Arun Sudhaman 30 Aug 2013 // 8:25PM GMT
WPP's disappointing PR results will give plenty in the PR community reason to pause. The holding group's PR firms account for around $1.5bn in revenues, or approximately seven percent of the global PR market. If WPP sneezes, then, will the rest of the global PR industry catch a cold? Perhaps not. Anyone who has followed our World Report coverage over recent years will be aware of the growth discrepancy between independent PR agencies and their publicly-listed counterparts. Put simply, independents have been outgrowing listed PR firms by a factor of around 2 to 1 since 2009. This holds true across most of the holding groups. WPP has now seen PR fees decline in both 2012 and 2013, while Omnicom has been somewhat better than flat. Interpublic and Publicis Groupe, boosted in part by a smaller agency footprint, have recorded better PR returns, although still some way below the organic double-digit growth boasted by the independents. It's worth noting that recent years have been characterised by ongoing economic malaise, particularly in developed markets. Hence the reasoning most often advanced by publicly-held firms to explain their lower-than-average growth rates — the focus on profitability, they say, means that they are unable to invest and grow like independent players, agency acquisitions aside. That might go some way towards explaining the sluggish performance at the holding groups, but I suspect it is probably not the full story. WPP's PR firms, in particular, are suffering more than most, declining not just in terms of revenue but also, critically, profitability, with margins down to 13 percent. Sorrell should be applauded for the candour he typically displays in his results announcements. This time, in explaining WPP's PR agency performance, he pointed to "continuing client examination of discretionary spending, particularly in mature markets." WPP's 'big three' PR firms are, in order, Burson-Marsteller, Hill+Knowlton Strategies and Ogilvy PR. Each of these agencies has, historically, relied heavily on public affairs spending, particularly in Washington DC, where budgets have dried up because of legislative gridlock. Indeed, North America, a PR market that is both large and resilient, has not been a particularly happy hunting ground for any of this trio in recent years. Burson and H+K, furthermore, are also disproportionately exposed in Europe, where the economic recovery, if you can call it that, has been weakest. Finally, it is also likely that the holding company ownership structure is also partly to blame, as pointed out by my colleague Paul Holmes in a 2011 post. Holding groups, for example, have acquired and built substantial standalone digital agencies, suggesting that social media opportunities are not always being funnelled towards PR firms, with consequent implications for the ability of those firms to build strong digital practices. The same could, conceivably, hold true for content creation and marketing, particularly with advertising and digital firms doing their best to scoop up expanding budgets in this area. Sorrell's principle of 'horizontality' — organizing agency staffers into bespoke client units like Team HSBC — looks like an increasingly smart response to evolving client needs as traditional disciplines blur. Amid the turf wars outlined above, though, will this type of model affect the ability of individual PR firms to develop the skills needed to compete with other advertising and digital agencies? Because, if one thing is clear, it is that PR firms, big or small, must innovate if they are to capitalise on the opportunities presented by the changing marketing landscape. And while that may not require them to become independent, it does suggest that they would benefit from acting more independently.