O.C. Ad Industry Takes a Beating From Recession : Trade: With businesses cutting back, the large agencies from New York and Los Angeles have begun chasing smaller accounts in the local market.
John Good’s timing was pretty bad.
In May, 1989, the 27-year-old publisher founded a magazine to showcase the Orange County advertising industry. OC AdNews was a glossy, sophisticated publication aimed at promoting the county’s creative talent to the many corporations headquartered locally.
But Good hadn’t planned on the recession, which has driven about 200 of the county’s 420 ad agencies out of business and has put 4,000 people out of advertising-related jobs. After consuming Good’s life savings of $40,000, OC AdNews ceased publication last September.
The recession has forced many businesses to cut spending, and one of the first places they have looked is to their advertising budgets. Magazine ad pages, for example, dropped 8.7% in 1991 from a year earlier--the steepest decline in 30 years, according to the Publishers Information Bureau.
As the industry has fallen on hard times, large agencies from New York and Los Angeles have begun chasing smaller accounts in secondary markets--the type that many Orange County agencies thrive on. In the past, big agencies usually thumbed their noses at accounts less than $5 million. Not any more. When a $2-million account for sport-shoe maker K-Swiss was up for bid recently, 50 agencies--including some of the largest in the nation--competed for the job.
But Orange County’s ad agencies were losing ground even before the recession struck. Not so long ago, the local industry seemed about to emerge as one of the country’s hottest second-tier ad centers--with a separate identity from Los Angeles. The now-defunct Irvine agency Cochrane Chase, Livingston & Co., for example, used to brag about its Orange County home with a sales pitch it called “Blood, Sweat and Orange Juice.”
But such bragging ended when some local agencies let major home-grown accounts such as Taco Bell and Carl’s Jr. slip away. Now, other secondary ad markets, such as Minneapolis and Portland, Ore., have surpassed Orange County in reputation, industry executives said.
“At least in the short term, you’re going to see a lot of larger, out-of-town agencies competing here for the smaller stuff,” said William Hagelstein, general manager of Foote, Cone & Belding in Santa Ana. “That’s the reason so many agencies are going out of business.”
Some of the larger agencies that have disappeared are Smith, Doyle & Partners Inc., Roggers, French & Co., and Clark, Meyer Charters & Howell. Many jobs disappeared, too.
Elaine Carver lost her job as media director at Clark, Meyer when it went out of business in July. She formed a media consulting company in August and has been free-lancing since then. Carver is one of the lucky ones; lots of other ad executives are still looking for work.
“The climate is perfect for free-lancing, because many companies don’t want to hire staff now,” said Carver, who is president of the Orange County Ad Club.
Some small agencies are happy just to be surviving the recession. Murphy & Watt Advertising in Irvine is a three-person firm that has seen its business fall off sharply as customers cut back on advertising. When the company opened in 1988, its founders’ goal was to build a 15-person firm in 10 years.
The company hopes to bill about $500,000 if clients spend as planned during the coming year, said creative director Jill Murphy Long. The start of 1991 also looked good, however, but billings reached only $200,000.
One of Murphy & Watts’ accounts refused to pay a $14,000 bill owed to a publication in which the agency had bought space for the client. “A couple of times, I had to show up at the client’s door,” Long said. “Not only was I not getting a commission, I was getting bad credit.”
The recession has forced some agencies to become more innovative to stay in business. Bell & Roberts, an Anaheim Hills agency that employs eight people, has automated what used to be a person-to-person service for nearly half of its clients. Clients can now use a software program developed by Bell & Roberts that identifies target markets and product information.
“It is literally a way to get the information we need without the fat, the servicing, the months of finding out about the client,” said Arthur Cole, an industry veteran who helped write the Ad Direct software program.
Company President Thom Bell says he hopes to license the software to other agencies. “The human, creative element is not in any way eliminated from this process,” he said. “In fact, the best creative (product) comes from having the information focused down; it’s a funnel process.”
Bell & Roberts said it billed $8.3 million in 1988, with a profit of less than 2% of sales. In 1990, the company billed only $6.5 million, but made a 7% profit.
The local industry has pockets of strength. Two of the county’s largest independent agencies--Costa Mesa-based Salvati, Montgomery, Sakoda and Irvine-based dGWB--have continued to hire people and win accounts during the past year.
The county is also home to three of the five largest U.S. companies serving the Latino market, which is growing in spite of the recession.
And some of the biggest names in advertising have opened offices in Orange County to serve the U.S. import arms of Asian car makers: Foote, Cone & Belding in Santa Ana handles advertising for Mazda Motor of America; Backer Speilvogel Bates in Irvine has the Hyundai Motor America account; and Grey Advertising in Cypress handles the Mitsubishi Motor Sales of America account.
Together, those branch offices employ more than 380 people. But they are not broadly competing for advertising business and essentially serve as in-house advertising departments for their clients.
The optimists among local ad executives argue that the recession will focus attention on the creative talent at the few large agencies left.
“When a lot of agencies fall out, the ones that survive are going to get stronger because of it,” said Greg Smith, who recently closed his 11-year-old agency to go to work for a competitor. “We’ll pick up business that other people lost, talent that other people lost. It may allow us to bring Orange County onto the national scene.”
Some observers say local agencies blew that opportunity once before. Of the 35 largest corporate advertisers, only eight spend their money locally. For example, Taco Bell in Irvine and Armor-All Products, the Aliso Viejo car-care products company, uses the San Francisco office of Foote, Cone; Coldwell Banker Commercial Group in Mission Viejo uses Della Femina, McNamee WCRS in Los Angeles; and Kresser Craig in Santa Monica handles advertising for Clothestime, the fast-growing Anaheim apparel chain.
“All of the home-grown accounts have outgrown the county,” said publisher Good. “How come the industry hasn’t kept pace with the client growth? You have these entrepreneurial companies and these entrepreneurial agencies. Why aren’t we growing at the same pace?”
Robert Kwait, creative director for Philips-Ramsey, one of the largest ad firms in San Diego, said some movement to outside agencies is inevitable. “If the guy making the decision chooses the big agency with the big name, he can’t bomb,” Kwait said. “It’s a safe move, even though a smaller agency in your own back yard might do a better job.”
To be sure, Orange County agencies have pulled in some big accounts in the past year. Heil-Brice Retail Advertising, a husband-and-wife television production company in San Clemente, won a $16-million account to advertise Alpha Beta, Viva and other supermarkets owned by La Habra-based Food 4 Less. And Basso & Associates in Newport Beach, another retail-oriented company, won the creative portion of Los Angeles-based Thrifty Corp.’s advertising--an account estimated at $25 million.
John Vrba, senior vice president of Western International Media Corp. in Newport Beach, sees a message in those two awards: “I think there’s a real future for specialists.”
Lynn Livingston agrees, although he never would have admitted it when he was president of Cochrane Chase, Livingston, a full-service agency that closed in December. Livingston since has opened a new firm--Livingston Wilson & Associates in Irvine--whose plan is to allow clients to handpick the services they want from different agencies and free-lancers, instead of paying an advance retainer fee.
“There’s a lot to be said for the full-service agency, but as more niche marketing appears, you find that being full service requires a specialist here, a specialist there,” Livingston said. “You get to the point where the (agency) is bulging with specialists, and the client is paying for that. It takes salesmanship to sell around that.”
Sipping from a white Cochrane Chase, Livingston mug, he explained how Saatchi & Saatchi, the London-based ad giant that owned the local firm, repeatedly declined a management buyout offer after months of negotiations.
Finally, last December, the agency shut down, putting 33 people out of work. The granddaddy of Orange County advertising, Cochrane Chase, Livingston, which once employed 150 people, is credited with spinning off 17 other agencies.
Livingston said he is enjoying the freedom of working for himself again. “I sometimes have a tendency to believe that I am the controller of the universe, and that I have to be responsible for everyone,” he said. “A lot of that feeling has disappeared.”
Orange County’s Top Ad Agencies
The five largest agencies in Orange County are owned by companies in New York, Chicago or London. They are included here because their accounts are billed from their local office.
(Ranking is by approximate billing dollars in 1991)
AFFILIATES OF MAJOR AD AGENCIES FOOTE, CONE & BELDING Santa Ana Parent: FCB Communications Inc., Chicago Rank: 1 Billing: More than $250 million Number of O.C. employees: 238 Clients: Mazda Motor of America and Orange County Chapter of the Red Cross BACKER, SPIELVOGEL, BATES Irvine Parent: Saatchi & Saatchi, New York Rank: 2 Billing: More than $130 million Number of O.C. employees: 100 Clients: Hyundai Motor America and Hyundai America Dealers Assn. GREY ADVERTISING Cypress Parent: Grey Advertising Inc., New York Rank: 3 Billing: More than $100 million Number of O.C. employees: 60 Clients: Mitsubishi Motor Sales of America MENDOZA, DILLON & ASOCIADOS (Spanish-language advertising) Newport Beach Parent: WPP Group, London Rank: 4 Billing: $60 million Number of O.C. employees: 57 Clients: Ford Motor Co., Kraft General Foods, McNeil Consumer Products Co. and Sears, Roebuck NOBLE & ASOCIADOS (Spanish-language advertising) Irvine Parent: D’Arcy Masius Benton & Bowles, New York (49% owner) Rank: 5 Billing: $36 million Number of O.C. employees: 47 Clients: Procter & Gamble, Security Pacific Bank and Kraft General Foods
INDEPENDENT O.C. AGENCIES BASSO & ASSOCIATES Newport Beach Rank: 1 Billing: $35 million Number of O.C. employees: 25 Clients: Anaheim Hilton & Towers, Daihatsu America Inc. (public relations and sales promotions), Long Beach Transit District, Wild Rivers (Laguna Hills), Long Beach Hilton, NO TOUCH North America and Thrifty Drugs FORSYTHE MARCELLI JOHNSON ADVERTISING Newport Beach Rank: 2 Billing: $28 million Number of O.C. employees: 42 Clients: Johnson & Johnson, 3M, Bristol Meyers, Eli Lilly, Baxter and Toshiba America Medical Systems SALVATI MONTGOMERY SAKODA Costa Mesa Rank: 3 Billing: $27 million Number of O.C. employees: 50 Clients: IHOP, Scripto Tokai, Yamaha International consumer electronics, Yamaha Sporting Goods, Santa Margarita Co., Times Mirror Cable, The Times Orange County Edition and the Irvine Co. MARTIN ADVERTISING Santa Ana Rank: 4 Billing: $26 million Number of O.C. employees: 29 Clients: William Lyon Co., Kathryn G. Thomson Development Co., Woodcrest Development and Williams Co. THE ROXBURGH AGENCY INC. Costa Mesa Rank: 5 Billing: $25 million Number of O.C. employees: 30 Clients: Barratt Homes, Taylor Woodrow Homes, Ahmanson Developments, Presley Companies, Fieldstone Co. and Grupe Development dGWB Irvine Rank: 6 Billing: $20 million Number of O.C. employees: 39 Clients: El Pollo Loco, Pacific Coast Brands (Lactaid), Orange County Transportation Authority, Tektronix, Western Digital, Yamaha Music America, ITT Cannon, Baxter Edwards CVS, Shimano America (bicycles and fishing equipment) WAKEMAN & DEFORREST Irvine Rank: 6 Billing: $20 million (Oct. 31, 1991) Number of O.C. employees: 38 Clients: Epson America, Pactel Cellular, Mazda Motor of America, Spalding, Times Mirror Cable TV, Jafra, Monex, Marriott, Pacific Savings Bank, California Federal Savings, Westec Security, Bally Life Fitness and Jenny Craig Inc. INTERCOMMUNICATION INC. Newport Beach Rank: 6 Billing: $20 million Number of O.C. employees: 32 Clients: Dove Canyon, The Alert Centre, William Lyon Property Management, the Irvine Co., Tustin Marketplace, Newport Beach Visitors and Conference Bureau and City of Commerce TH&M; ADVERTISING Irvine Rank: 9 Billing: $16 million Number of O.C. employees: 21 Clients: Downey Savings & Loan, Gerard Roofing Technologies, Warmington Homes, Irvine Pacific and Crevier BMW CAMPBELL-MITHUN-ESTY Irvine Rank: 10 Billing: More than $15 million Number of O.C. employees: 17 Clients: Pacific Region Jeep/Eagle Dealers Assn. Source: companies listed Researched by DALLAS M. JACKSON / Los Angeles Times
