Markets

In Advertising, Bigger Is Better as Recovery Kicks in; Smaller Ad Agencies Not Yet Feeling It

By Jim Edwards

Updated on: March 3, 2010 / 7:20 PM EST / MoneyWatch

With six major ad agency holding companies all reporting their Q4 2009 earnings results, we can see who's winning and who's losing as the recovery kicks in. When you look at their revenues sequentially, the bigger networks -- Omnicom (OMC), Publicis (PUB), Interpublic (IPG), and Valassis (VCI) -- have all seen business pick up over the last three quarters.

But two of the smaller players -- Lamar Advertising (LAMR) and ValueClick (VLCK) -- haven't seen the same benefit. (Only the tiny MDC Partners (MDCA) has seen growth.) They're still bumping along, waiting for the light at the end of the tunnel. The phenomenon seems to be related more to size than speciality. Lamar Advertising sells billboards almost exclusively, the most old-fashioned form of media. ValueClick is a web-only play. So media positioning doesn't seem to be a factor:

The trend is counterintuitive because it's easier to grow a small business than it is a large one. One possible theory: In a recession there's a flight to quality blue chips and safety in just the same way that there is in stocks. So when recovery kicks in and clients increase their media spend, those big, safe, well-known agency names are able to surf higher on the wave than their smaller counterparts.

The jury is still out on the issue, of course. Year on year, most of these businesses are still in decline. The fourth quarter is always a good one for ad agencies as clients clear outstanding bills for the year. So the effect may be a short term one. Here's a prediction from WPP (WPPGY) chief Martin Sorrell (who has yet to report his year-end numbers): "We're budgeting to see organic growth in the second quarter of 2010."

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Image by Flickr user Sekimura, CC.