Advertising Agencies: A Sluggish Economy, Reduced Margins, and Institutional Racism Are Delivering Severe Blows to Black Ad Agencies. Industry Insiders Say a Major Shake-Up Is Coming

Black Enterprise, June 2006 | Go to article overview

Advertising Agencies: A Sluggish Economy, Reduced Margins, and Institutional Racism Are Delivering Severe Blows to Black Ad Agencies. Industry Insiders Say a Major Shake-Up Is Coming


LET'S GET STRAIGHT TO THE POINT: BLACK ENTERPRISE has decided not to name an Advertising Agency of the Year. There are few companies on the BE ADVERTISING AGENCIES list that have displayed consistent growth over the past few years and, other than agencies bestowed the honor in previous years, none have offered significant or recognizable national commercials or print campaigns. Despite a collective 10% growth in billings--from $1.781 billion in 2004 to $1.963 billion in 2005--a large number of BE ADVERTISING AGENCIES have experienced a reduction in accounts as well as declining cash flow and profitability. In fact, former mainstay Spike DDB fell off this year's roster altogether.

Black ad agencies have to contend with a shifting industry as well as competitive pressures from larger, general-market agencies that work harder for--and now acquire--dollars that used to go to minority firms. Moreover, ethnic dollars, once earmarked for campaigns to reach African American consumers, have been shifted to the growing Latino segment. Also, changes in compensation have significantly diminished capital and margins. To remain in the fight, many BE agencies were forced to partner with larger firms or beef up low-margin public relations and consulting operations to service diversity efforts. Some predict a major shakeout akin to that of black insurers a few years ago. "With the exception of a couple of regional and niche players, [only] the top four or five black agencies will most likely survive the changing dynamics," forecasts Chuck Morrison, executive vice president and general manager of UniWorld Group Inc. (No. 3 on the BE ADVERTISING AGENCIES list with $200 million in billings).

Advertising spending increased by 4.6% in 2005 to $276 billion, according to Insider's Report from Universal McCann, a division of the global ad agency Interpublic Group. But many black ad agencies didn't realize any tangible benefits. War, wild weather, and widespread layoffs caused an economy still struggling to rebound to lose more momentum. That translated into few business opportunities for black firms. "The country was faced with Hurricane Katrina, extremely high gas prices, and a lot of people lost jobs, so there was a climate of conservation," says Greg Head, president of Atlanta-based HEADFIRST Market Research Inc. "Companies just weren't sure of where the economy was going. So while there was an increase in ad spending in general, there seemed to be almost a finite amount of business for African American agencies."

There's also the race issue. Charges of institutional racism within the advertising industry took the spotlight as the New York City Commission on Human Rights and the New York City Council's Civil Rights Committee launched a series of investigations on minority hiring practices at Madison Avenue's large, general-market agencies, according to Advertising Age. The trade publication says 17 agencies, some with more than 1,000 employees, have been named in the formal inquiry.

Convincing clients that there is value in the African American segment has been a struggle for black ad agencies since day one. But the growth in recent years of the Hispanic and Asian markets has made the sales pitch even more difficult as mainstream has become multicultural, with companies rushing to cater to consumers, cultural trends, and attitudes that are not just "black."

"A lot of clients are looking at multicultural spending, but the fact that they are spending against multicultural audiences doesn't mean that they are spending against the African American segment," says Eugene Morris, CEO of E. Morris Communications (No. 9 on the BE ADVERTISING AGENCIES list with $54.7 million in billings). "In fact, the Hispanic agencies are getting the lion's share of a lot of the multicultural dollars."

List leader GlobalHue (No. I on the BE ADVERTISING AGENCIES list with $470 million in billings) attributes its 17. …

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