U.S. agency revenue grows again after hitting pandemic low point in January
U.S. advertising, public relations and related services employment, a broad grouping including ad agencies, PR agencies and other services, is growing again after hitting its pandemic low point in January.
Agency stocks have rebounded as part of a broader bull market as investors bet on the recovery, with Interpublic, Omnicom, Publicis and WPP all scoring 52-week highs in April. Interpublic last recently reached its highest level since 2002.
According to IHS Markit, U.S. real (after inflation) gross domestic product is on track to grow 6.2% in 2021, the economy’s fastest growth since 1984. The forecaster expects total U.S. employment to climb back to its pre-pandemic peak in late 2022.
Joel Prakken, chief U.S. economist at IHS, last week said President Biden’s American Jobs Plan, as proposed, would push the unemployment rate down to 2.8% in the second quarter of 2024, the lowest level since 1953. (The unemployment rate in March was 6.0%. That’s a drop from 14.8% in April 2020, which was the highest level since 1939.)
However, according to Ad Age Agency Report, overall U.S. agency revenue tumbled 6.8% in 2020 as fallout from the COVID-19 pandemic pushed the economy, and agencies, into a deep, though remarkably short, downturn. That was the second-biggest drop since Ad Age began publishing the Agency Report in 1945. The sharpest decline (-7.5%) came in 2009 amid the Great Recession.
The agency revenue growth rate is based on Ad Age Datacenter’s bottom-up analysis of organic growth for major agency companies and stated or estimated pro forma growth for other agencies in Ad Age Agency Report 2021. Organic growth strips out acquisitions, divestitures and the effects of exchange rates.
U.S. agency revenue growth, 2009-2020
U.S. revenue for agencies from all disciplines fell 6.8% in 2020. That was the second-biggest drop since Ad Age began publishing the Agency Report in 1945. The sharpest decline (-7.5%) came in 2009 amid the Great Recession.
-7.5%-7.5%
7.7%7.7%
7.9%7.9%
5.6%5.6%
3.7%3.7%
5.4%5.4%
6.5%6.5%
4.4%4.4%
1.8%1.8%
1.7%1.7%
1.2%1.2%
-6.8%-6.8%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-10%
0%
10%
-5%
5%
Total revenue: $50.6 billion
Total 2020 U.S. revenue for the more than 400 agencies and agency networks tracked in this Agency Report came to $50.6 billion.
Key takeaways:
Health care
For the agency business, 2020 was a year of the haves and the have-nots. Health care led the haves as demand surged for marketing communications tied to the coronavirus.
U.S. health care revenue for agencies jumped 11.7% in 2020, according to Ad Age Datacenter’s analysis, making health care by far the best-performing discipline.
This proved to be good news for Interpublic, where health care is the largest client sector based on net revenue. Health care represented about 26% of 2020 worldwide net revenue at Interpublic, up from 22% in 2019. That includes health care work at specialty agencies (such as fast-growing FCB Health Network), media agencies, ad agencies and PR agencies. CEO Philippe Krakowsky told analysts in February: “Health care was our strongest performer all year.”
Publicis posted double-digit growth in 2020 for its U.S. health business. Health care accounted for about 12% of the company’s 2020 worldwide net revenue, up from 10% in 2019.
At Omnicom, worldwide health care revenue last year rose 3.3%. Health care was the only discipline at Omnicom to score positive organic growth in 2020.
Growth by agency discipline
2020 estimated U.S. revenue growth or decline by discipline, and digital revenue growth from all disciplines, for the more than 400 agencies and networks in Ad Age Agency Report 2021. Revenue for agencies from all disciplines fell 6.8% in 2020.
Discipline Percent change, 2020 vs. 2019 2020 revenue
Health care1 +11.7% $6.3B
Digital (including media agencies)1,2 +1.5% $29.4B
CRM/direct marketing1 -1.0% $9.4B
Public relations1 -2.6% $3.7B
Agencies from all disciplines3 -6.8% $50.6B
Ad agencies1 -8.0% $9.8B
Media agencies (excluding digital work)1,4 -15.7% $2.0B
Promotion1,5 -39.3% $3.5B
- Disciplines may overlap. For example, a health care agency may generate a portion of its revenue from customer relationship management/direct marketing, or a public relations agency may generate a portion or all of its revenue from health care marketing.
- Digital work for all networks and agencies in report, including ad, CRM/direct marketing, digital, experiential/event marketing, health care, media, promotion and PR agencies.
- U.S. revenue for all agencies in Ad Age Agency Report 2021.
- Non-digital work at media agencies.
- Including experiential/event marketing revenue, which fell 47.9%.
Experiential marketing
Exhibit A for the have-nots: Experiential and event marketing, a category crushed by COVID cancellations of conventions, conferences and consumer events.
U.S. experiential and event marketing revenue for agencies plunged 47.9% in 2020, according to Ad Age Datacenter.
Worldwide 2020 experiential/event marketing revenue sank 73% at Freeman, a major provider of services for events including conferences, trade shows, corporate events and exhibits. But Freeman is optimistic about an upturn in business.
On an earnings call last month, Omnicom Chairman-CEO John Wren voiced optimism about the long-term opportunities for experiential. But short term has been a drag. Omnicom’s worldwide experiential revenue, including events and sports marketing businesses, skidded 36.3% in 2020 after dropping 10.2% in 2019. Omnicom’s experiential revenue in first-quarter 2021 tumbled 32.7% vs. the same quarter a year ago.
Digital
Internet media and the digital economy thrived amid the pandemic and lockdown, with strong growth in such hot spots as e-commerce and content streaming.
But for agencies, digital was a mixed bag. Digital revenue for U.S. agencies from all disciplines increased just 1.5%, the slowest growth since 2009, according to Ad Age Datacenter.
Growth in the digital economy—for example, a surge in consumer spending at Amazon—doesn’t always translate into new revenue for agencies. (For its part, Amazon in 2020 trimmed worldwide ad and promotion spending even as its net sales rocketed 38%.)
Cautious and careful spending by marketers last year put a check on digital marketing. Interpublic, for example, attributed the company’s 2020 U.S. organic decrease in net revenue in part to a pandemic-related pullback in discretionary digital project-based work. Ad Age Datacenter estimates worldwide net revenue fell 14% and 8% respectively at two of Interpublic’s digital agencies, R/GA and Huge.
U.S. digital advertising last year grew 7.4%, just half the growth rate of 2019, according to WPP’s GroupM. But spending is picking up, and that should be good news for agencies this year.
Digital’s share of U.S. agency revenue
Digital work accounted for an estimated 58% of revenue for U.S. agencies from all disciplines in 2020. Digital’s share of revenue has doubled since 2010.
28.0%28.0%
30.3%30.3%
32.5%32.5%
35.3%35.3%
39.7%39.7%
41.3%41.3%
46.6%46.6%
51.3%51.3%
53.6%53.6%
54.0%54.0%
58.0%58.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
0%
10%
20%
30%
40%
50%
60%
70%
Among the world’s Big Five legacy agency companies (WPP, Omnicom, Publicis, Interpublic, Dentsu), only one—Dentsu Group—discloses in its earnings presentations how much of its business comes from digital services. The company said digital accounted for 53.9% of worldwide revenue less cost of sales in 2020, up from 47.5% in 2019. At Dentsu International, which manages operations outside Japan, 67.5% of business came from digital activities in 2020, vs. 59.9% in 2019.
Digital work accounted for 58.0% of 2020 U.S. revenue for agencies from all disciplines, according to Ad Age Datacenter, capturing a bigger slice of the pie even as overall U.S. agency revenue shrunk. That’s double the percentage of a decade ago.
Ad agencies
Ad agencies had a rough year as spending plunged in such major categories as automotive and travel. U.S. revenue for ad agencies declined 8.0% in 2020, according to Ad Age Datacenter.
For many major ad agencies and agency networks, just holding even would be an accomplishment. On a March earnings call, WPP Chief Financial Officer John Rogers singled out the “particularly impressive performance from VMLY&R, which continues to be the best performer of our global integrated agencies.”
So how did VMLY&R do? “Close to flat for the financial year in relation to net sales,” Rogers said. That’s good considering that organic revenue less pass-through costs for WPP’s overall global integrated agencies sector fell 7.9% in 2020.
Omnicom fared worse as worldwide revenue in its advertising discipline slumped with an organic drop of 12.3%.
Worldwide organic net revenue for Interpublic’s Integrated Agency Networks segment fell 3.6%.
Even before the COVID-induced recession began in February 2020, U.S. ad agency employment had trended downward from the record high of 208,800 jobs reached in July 2018, according to figures from the Bureau of Labor Statistics. Staffing bottomed out at a pandemic nadir of 186,000 in January 2021, down about 8.4% or 17,100 jobs from a year earlier.
Public relations
U.S. revenue for PR agencies fell 2.6% by Ad Age Datacenter’s analysis. But the category held up comparatively well as agencies worked with clients to address what Edelman U.S. CEO Lisa Osborne Ross calls “the quad-demic of COVID-19, economic insecurity, financial and health inequities, and systemic racism.”
At Edelman, the world’s largest public relations agency, 2020 worldwide revenue declined 5.8%, with a 4.2% decrease in the U.S.
WPP reported a 4.9% drop in 2020 worldwide revenue less pass-through costs for its PR business. WPP’s PR agencies include BCW (Burson Cohn & Wolfe), Finsbury Glover Hering and Hill+Knowlton Strategies.
Omnicom for 2020 disclosed a 5.5% decrease in worldwide revenue for its PR discipline, which includes FleishmanHillard, Ketchum and Porter Novelli.
PR agencies maintained comparatively steady employment during the pandemic and economic downturn. U.S. staffing in February 2021 (58,600) was just 1.7% below its year-earlier level, according to the Bureau of Labor Statistics.
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