“Black agencies need to explore new and different business models to better compete,” says Donald Coleman, chairman and CEO of GlobalHue (No. 1 on the BE ADVERTISING AGENCIES list with $550 million in billings). “Consolidation and acquisition, among other things, should be considered.”
This statement from an executive at the largest black-owned advertising agency underscores the state of the industry–and particularly the ever-diminishing role of African American entrepreneurs within it. While billings for the agencies increased 7%, these firms were forced to continue draconian cost-control measures while trying to grow business with existing clients and in some cases taking on less profitable assignments. Emphasizing the grimness of the situation, BLACK ENTERPRISE has for the second consecutive year elected to not name an advertising agency of the year.
While The Nielsen Co. reported that advertising spending for 2006 rose 4.6%, several factors, including competitive pressure from larger white-owned agencies, a certain degree of racism, and a shift of spending toward the Hispanic market, have left many black agencies in critical condition. The loss of African American executives in the ranks of mainstream marketing organizations who would normally champion the case for valuing the black segment, such as Jerri DeVard, the former senior vice president of brand management and marketing for Verizon Communications, compounded the problem.
Among the firms that have grown is IMAGES USA (No. 9 on the BE ADVERTISING AGENCIES list with $62.5 million in billings). The firm grew business with five of its existing customers–Amtrak, Wachovia Corp., the Georgia Lottery, National Black Arts Festival, and myClosingSpace.com, while creating African American and Hispanic marketing campaigns for six new clients–Papa John’s International Inc., Cardinal Health Inc., FedEx, Sara Lee Corp., International Speedway Corp., and Aflac. All told, the firm grew its billings by a little more than 22% and hired 10 new staff members.
The key for IMAGES was expanding its offerings for existing clients. “For example, we started with Amtrak two years ago doing advertising for the Southeast long-distance train service and, based on the success we’ve had, they gave us the multicultural business nationally,” Robert L. McNeil Jr. says. Today, IMAGES is the multicultural agency of record for Amtrak’s nationwide long-distance service and its premium Acela Express service, which caters to business travelers. Amtrak Acela Express ridership increased to 2,668,174 in 2006, an 8.8% increase, while revenues rose 18.8% to more than $328 million. According to spokeswoman Karina Romero, ridership on the entire Amtrak system has increased for three straight years and the company is confident that the multicultural campaign has contributed to the growth.
Among the agency’s 2006 campaigns was a television spot designed to demonstrate Wachovia’s commitment to the African American community that featured a testimonial in which a customer told of how her financial health was improved as a result of the bank’s efforts. The subject of the commercial spoke of her financial goals and how the bank was able to help her with a retirement plan and ultimately with the house of her dreams. The advertisement became the bank’s first national African American TV commercial.
Coleman’s GlobalHue continues its reign at the top of the list, having gained 17% after landing the African American portion of Wal-Mart’s $580 million marketing campaign. The agency also exercised organic growth with its clients Chrysler and Verizon Wireless. Other agencies followed suit. For example, Equals Three Communications (No. 15 on the BE ADVERTISING AGENCIES list with $43 million in billings) expanded its healthcare portfolio with current client the National Institute of Mental Health by adding two new accounts: the American Association of Geriatric Psychiatry and the Geriatric Mental Health Foundation.
Time for a turnaround?
The question on the minds of many within this space is: Is there really light at the end of the tunnel? Or could black ad shops be headed for even tougher times? “There has been little new business for black ad agencies because there are just not enough companies that are doing targeted programs to African American consumers because [advertisers] don’t think that those programs will be significant in their ROI,” says Ken Smikle, president of Target Market News, a Chicago-based firm that monitors African American marketing and media.
Consider also that while overall spending may be up a bit, media spending has generally been flat, according to Lisa Sanders of Advertising Age. “And there was no growth in print ad spending from newspapers in the United States and less growth from magazines because of a decline in readership. People are getting their information from other sources such as the Internet,” she says. The Nielsen report confirms this, noting that while ad spending in national magazines rose 3.9% and national newspapers gained 2.9%, Internet spending spiked 35%.
“If your agency is focused toward doing one thing that there is not as much demand for anymore and suddenly you find that your clients are asking you to create advertisements for other types of media, you’re going to have to change your talent pool and your expertise,” Sanders says. “If you’ve been structured to create largely TV, radio, and print, and the money is shifting out of those media to other areas, and you don’t have that expertise, then you may find your revenue declining.”
For the black ad agency, already receiving only a fraction of the ad dollars doled out to general-market firms, this shift in media spending has translated into fewer opportunities. In fact, some black ad shops have taken on less lucrative assignments in public relations and events marketing to keep business coming in. R.J. Dale Advertising & Public Relations (No. 14 on the BE ADVERTISING AGENCIES list with $44.5 million in billings) was retained by independent publishing house Third World Press to create a marketing campaign for Tavis Smiley’s book The Covenant with Black America ($12).
The end result for black ad agencies has been modest gains marked by–in some cases–painful losses. After 14 years of delivering creative for Wal-Mart, E. Morris Communications (No. 11 on the BE ADVERTISING AGENCIES list with $56.2 million in billings) lost the account following a major shake-up at the retail giant. After Wal-Mart ousted key ad executives and fired its new lead general-market creative agency after just one month on the job, it held a six-month agency review to find new blood. CEO Eugene Morris says while the split between his agency and Wal-Mart did not impact his bottom line for 2006, it could deliver a financial blow in 2007. “Wal-Mart had been our largest account, and we did a lot of great work for them. So when the agency review began, we really didn’t pursue any new business because we focused on retaining that account and taking care of the businesses that we had. Going into this year is going to be the real challenge,” Morris says.
Business as Usual
Although it’s been an issue for black ad shops for some time, the outcome of last year’s investigation into the minority hiring practices of 16 general-market firms on Madison Avenue could end up making
But Morris worries about where the talent will be pulled from. Pay inequities at the entry level and an industry that suffers from somewhat of an image problem have kept many African Americans from considering advertising as a viable care
er opportunity. “So what makes anybody think that suddenly because there is a mandate that you can just go out and create pools of talent where it didn’t exist before?” Morris asks. “You can get talent from African American agencies or you can get it from the clients, but general-market shops are less likely to raid their clients than they are to come after us.”
According to the 2006 American Advertising Federation Survey on Recruiting and Multicultural Advertising Trends, only 15% of the respondents said their companies were successful in recruiting and retaining minority talent. For the past decade, the federation’s Most Promising Minority Students Program has been working to link top advertising and media companies with minority students interested in pursuing a career in the industry. In fact, the program grew by 25% from 2005 to 2006. To help with recruitment efforts, Morris, also chairman of the Association of Black-owned Advertising Agencies, says the organization plans to work with the American Association of Advertising Agencies and Howard University to develop a plan to bring more minorities into the business.
According to Morris, the road to success for black ad agencies includes evolving into integrated marketing firms that can develop and deliver total programs that meet the needs of their clients. They also must demonstrate that they can create programs that resonate with all audiences–not just the African American consumer. “One of the things that I think last year showed was that there are those black agencies that are only going to focus in this one space and are determined to survive with that singular focus. Then there are those companies that have diversified their focus and are willing to grow and evolve with the market and with the industry,” he says. “Those companies that have diversified are those that are going to thrive.”
Advertising Agencies Eligibility
An advertising agency must be at least 51% black-owned and have been fully operational for the previous calendar year. To qualify as a full-service advertising agency, the company must provide creative services as well as make media placements: purchasing time and/or space for a clients’ advertising. Companies that only provide consulting services, create or produce advertising, or do media placements do not qualify as full-service agencies. (We canvassed the Standard Directory of Advertising Agencies, combed industry publications, and made inquiries in the field to identify full-service agencies.)
An agency’s financial status is measured in terms of billings–monies allocated by an advertiser to its agency to buy time on television and/or radio or space in publications. These media outlets then pay a commission to the agency in the form of a discount, typically between 15% and 20%, which the agency counts as revenue. Other sources of revenue include production fees that the agency charges to its clients and fees for adjunct services such as public relations, consulting, and promotional work. Our ranking of the 15 top agencies is based on a combined total of actualized billings, in addition to capitalized billings (commissions that haven’t been paid but the media buys were completed), and other agency fees.
Although it’s been an issue for black ad shops for some time, the outcome of last year’s investigation into the minority hiring practices of 16 general-market firms on Madison Avenue could end up making the problem even worse.
B.E. 100s Flashback
The first time BLACK ENTERPRISE ranked our Top 15 black advertising agencies was in 1973; those firms produced collective billings of $31.4 million. In 1998, our editors revisited the ranking because of changes in the industry. Some black firms, once the go-to agencies to reach African American consumers, were now merging with majority companies, and others were competing with mainstream agencies for accounts. The 20 agencies ranked that year–only three from the original list had survived–had collective billings of $794 million. Today, BE agencies (the list is scaled back to 15 again) continue to be cut down as ad giants persist in invading their turf.
Advertising Summary:
| Â | 2006 | 2005 | % Change |
| Employees | 1,076 | 1,049 | 2.57 |
| Billings* | $2,109.134 | $1,963.207 | 7.43 |
*In millions of dollars, to the nearest thousand. as of Dec. 31. Prepared by B.E. Research.Reviewed by the Certified PublicAccounting firm Edwards & Co.