Middleberg, Beneficiary of Internet Boom, Weathers the Bust
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Holmes Report

Middleberg, Beneficiary of Internet Boom, Weathers the Bust

Don Middleberg has closed the firm’s Bay Area office—opened just one year ago—and admits that the firm has seen some significant client losses as a result of the dot-com bust.

Paul Holmes

NEW YORK, August 13—No public relations agency in America benefited more from the Internet boom than Middleberg Euro RSCG. In 1996, the New York boutique had 25 people and fees of around $2.5 million. Five years later, Middleberg had established itself as the authority on online media relations, reported fees of more than $20 million, and was sold to French communications holding company Havas for an impressive multiple.
So it’s not surprising that the Internet bust should have created some problems for the high-flying firm. Last week, agency founder Don Middleberg closed the firm’s Bay Area office—opened just one year earlier—and admitted that the firm had seen some significant client losses, although he insists that several remaining clients have increased their spending and that at the end of the year the firm will report revenue numbers in line with most of its competitors.
But Middleberg has also been bitten by the medium he has helped other companies master, with e-mails about layoffs at the firm and account losses making the rounds to trade reporters. One such e-mail claimed the firm had “shrunk from five offices to one, from 170 employees to less than 50 through layoffs and attrition, and from $20 million in billings to less than $8 million in billings.”
Middleberg disputes those numbers. “We did close our San Francisco office, which was our only office outside New York,” he says. “That affected four people,” not the 13 cited in the release. “Because we are now part of Havas I can’t comment on what our billings will be this year, but the numbers quoted in the e-mail are wrong, and they are wrong by a lot.”
Another e-mail claimed that Middleberg had lost clients including Sony and IBM. Middleberg admits that the firm’s IBM business is gone—it is one of about 50 firms worldwide to lose out in the technology giant’s restructuring—and that he can’t comment on Sony, although sources inside the agency say it is still handling several projects for the consumer electronics company.
“It has been a difficult year for us, as it has been a difficult year for a lot of people,” Middleberg says. “Sixty to 70 percent of our clients a year ago were dot-com clients and obviously a lot of them are no longer spending money on PR. Today, no more than five of 40 clients are dot-com companies. And the clients we have now are spending a lot more money than they were spending a year ago. We have two $1 million clients for the first time in our history.”
Another allegation contained in one of the e-mail messages is that Middleberg is selling its 1.2.1 online marketing group to Circle.com, another Havas unit, “to raise cash.” Middleberg declined comment on the future of 1.2.1 except to say that any deal would be done with the full cooperation of Havas and the unit’s founder, Chris Hayes.
A third e-mail claimed that Middleberg had called off discussions to acquire Boulder, Colo., technology PR and IR specialist Metzger Associates, a claim Middleberg disputed. While declining to comment on specific acquisition plans, he says the firm is “still very interested in making acquisitions” and is “in conversations with a number of people.”
As for the long term, Middleberg says he believes the market is beginning to bottom out.
“The nature of the work hasn’t changed,” he says. “We are still helping companies communicate with financial analysts and industry analysts. We are still dealing with the online media and the traditional media. We are still monitoring chat rooms.
“The nature of the clients has changed. We are seeing larger, well-established brands that are launching Internet initiatives, that see the Internet as a major part of their business plan—but not as a replacement for their business plan. The fact that we have our roots in the financial services sector, that we understand business and we understand consumers as well as we understand the Internet, is very important. That’s why we are getting invited to the kind of pitches we would not have been involved in three or four years ago.”
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