Public relations experts are increasingly part of big pitches, crafting campaigns and setting the pace. The big holding companies report their PR business units earning better margins than traditional creative and media businesses.
Public relations, increasingly being called to the marketing table first, is shining in a broader advertising industry where margins are squeezed and pitches are getting tighter.
The future is earned, socially-enabled content, often built for specific platforms or devices, and public relations is well-placed to deliver.
In a challenging market, public relations has tended to be more resilient than the main business of advertising, according to industry analysts.
This is one reason why margins at PR units within the big advertising holding companies have improved in the last couple of years.
Another is the growing demand for earned media where third parties take up and adopt the thrust of a campaign, giving it currency beyond paid advertising. This includes the traditional news story via a mainstream publication but also now the growing universe of social media platforms, via text, audio and video.
This feeds into the stepped change in the way people now consume media. We’re all on our phones or other mobile devices, looking for authentic storytelling, a genuine piece of content that resonates with today’s life, information we can use, a social issue we can back, a movement to be a part of.
In dollar terms, these PR units, while smaller in dollar terms than the core advertising and media engines of the holding companies, regularly outpace other profit centres in terms of margins.
In Australia, WPP AUNZ’s Public Relations and Public Affairs has recorded margins as high as 24% (half year to December 2018), well ahead of the core Advertising, Media Investment Management. But PR is a smaller revenue base.
In the six months to June 2019, PR pulled in about $29 million with a margin of 16.6%, which was only beaten by Data Investment Management at 17.2%. The margin for Advertising and Media Investment Management — with sales of $236.7 million for the six months — was 9.9%.
For the full year in 2019, PR at WPP AUNZ had a standout margin of 20% on revenue of $56 million. No other business unit came close.
Jens Monsees, CEO of WPP AUNZ: “We are obviously happy with the current margin, but we want to foster growth.”
He sees PR changing like most aspects of the business. “We are seeing a much more interesting move into the social space, but also into the influencer space. I see a lot of more celebrities coming up. If you think about how many brands are entering a new market, for example, China with a very strong influencer and digital PR strategy, then it’s one of the most compelling cutting instruments or communication instruments.”
Monsees plans to invest in people at his PR brands. “We need to skill them up to be able and capable to lead the new norm in the future,” he says.
Globally, PR is a big earner for the holding companies.
At Omnicom, with its Porter Novelli agency named PR Agency of the Year in the US, annual revenue for PR was last reported at $US1.38 billion, about 9.2% of total billings. Organic growth had slipped by 2% (compared to overall growth for Omnicom of 2.8%) but CEO John Wren sees PR as an opportunity. He says the profitability of the PR division has been, and remains, very strong. “It’s not anything structurally to do with the business at this point,” he told analysts during a briefing.
Analysts describe the public relations industry as partly counter- cyclical, and that it has benefited from greater demand from advertising agencies and mixed consumer sentiment.
“Due to some economic uncertainty, some client companies and organisations have preferred PR activities to advertising campaigns during the past five years,” says Australian industry analysts at IBISWorld.
“A growing proportion of marketing budgets has been allocated to PR rather than to traditional media advertising. This trend has also been due to media fragmentation, which has made audiences harder to reach and has prompted marketers to pursue more targeted communication methods.”
The fragmentation of media consumption is accelerating, says Kieran Moore, CEO of WPP AUNZ’s PR & GR. “People are consuming media on their phones and have very low engagement levels with traditional media platforms,” she says.
The percentage of 15 to 16-year-olds who read newspapers fell to 20% between 2009 and 2018, according to the Programme for International Student Assessment in the OECD (The Economist, December 2019).
“The future is earned-led, socially-enabled content and stories built for devices, which plays well to PR’s strengths,” says Moore.
All marketing disciplines benefit when the economy does well and companies spend on marketing and reputation, but PR might have an edge.
“We would argue there is more of an elastic relationship between the economy and advertising, while PR tends to be more resilient,” says Moore.
Ad spend, as measured by media agency numbers, has been recording month after month of negative growth in Australia but PR keeps edging higher. IBISWorld puts recent growth at 2.3% a year with total PR industry revenue at $604.8 million across more than 400 businesses. The forecast to 2025 is 2.5% growth each year to reach $685.6 million.
The big, never-ending quest to reach customers is driving growth.
“PR is growing and is being driven by the changing way people consume their media — moving to phone-based consumption through video and visuals, social media, personality and influencer-created content,” says Moore.
PR and communication services are experiencing a “heyday” in terms of demand and scope, according to Moore and many other industry insiders
“Brand marketing and consumer continues to grow and grow — with the integration of social, digital and earned campaigns coming together to drive effective and engaging work,” she says.
“One area that is particularly growing is healthcare. And we are also seeing growth in our corporate reputation work as businesses, organisations and governments navigate heightened scrutiny and transparency, and are experiencing an increase in expectations around their role in the world.”
All disciplines work best when they are aligned and collaborative, says Moore. opr (Ogilvy PR) works closely with Ogilvy on a number of clients, including KFC where campaigns such as KFC Weddings and Michelin Impossible were developed by both teams working together.
“Both of these are great examples of effective earned-led thinking that works across multiple channels,” says Moore.
“I would say the toughest job creatively is to get an idea that is truly able to earn its place in popular culture. That is often a very different brief to an effective ad which can often have a job to deliver awareness, so advertising agencies increasingly have, and need, PR people to work with their teams with that storytelling, earned-first approach.”
However, all marketing budgets are being squeezed with a fragmented media landscape and new platforms emerging
Moore’s experience is that these budgets have always been under pressure.
“Advertising, because of the media buy, tends to have a bigger share of the marketing budget, so might see more scrutiny,” she says.
“One of the challenges PR has traditionally suffered from is poor measurement, meaning CMOs and CEOs struggle to see its overall effectiveness, but this is changing.
“This rise of PR agencies winning Cannes Lions last year demonstrates this, and as companies like us continue to invest in measurement systems, it means this will be less of a challenge in the future.”
Skye Lambley, group managing director, Herd MSL, says clients are looking for external experts to support marketing function and to provide a different perspective on the barriers and opportunities for their brands.
“Advertising and PR are a powerful combination that can tell the same story in different channels, in different ways,” she says.
“Consumers are overloaded with content, so the more opportunities there are for consumers to see a message or hear a story, the more memorable it becomes — if the story is right for the audience.”
Herd MSL, part of Publicis Groupe, has teams for diverse areas in the marketing mix, such as commerce, performance, data science, content, production and influence.
“We are seeing more opportunities for us to partner with ad agencies to amplify campaigns and drive results,” she says.
An example is Tourism and Event Queensland’s campaign scUber, co-developed by Herd MSL and Publicis Worldwide out of Queensland.
“To ensure that campaign was successful in reaching a global audience, we worked hand in hand with their creative teams to bake the earned component right into the idea,” she says. “At the end of the day, the right solution comes from understanding the challenge and the opportunity.”
Unique
A renewed focus on content can be seen in the changing roles within the PR sector. Common job titles include head of digital, digital strategist, insights and analytics specialists, and content specialists. These people work on creating unique content.
“It’s the work that is emotionally impactful, culturally impactful, that really matters to clients, and that’s what we tend to deliver,” says Roberto Pace, managing director, Eleven & FleishmanHillard at TBWA.
“We always say to partners, respectfully, please don’t come to us with the PR brief, come to us with a business problem and let us look at how we can solve that with you and your partners through the lens of culture, because culture is very powerful in terms of how it can resonate with your audiences.
“We have specific ways, and processes, and systems, and thinking, and people who can work within the realm of culture to make it beyond the expected.”
Question: Why does an ad agency need a PR business?
“The bigger question is: why do we need each other?” says Pace.
“I’m less interested in talking about us versus them or about what we collectively need to do for the brands and partners.
“Who owns creative, who owns messaging, who owns strategy? We all own it and then we don’t. We’re here to drive a client business forward and the client’s needs are forever changing.
“They’re more confused than ever about where, and how, and what, and why they should be spending. But the message we get from clients is they need all of their partners to do more.”
And clients want earned media, a third party media influencer, a partner, wanting to talk about it.
“When we talk about earned media, we’re ultimately talking about having to earn an outcome that is not in a payable owned channel,” says Pace.
“So we come up with an idea with such cultural relevance, or significance, or impact that media influences, brand partners, key opinion leaders, audiences, stakeholders, they willingly take part, not because they’re being paid to or have been instructed to.
“Ad agencies who are doing it well are being recognised for that because (award) jurors, and companies, and brands, and decision makers are saying there’s something in this that makes me feel something in a way that lasts and has impact and relevance with me beyond just the 20 seconds or 15 seconds that I engaged with it.
“It makes it more genuine in a time where trust is at an all time low. People are very sceptical of the world out there.”
PR needs to not just be thinking about media influencers, messaging and issues management and all day to day work that keeps a business afloat.
“We also need to be thinking about the much bigger picture and how what we do can influence paid and owned channels, and conversely, creative to be doing the same,” says Pace.
“When we’re coming up with creative, digital or shopper campaigns, the more there is an earned bent to them, right in their heart, the more likely it is to resonate with the consumer.
“For me, it’s not an either/or conversation. We all need to be doing it and the best outcome is we all learn how to be better at each other’s respective field while also respecting there will always be subject matter experts who we should work with and try to move things forward.
“Ad agencies having PR people in their businesses is nothing new, but in the vast majority of instances it is segregated and the process in which they work is not one where everyone is coming at it from an even playing field.”
Some ad agencies have PR but the creators and the strategists are still leading. The PR experts are brought in late.
“Whether the ad agencies bring in PR people or not, it’s not really the point,” says Pace. “The point is having people in your business — PR, creative strategist or not — who understand what earned media is about.”
But they also need a way of working, a culture, where everyone has a voice. “That is far more important than ad agencies getting PR people in the room,” he says.
Teams
Tabitha Fairbairn, managing director of Mango Communications, part of DDB, regularly creates bespoke teams to service unique needs. “These core teams are often made up of discipline leads and execution teams,” she says. “This has changed how our agency model responds to a new brief and who is at that table when the brief comes in.”
Fairbairn says great PR capability is as important to ad agencies as great creative is to PR agencies.
“It’s getting tougher to get cut-through for brands with traditional media strategies, but strong creative helps overcome this,” she says.
“Creative and PR might be different disciplines, but it’s a symbiotic relationship. We have specific staff in Mango who are responsible for working with the creative teams to earned currency in creative campaigns. PR-led creative ideas are winning more awards, getting people talking and creating more fame for brands.”
And great ideas can come from anywhere.
“What clients want is a full-service solution that understands the consumer, the channels, and how the idea will play out across the mix,” she says.
“Agencies can operate in silos, but it’s more effective when there’s a collective approach. Our integrated model has been delivering strong results for clients; no idea or starting point is off the table and it’s the integrated team’s job to support each other and deliver the best result.
“Earned ideas are becoming much more central to integrated communications planning. Increasingly, clients are looking for campaigns that are PR-led, as opposed to a bolt-on publicity approach. Driving comms through PR first puts the consumer front and centre.”
However, tougher economic conditions mean there are fewer retainers, and the industry is moving to a project-based model.
“Due to the nature of PR (you can turn it on or off very quickly), resourcing a business is always going to be challenging because clients’ budgets change,” she says. “PR is often one of the last channels to be briefed and funded, so it is impacted when priorities shift.”
Creative agency dollars
Leilani Abels, founder of independent agency Thrive PR, says there’s greater investment today in PR and she’s increasingly finding herself at meetings with clients who have brought along their advertising agency.
“It’s definitely gone up the ranks relative to where it sits in the broader marketing mix. That’s a great place to be if you’re sitting in the comms space like us,” she says.
“The service-offering that falls under the PR umbrella has expanded and diversified. That means there’s greater demand, and greater investment. Demand is increasing also by category.
“We talk about ourselves being a ‘corpsumer’ agency, where we have an area of the business that’s all around corporate comms, thought leadership. On the flip side of that coin is all of your big brands, consumer work. And what traditionally happens is you would have specialist agencies either doing all corporate or all consumer. At Thrive, we built our business model to take advantage of growth in both.
“Big brands, that might have traditionally used two or three agencies from a PR perspective, are spending more with us because we’re delivering this corpsumer model.”
Abels also sees demand for content. “The marketing dollars that might have traditionally been spent with a creative advertising agency are now going to us,” she says.
“The smart marketers will say, ‘Okay, here’s the budget,’ and allow us to look at how can we use some of that traditional media spend to do media partnerships that are part paid content? How can we also use some of that money from a content-production perspective?’
“That content piece is certainly on the rise and the PR people are now the ones who are being considered as quality producers of that content. We’re producing these visual storytelling tools that traditionally might have only sat in earned, but now the marketeers are allowing us to also play in the owned and the paid media space.”
That’s where PR agencies are adding value.
“It could be a branded content that might fit as part of a paid media partnership, it might be producing content for websites, or producing content for internal comms,” says Abels.
Clients are saying: “Okay, how can you build out the tentacles of that content so we can use it across our own channels?”
“We’ve only had content production internally for the past five years, and the past three years as specialised services,” she says.
“The larger-size PR agencies will have digital specialists internally. We’ve got graphic designers, videographers, photographers and content producers who aren’t doing traditional PR but are powering PR storytelling. They are helping us add value to the way we produce content for clients.
“We are diversifying the workforce relative to the different types of skills we’re hiring into the business. And at the same time we’re upskilling because of the way the media landscape has changed.
“Some of that talent would have sat traditionally in a digital marketing agency or in an ad agency. And now they’ll sit in a PR agenc. Some PR agencies will have a head of creative, which traditionally is an advertising agency resource.
“The marketers are saying — and this has only changed in the last five years — ‘We want the best idea, and we don’t care which agency that great idea comes from.’ The PR people have stood up to that challenge.”
The smaller players are also seeing growth. Amanda Lacey runs POPCOM, a standalone communications consultancy with a staff of three. “The margin is good,” she says. “I’ve made a choice to be more specialist and am able to run a pretty lean ship.”
Lacey doesn’t try to tackle areas she’s not an expert in, such as social media or video campaigns. “I’d rather align with another agency which has that expertise, and manage the project to ensure it is synchronised, rather than be a jack of all trades,” she says. “It always works out to be more efficient if you do this.”
The rise of the micro-influencer
“With the increased trust consumers have in the advice of friends and family over companies, it’s no wonder micro-influencers have higher engagement rates than macro-influencers, according to multiple studies,” says Lacey.
“This will no doubt continue into 2020. There is no denying that word of mouth and personal recommendations will trump any advertising or PR campaign, which is why we have seen success with the use of micro-influencers.
“However, the influencer is only one part of the PR equation. A good campaign is synchronised to ensure that the messaging in on point. Consistency will create authenticity and increase trust in a brand.”
Sweet spot
Richard Brett, CEO of opr agency, says the rate of change is enormous. “It’s harder and harder, and more exciting than ever before, as we find new ways to get our stories across to the audiences our clients care about,” he says.
“After the transition to social and digital, we are now really excited by the integration of sales enablement into earned campaigns that include earned, social content and performance marketing as well. We have now executed a few of these campaigns and it is a really interesting growth area.”
One of the most successful campaigns reached 3.8 million Australians with 9500 target customers visiting the campaign microsite with a 6.34% conversion to enquiry.
And corporate reputation work and purpose-led campaigns work are on the rise. Trust is crumbling everywhere and people are looking for the genuine message.
“More employees, activists and investors are not only holding companies to higher standards when it comes to the environment, sourcing and employment practice, but with governments around the world failing to deal with some of the world’s biggest issues, we are seeing the growth of corporate reputation work,” says Brett.
“We are also seeing the demand for purpose-led campaigns that see companies work to solve global, national and community issues.”
PR is also growing in a complex, multi-stakeholder environment. “In an era of rapid transformation, we are also seeing CEOs realise the importance of a highly effective, people/employee-centric culture,” says Brett. “Our work in the employee experience, culture-change and internal communications area is growing.
“Clients want experienced practitioners who are deep experts in their industry or sector, not just generalists.
“We are also seeing the rise of more technical roles to supplement the traditional PR generalists. We are seeing agencies become more diversified with experts in strategy, data, creativity, content, trend prediction, influencer and sales enablement.”
PR and ad agencies together create a sweet spot.
“Studies clearly indicate that when both advertising and PR are used together, campaigns are most effective,” says Brett.
“We would also argue that both have slightly different roles. Advertising is (despite the fragmentation of media consumption) still incredibly good at delivering awareness quickly, whereas PR can be more of slower build, but is much more effective at delivering credibility, authenticity, reputation and attitude change.”
He says the PR industry is growing as the world becomes more earned-first and social.
“It is also true to say that the Australian advertising agency as a whole is predicted to grow between now and 2023, but most of that growth is coming from internet media spend,” he says.
“Creative advertising shops aren’t necessarily shrinking, but there are more headwinds as they navigate changing consumption.”
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.