent as indicative of the trend, and things don't look pretty.- In media, dominated by network shops, things looked even worse. With 2009 being the year clients used winner-takes-all centralisa-tion pitches to drive down prices, agencies making pitch promises they may not be able to keep and most trimming headcount levels, 2010 could continue to be grim.- Independent agencies have more financial flexibility, the more so because they are less dependent on multinational clients. As a result, they were better able to resist margin pressure - or take a hit on them - and could choose not to hack away at staff numbers. There were good all-round performances from VCCP, Wieden & Kennedy, Mother, Beattie McGuinness Bungay and Leith.- Direct/digital agencies appear to have performed better than expected in a sector widely believed to have been bombed out. It may be that their traditional strengths of accountability and a focus on ROI, allied to their further expansion into digital work, has stood them in good stead. Those that stood out were CMW, Elvis, Partners Andrews Aldridge, Iris and Archibald Ingall Stretton.- Digital specialists appear to have done reasonably well, although the general belief is that the sector is not as financially robust as it could or should be, despite the fact that they should be well-placed to benefit from the growth in digital spend. This is probably because it's hugely competitive, meaning the chance to charge a decent price is diminished while some of the business is project work, which can be hand-to-mouth. Social media, the one area where agencies could charge good money, tends to be the territory of PR agencies. - The need to add new revenue lines is more intense than ever, but will only be effective provided agencies can genuinely charge them out as value-added services.


Billings don't always tell the whole story, of course, especially with digital or in relation to global pieces of business, but they're a good place to start. The hit was heaviest on the big media agencies, with billings down almost across the board.

Of the 17 surveyed in the School Reports, only three (Mediaedge:cia, Vizeum and the7stars) showed growth; of the rest, the two IPG brands, Universal and Initiative, were notably hit - down 22 and 31 per cent respectively. Broadly speaking, scale offered some protection with MediaCom, OMD and Carat suffering marginally less than the smaller players.

That pattern was not replicated among the creative agencies where the largest were hit hardest, while the smaller and, to a lesser extent, medium-sized agencies tended to do well. The likes of Abbott Mead Vickers BBDO, DDB, Euro RSCG, TBWA\London, Grey, Ogilvy, Publicis and Saatchi & Saatchi all showed billings drops of between 10 and 25 per cent.

On the other hand, notable increases were recorded by CHI & Partners, Karmarama, VCCP, Krow and Leith.

Staff numbers

By and large, it's difficult to de-couple billings and headcount levels. In a business where the largest single asset, and liability, is people, it is inevitable that declining billings means falling headcount.

Overall, the results are pretty much what one might expect (those shedding staff outnumbering those that added) and, taking gains with losses, and large agencies with small, fell broadly in line with the 7.4 per cent decline itemised by the IPA in its 2009 census.

This was most evident in the media sector where 14 of 17 agencies saw their billings fall, but only one, Starcom, actually increased headcount.

Nevertheless, keeping costs in line with income while still properly servicing business is a tricky tightrope to walk. One managing director says: "We reduced our headcount at the beginning of 2009 as a reaction to the canary in the mine that was Lehman Brothers (which went down in September 2008) and in anticipation of what was to come. We increased our use of freelancers, but then upped staff levels to ensure we could service business. But yet it still ended up lower than in 2008."

This may have been a fairly typical reaction, but those major players shedding eye-watering numbers included Bartle Bogle Hegarty (-19 per cent), Euro RSCG (-12.9 per cent), Carat (-11 per cent), ZenithOptimedia (-14 per cent), Universal McCann (-2 per cent), Proximity (-15 per cent, but distorted by the merger with Craik Jones Watson Mitchell Voelkel), and TBWA\London (-6 per cent).

It wasn't unremitting gloom, though. As a whole, there were agencies successful enough to be able to bolster headcount, although the independents fared much better than the network players.

In the direct/digital sector, CMW, Elvis, Iris, PAA, Kitkatt Nohr (all also reporting increases in income) and Rapp stood out, while in the digital area Albion, glue London, Profero and Work Club were strong.

Among the creative agencies, Mother, VCCP, W&K, BMB, Karmarama and Adam & Eve - plus two network agencies, AMV and JWT - were the stars.

A sub-set of this group comprises a small cohort: those whose billings fell but who increased staff, which were AMV, JWT, Mother, BMB, Starcom and W&K. Breaking the link between billings and headcount suggests this group is either succeeding in developing new revenue streams separate from their traditional businesses and charging the fees to match, or investing in the hope of doing so.

New revenue streams

No-one doubts that a key plank of future financial health depends on agencies finding new revenue streams that allow them to reduce their dependence on billings-related income. While this has long been the Holy Grail, it tends to become a lower priority when billings are growing and a higher priority when things are tough.

As luck would have it, the changing media landscape offers opportunities as never before, both in so-called "doing" (branded content, search, social media) and "thinking" (analytics, communications planning, customer journey analysis) activities.

Then there's the market for apps, which has enormous potential not only for fee-based work, but also for agencies to develop their own intellectual property to sell or licence to clients, or indeed for their own account. MCBD's decision to take on a head of technology looks to be a case in point.

VCCP is one agency that seems very focused on diversification, having expanded into areas such as health, PR, social media and data.

While not every agency reveals its development plans, a number of trends are clear over 2009-2010. Social media (CHI, Mother, Golley Slater, Tullo Marshall Warren, and Wunderman, to name others) is clearly hot, with other agencies citing areas such as search and mobile commerce as growth areas.

At the same time, with some agencies trying to capture production-linked revenues in-house - such as DDB's Gutenberg Networks initiative - there's also a certain "back to the future" feel about some activity.

Whatever form they may take, it's clear such developments are an essential part of future-proofing the bottom line. Without them, another year like 2009 could start an unstoppable downward spiral.

£499.4m - Total loss of billings by top-ten Media agencies

£213.1m - Total loss of billings by top-ten creative agencies

281 - Fewer staff employed by top-ten creative agencies

41 - Fewer staff employed by top-ten Media agencies

9 - Number of Agencies increasing staff by 20 per cent or more

Rank Agency Billings Billings Billings Billings Staff
2009 2009 2008 per head per head '09 '08
(pounds m) (pounds m) 2009 2008
(pounds m) (pounds m)
1 AMV BBDO 335.6 374.8 0.94 1.10 354 340
2 McCann
Erickson 214.5 263.2 n/a n/a n/s n/s
3 Fallon 204.5 172.5 1.36 1.04 150 165
4 JWT London 198.6 243.6 0.69 0.88 286 274
5 RKCR/Y&R 198.5 208.6 0.79 0.83 250 250
6 WCRS 197.4 198.5 1.57 1.42 125 137
7 Euro RSCG 192.3 227.8 1.13 1.17 169 194
8 M&C Saatchi 188.0 222.8 0.70 0.80 265 278
9 Leo Burnett 181.9 168.6 0.57 0.48 319 345
10 DLKW 180.6 179.0 0.92 0.83 195 215
11 Bartle Bogle
Hegarty 177.4 236.6 0.45 0.53 376 445
12 CHI & Partners 161.4 145.6 0.84 0.75 190 192
13 Ogilvy 154.4 185.7 0.71 0.61 215 302
14 Publicis 132.5 168.0 0.34 0.40 384 414
15 The Red Brick
Road 113.0 109.5 1.36 1.36 83 80
16 TBWA\London 112.7 143.0 0.76 0.91 147 157
17 Saatchi &
Saatchi 111.7 142.4 0.48 0.62 229 228
18 DDB London 107.9 136.1 0.26 0.32 402 413
19 Grey Worldwide 105.5 141.8 0.60 0.78 175 180
20 Mother 104.5 138.3 0.71 1.01 147 136
Average 168.6 190.3 *0.80 *0.83 *234.7 *249.7

Source: The Nielsen Company/Campaign calculations *excluding McCann

Rank Agency Billings Billings Billings Billings Staff
2009 2009 2008 per head per head '09 '08
(pounds m) (pounds m) 2009 2008
(pounds m) (pounds m)
1 MediaCom 932.5 1,036.5 1.54 1.57 602 660
2 OMD 748.2 768.8 1.18 1.16 630 660
3 Carat 659.1 700.0 2.18 1.93 321 362
4 Mindshare 596.1 713.7 1.74 1.78 342 399
5 Mediaedge:cia 484.9 443.9 1.29 1.24 375 357
6 Starcom Group 442.0 570.6 1.25 1.63 353 350
7 Zenith-
Optimedia 433.8 493.5 1.34 1.31 323 374
8 Vizeum 207.9 193.4 1.66 1.71 125 113
9 Walker Media 193.9 239.3 1.68 1.96 115 122
10 PHD 179.6 185.4 0.77 0.86 231 214
11 Initiative 148.2 217.8 1.78 2.56 83 85
12 Universal
McCann 139.7 181.0 1.24 1.42 112 127
13 MPG 125.1 136.2 0.72 0.81 172 167
14 MediaVest
Manchester 99.6 137.5 0.57 0.71 173 191
15 Arena BLM 48.0 63.9 0.44 0.53 108 120
Average 362.5 405.4 1.34 1.41 271.0 286.7
Source: The Nielsen Company/Campaign calculations.

Agency Income (%) Margins (%) Staff (%)
CMW +18 +22 +10
Glue London +10 +1 +20
Leith +61 +5 0
Partners Andrews Aldridge +12 +10 +33
VCCP +10 n/s +12.5
Wieden & Kennedy +24 n/s +25
Source: Campaign.