US Ad industry bounces back. Digital leads revenue growth

According to Ad Age’s Agency Report 2011, the advertising industry recorded revenue growth of 7.7% in 2010 to $30.4 billion, in what it said was US (domestic) led recovery of the worldwide advertising market.

However, it also correctly tempers the growth results, or rebound, with the following statement:

WPP Chief Executive Martin Sorrell has called a “dead cat bounce”: The ad business fell so sharply that it wasn’t surprising to see decent percentage gains when the economy began to recover after the longest recession (December 2007 through June 2009) since the Great Depression.

Ie. We’re only just making up for 2009 and still have lost ground to catch up to.

But making up for lost ground is better than continuing to lose ground. And given that the industry went from a 4 year average annual growth rate of 8.3% (2004-07) to just 3.7% growth in 2008 and a -7.5% decline in 2009, the +7.7% result for 2010 is definitely a good sign of things to come in the future and will spark increased confidence in the industry and beyond.

Already, the big 4 aka WPP, Omnicom Group, Publicis Groupe and Interpublic, have reportedly added 11,000 jobs in 2010 after a headcount reduction of 22,000 the year before. That’s 50% of jobs back within the year.

Digital marketing was highlighted as the star performer, accounting for 28% of agency revenue. As an “agency discipline”, pure-play digital services led revenue growth with a 16.3% increase, compared to an average of 6-7%.

The US market accounts for 42% of the world’s top 50 agencies’ revenue and in the last year, these agencies have seen growth in the US market outpace that of other regions (although in some cases, acquisitions may have played a part). See the Ad Age chart below on revenue splits by agency group and region:

So what does this mean for the short-medium term future? Well, Ad Age concludes that:

With the economy and financial markets back on track, marketing-communications companies have returned to merger-and-acquisition mode, doing a lot of buying — and some selling.

Omnicom is undertaking a global review of operations with the aim to reorganize or dispose of what President-CEO John Wren has termed “non-core, low-growth, low-margin businesses … generally in smaller markets.” As of April 2011, Omnicom had disposed of units with combined annual revenue of about $120 million.

In other words, a lot more consolidation and rationalisation of cash cow business units and a lot more expansion into growth areas like, surprise surprise, digital, which will in turn continue to fuel the spending into and out of digital agencies.

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