We are often told that the US advertising market leads the UK by three or four years, the implication being that the US is the home of business and creative innovation.
But that recieved wisdom is being reversed, as the US witnesses changes that have already happened in the UK market. Clients are screwing margins to the floor, there is a growth in the influence of spin-off media operations, heavy investment in new media and technology and a mid-market squeeze on agencies.
The key factor is that the recession was deeper and longer in the UK than the US and clients, especially multinational ones, learned lessons on this side of the Atlantic that they are now employing on the other. But despite this, agencies are estimating growth in income of between seven and ten per cent for this year, based largely on 1994 figures that leapt ten per cent to $9.38bn (6.7bn).
Media agencies report that advance sales of airtime are also encouraging, running 27 per cent ahead of last year at $5.6bn (3.6bn) committed in the period to August.
“In terms of the health of the advertising market we are similar to the UK,” says Ogilvy & Mather North American president Shelly Lazarus. “Clients are spending money again, they are more adventurous in what they are willing to try and the kind of media they are exploring.”
It is a view echoed by Saatchi & Saatchi North American chief executive Alan Bishop, who adds a word of caution.
“The economy is picking up, the outlook is brighter but what we are seeing in the US is what we saw in the UK three years ago. It is a paradoxical situation. The outlook for the market is relatively cheerful but there is pressure on clients and my feeling is that we will only see a modest rise in the market this year.
“Some of the smaller agencies are doing well, picking up larger clients which have been associated with established agencies for years. Some larger clients are becoming more entrepreneurial in their hiring.”
If you throw in market speculation about NW Ayer, True North Communications, Bozell Worldwide and Cordiant; the implications of the media concentration heralded by Disney’s $19bn (12.2bn) takeover of ABC and the machinations of the Omnicoms and Interpublic Groups of this world, the US agency scene starts to look more interesting than it has for many years.
The Omnicom takeover of Chiat/Day and Ross Roy Communications – completed two weeks ago – led to the disappearance of two top 25 US agencies, with combined billings of $1.3bn (833m), at a stroke. They are not the biggest deals ever done but they are indicative of the way the market is moving.
Already, fewer than 40 agencies account for more than 50 per cent of all gross income but most observers predict a further round of takeover and consolidations in the next 12 months. Richard Humphreys, president at Adcom Investments, parent of NW Ayer, believes the changes will be technologically driven and that it will be those agencies that can afford to invest which will benefit.
“There is a substantial drift away from traditional advertising,” says Humphreys. “People will be able to skip ads more easily than ever before and so there is more pressure on agencies and clients to get involved in programme content.
“Most of the larger agencies are doing well – the key is multinational business or strong hi-tech clients but the medium-sized agencies are struggling and there will be further rationalisation,” he predicts.
“Agencies need resources to invest in technology and the ability to provide services beyond advertising. There has always been an element of that but the pace of change is accelerating.”
Ayer hived off its media interests into the standalone The Media Edge as part of a strategy to create separate companies for its branded interests.
Humphreys was outbid by Omnicom for Ross Roy – it eventually paid $52m (34m). But when it was realised that the Ross Roy bid was a personal venture for Humphreys, and not Adcom, stories circulated about his commitment to Adcom and NW Ayer and splits with Adcom’s other main player WY Choi.
A divorce from Ayer Europe in January has left the agency looking for a European partner – it is the most obvious gap and one which prompted an unsuccessful $375m (246m) bid for Bates Worldwide last December.
“If I could find a network with all markets except the US then that would be the ideal. But realistically we are looking to buy a global agency which Ayer could be twinned with. We are always talking to people about alliances and we are open to do something,” says Humphreys.
It is not alone in being linked to big money deals. True North Communications has declared a brittle peace with its European partner Publicis, leading many observers to believe that both will be seeking a European or US partner in the next 12 months. There has also been speculation about the ambitions of Bozell Worldwide, which was approached by True North about a possible deal.
“We talked to [True North] some time ago,” admits Bozell Worldwide chief executive officer Chuck Peebler, “but since then the rumours seem to have come up with some regularity. We are in active discussions for four other potential acquisitions – the largest is a major US regional valued at about $100m billings.
“Another is a fairly small and specialised operation that would be an extension of some capabilities that we don’t have through the line. We are very active in the below-the-line area.”
Saatchi & Saatchi has also been the focus of much attention. Cordiant’s results revealed that the US accounted for just 700,000 of group profit. Winning the $50m (32m) Bell Atlantic account has changed the complexion of Saatchi’s situation but both Cordiant networks – Saatchi and Bates Worldwide – are still the centre of takeover rumour.
“Bell Atlantic is the biggest account we have brought here in 20 years – it has dramatically changed the name of the game,” says Bishop. “I’ve heard the rumours of a sale but I do not believe them – the agency has been tarnished by poor PR.”
The US agency scene is at one of the most turbulent stages in its history. Clients are spending, there is a flurry of merger and acquisition activity and investment in new technology is going through the roof.
The landscape is changing rapidly. And there is nothing to suggest there will be any let-up.