The advertising industry has reached saturation point with an existing agency folding as every new entrant launches, according to a new report from financial analysts Plimsoll Publishing.
Plimsoll’s annual review of the ad industry reveals one in four agencies is at high risk of failure, and the size of the agency does not play a part in determining its success.
The report analysed the financial performance of 1,726 creative, media, direct and outdoor UK agencies over the past four years, placing them in five categories ranging from “strong” to “danger”.
The latter category contained 412 companies, over half of which – 225 – fell in this group for the second year in a row.
There were 442 companies in the band rated ” strong”, 250 in the group rated “good”, 285 placed in the “mediocre” band and 337 in the “caution” sector. Plimsoll manager David Pattison says: “There is strong evidence that the ad sector is not going to grow. Any extra growth is at the expense of somebody else.”
Pattison says the number of agencies in “at risk” categories has varied little over the past eight years. He adds that the fact 225 companies are in the “danger” sector for the second year in a row is cause for alarm. The size of the sector reveals a wide potential for acquisition by better rated companies.
Last year, 138 companies managed to climb out of the “danger” zone, but 187 fell into the sector.
Pattison says that the 40 per cent of the industry rated “strong” and “good” must not rest on their laurels, adding that last year 159 companies lost their “strong” rating and were replaced by 187 other companies.