For the nation, 1998 was a year of bipartisanship and bizarre news (we can't forget the Marv Albert drama, much less Monicagate). But for PR, it was a theater of business crescendos leading to partnerships, purchases and profits - trends that are expected to carry into this year.
With communications continuing to be a revenue stream for most organizations, industry leaders predict that 1999 will result in more acquisitions/alliances as well as healthy balance sheets. But hot-button issues are expected to run the gamut. We forecast as the most pressing issues influencing PR in 1999 to be:
- the 24-hour news cycle;
- technology/Internet and Y2K communications;
- internal communications and community relations as related to branding and corporate reputation;
- multi- national and cultural messaging;
- recruiting talent;
- public affairs on the state level;
- leveraging PR as a business tool; and
- structuring business deals.
Tied to the latter is a first-time M&A report, based on interviews with about 100 CEOs of PR firms, which will be released next month by CPA firm Gould&Co. in conjunction with the start-up Council of PR Firms. G&C also plans to release a ranking list in March highlighting agency billings. (It also just released a salary survey; see story)
"I've been providing financial management and advice to PR firms since 1980 and this is the best year I've seen when it comes to billings, the bottom line and owners' take-away in terms of compensation," says Gould.
The M&A survey, however, won't just point to trends. It's meant to pinpoint the structure of "fair" deals for both the buyer and seller since about half of M&A s negotiated last year fell through, adds Gould. "The report will help clarify the value of PR businesses with the financial community. What we're finding is that PR firms are demanding higher multiples than other service industries," says Jack Bergen, president of CPRF.
The Economy of PR
"My prediction is that even if there is a downturn in the economy or various markets, this momentum we've been experiencing will carry us forward," says John Paluszek, president of Ketchum Public Affairs, Washington, D.C. The Washington office is a flagship site for Ketchum, with longtime clients such as Dow Chemical managed from this base.
Despite what some sources called flat budgets during the fourth quarter of last year, agencies still hunted the deal as 1999 neared. Cases in point: Hill and Knowlton rustled up 14 new affiliate partnerships to bolster its public affairs expertise on the state level, and Ketchum's $8-million-in-fees Atlanta office was hired by the Bank of America to handle its Y2K communications.
Ketchum, which topped $110 million in income in 1998, had 27 percent growth. Expectations are that the firm's double-digit revenue growth will continue in 1999. CEO David Drobis predicts $130 million in fee income in 1999.
PR Theater 1998
Understanding that alliances and M&As will be key to how companies keep billings on the rise this year stems from watching how last year unfolded, sources say.
In 1998, we saw:
- the unprecedented $169.2 million stock swap that folded Shandwick and Golin Harris into the Interpublic network;
- Burson-Marsteller's parent company Young & Rubicam filing an IPO;
- high-profile deals that led to synergy between firms such as Ogilvy and Alexander Communications or Fleishman-Hillard buying lobbying boutique R. Duffy Wall & Associates; and
- the emergence of the Council of PR Firms, a network of firms headed by Bergen. He came out of CBS and is considered to have his work cut out for him when it comes to promoting PR in the court of business opinion.
Talking Trends
Public relations is expected to be a leading field as we round the corner into the Year 2000. Several trends - from emerging economies and the influence of the Internet to the focus on community relations and international communications - have positioned PR executives as global bellwethers, versus regional publicists.
For example, Edelman is expected to launch a Web site for the Mexican government in about a month to counter, through tourism highlights, negative news about violence in Mexico.
From traditionalists to PR mavericks, there is the overwhelming acceptance that the Internet and telecommunications have driven the nation's appetite for information on a 24-hour basis, sources tell PR NEWS. But other than creating more sophisticated customers, the continuous news cycle has also influenced other trends that trickle into PR.
Brands have always been business drivers, but every communicator we spoke to conceded that corporate image/brands are hotter than ever, meaning "relationship marketing" will be one of the buzz words of 1999.
Consider internal communications: "Twenty years ago, you had a personnel department or human resources office holding international communications very close to the vest," says Paluszek. "Now, there truly is that circularity of interests with people with expertise in employee communications coming in under the rubric of PR. In corporations, they understand more today than ever that a contented employee means a happy customer, and a happy customer results in a satisfied shareholder."
Edelman Eking Out Profits
In 1999, Edelman is forecasting 15 percent growth, slightly lower than the 20-percent growth it had through June 30, according to President and CEO Richard Edelman. That dip is tied to residuals from foreign markets, including the economic crisis in Asia which meant the firm just nudged past breaking even in several global pockets, including Malaysia.
Although figures haven't been finalized for 1998, Edelman says the firm should close the year in the $150 million range.
Edelman's profitability, however, is a reflection of the state of PR as much as it is a statement about the survival of an independent agency. Across the board, PR firms, vendors and visionaries have sought "the deal" as a way to frame themselves as hot commodities.
Edelman may have attracted the likes of the International Monetary Fund as a client, but it also narrowed the playing field when it bought GTT Communications and lured the gaming and kids reference products accounts away from Shandwick.
(Tom Buckmaster, H&K, 202/333-7400; Jack Bergen, 877/PRFIRMS; Ray Drasnin, 619/792-9994; Richard Edelman, 212/768-0550; Rick Gould, 212/239-0804; John Paluszek, Ketchum, 212/448-4203)