New media agencies still burning cash

The UK’s top 25 new media agencies lost an average of £21,569 per employee last year, according to the latest annual research by industry newsletter New Media Agencies Financial Intelligence (NMAFI).

Only a third of new media agencies posted an operating profit. The research found that new media agencies backed by traditional advertising and PR companies have done more to introduce financial discipline than those agencies backed by IT companies or venture capitalists.

The loss per employee for marketing services-backed companies was £10,348, compared with £28,653 per employee for venture capitaland IT-backed agencies.

NMAFI editor Bob Willott explains: “Many of the companies that were funded by marketing services groups were given less money to begin with. Continuing financial support depended on their ability to impose some market discipline, to cut overheads and to shed staff.”

According to the report, the largest companies by revenue – Conchango, Quidnunc and Rubus – also managed to be the biggest loss-makers, losing £37m between them in the last year on turnover of £62m.

Only one of the new media agencies (AKQA) met the performance criteria that Willott suggests service sector companies of this kind should be achieving.

Willott says: “These companies expanded their personnel, offices and even revenue with little regard for the basic financial dynamics and ratios of a service business.”

The report adds that agencies have been taking remedial action since their latest accounts were filed, but warns that many are still carrying fixed costs, in the form of expensive surplus property, that may take longer to shed.

The research also warns that demand remains quite weak and raising fees will be difficult.

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