Massacre on Madison Avenue: in the toughest year ever for advertising firms, African American agencies struggled to hold on to business and meet the bottom line. (B.E. Advertising Agencies Overview).

The Barbies were stacked high in local supermarkets last August. Little girls clamored around the display of Mattel and Nabisco's recent brainchild--a back-to-school doll based on one of the cookie maker's most popular brands. From a distance it appeared to be a harmless marketing alliance. But upon closer inspection, any African American would have noticed that the cookie was Oreo and half the dolls were black. Oreo is an old, politically incorrect term used for "oreos" who are said to be "acting white." Like the cookie, blacks are told they are black on the outside and white on the inside.

While the doll was soon withdrawn from the shelves, Mattel and Nabisco would have been made aware of the derogatory comparison--and saved millions of production dollars--had they consulted a black company with a culturally savvy marketing and advertising team. The Barbie episode is indicative of the inability of mainstream companies to "get it" and of the creative sensibility that black agencies possess when targeting the African American community.

Even though black agencies have the inside track, they still face strategic and operational challenges. For one, in order to stay competitive, they must provide killer customer service. Secondly, they must maintain control of media buying, developing large organizations and servicing multicultural markets. If not, the number of black ad agencies will shrink or be relegated to boutique status.

It is not surprising that 2002 witnessed African American ad agencies pitted against a tide of general market and boutique agencies clamoring for ever-increasing multicultural ad dollars. "The general market shops are trying to position themselves as capable of effectively speaking to the urban market, citing that the urban market doesn't just consist of black consumers," says Ken Smikle, publisher of Target Market News, a trade magazine based in Chicago. "The very essence of how we define the African American market is being eroded away. Many non-African Americans are trying to get in the game and redefine the market."

Add to that the increase in Hispanic ad spending, an upswing in the number of creative accounts up for review, and requests for proposals (RFPs). Not to mention the growing demands placed on independent companies and clients, as well as merged companies with their conglomerate parent company. "It's been a war" on Madison Avenue, says Smikle.

A SLOW START

At the dawn of 2002, advertising agencies, both general market and multicultural, continued to feel the brunt of the 2001 recessed economy, the volatile stock market, and the Sept. 11 terrorist attacks, according to Universal McCann's Insiders Report. Nonetheless, for the first half of 2002, the Winter Olympics helped increase television ad spending and agencies felt some small respite as overall ad spending rose 2.6% to $237.4 billion. According to the Minority Media & Telecom Council, roughly 1% of total ad spending was targeted to minority consumers in 2000, of which black ad agencies shared 30%. However, because of business failures and the challenges facing advertising agencies overall, our summary of the top billings and employees is comparing the top 15 advertising agencies this year to the top 15 agencies from last year. Therefore, billings for the top 15 agencies on the BE ADVERTISING AGENCIES list rose by 5.89% from $1.28 billion in 2001 to $1.35 billion in 2002. New to the list is Prime Access Inc. (No. 10, with $27 million in billings) while Images USA (No. 12, with $24.5 million in billings) returned.

Black advertising agencies are facing competition from every angle. True, a black Los Angeles-based boutique agency, launched last July with Nissan as its first client, came under fire for a billboard ad for the carmaker. The ad featured the words "Black History Month" with the word history crossed out and replaced with future. Also under the microscope is New York-based PASS. The agency unsuccessfully tried to win the Chrysler account; they failed to prove black ownership to the NMSDC.

African American ad agencies must now contend with the exodus of "urban" ad dollars, some $400 billion, to the Hispanic market. "Because there is some institutional bias as it relates to African American consumers, the Latino market is going to be given more dollars until [companies] figure out that the market is so fragmented, it would be more cost effective to concentrate their dollars in the African American market," says Greg Head, president of HEADFIRST Market Research in Stone Mountain, Georgia.

Regardless of the victimization they may feel, black ad agencies must take a proactive stance. There are an exceptional few that are looking to strategically tap into multiple markets--Latino, Asian, Gay and Lesbian, and urban youth--such as Equals Three Communications in Bethesda, Maryland (No. 6 on the BE ADVERTISING AGENCIES list with $80 million in billings) and GlobalHue in Southfield, Michigan (No. 1 on the BE ADVERTISING AGENCIES list with $350 million in billings).

Eight years ago, SWG&M in El Paso, Texas (No. 8 on the BE ADVERTISING AGENCIES list with $36 million in billings) made its mark on Southwest Texas when it turned two non-profit hospitals into one for-profit medical facility--SPHN Hospitals. But it was the Sprint Alamosa PCS business that helped generate the 44% increase in business last year. The company began growing into major markets outside of Texas, from Louisiana to Oregon, and SWG&M was there every step of the way, billing in some 80 mid-level markets. The agency focuses on general and Hispanic markets and has business with three unnamed Fortune 500 companies on the horizon. It is also looking to expand beyond its Austin and El Paso offices to possibly Cincinnati or Seattle. Last year, they secured the account for Louis Raphael, a San Francisco retailer. SWG&M president and CEO Robert V. Wingo says that if he can make it in El Paso, he can make it anywhere.

MERGE OR PURGE?

In the late 1990s, the major ad agencies began to gobble up smaller agencies, becoming strategic holding companies. The few conglomerates at the top control much of the market share. Chicago-based Burrell Communications Group L.L.C. (2001 BE Advertising Agency of the Year and No. 3 on the BE ADVERTISING AGENCIES list with $181 million in billings) was the first to merge with Publicis. Then Don Coleman Advertising (now GlobalHue) merged with True North (which was later bought by Interpublic), followed by New York's UniWorld Group Inc., which merged with JWT (which was later bought by WPP Group). Was it worth it? Byron Lewis, chairman and CEO of UniWorld Group (No. 2 on the BE ADVERTISING AGENCIES list with $232.98 million in billings) in New York City, says that the 49% stake that WPP Group has in his agency has been an "excellent relationship."

But that sentiment may not be the same across the board. "When I partnered with True North, it was the perfect situation. The chairman [David Bell] understood that collaboration between the agencies was essential to do good business. That kind of leadership needs to be there for success," says Don Coleman, president of GlobalHue. According to AdAge.com, GlobalHue is in talks with Interpublic to buy itself out of the holding company. Coleman declined to elaborate, only saying, "It's a sensitive scenario."

"Sensitive" may be an understatement. "Several black ad agencies that have merged have been hamstrung," says Head. "I don't think [things] worked out to be in their best interest. They might say they got all they expected out of the deal but, in actuality, the deal might have limited them." For example, with so many agencies under one roof, there's the potential for conflicts of interest if a sister company has an account in the same category. On the contrary, independent agencies have more autonomy and can bid on a new category.

This is not limited to African American agencies, but to all those within the holding company. "It's a matter of what kind of assurances the agency can offer a client," Gardner says. Those African American agencies aligned with conglomerates are also at a critical point in their agreements, where they're being assessed for meeting goals and returns on investment, as their sister agencies compete for the same ad dollars.

Despite the growing pains of these mergers, many African American agencies, such as Equals Three Communications and SWG&M, continue to be approached by mass-market agencies to examine the possibilities.

SURVIVING THE GAME

Some agencies more than survived, they thrived. Carol H. Williams Advertising (CHWA) in Oakland, California (No. 4 on the BE ADVERTISING AGENCIES list with $130 million in billings), acquired the Bank of America account, after it was withdrawn from UniWorld Group, in an effort to align its business more closely with Interpublic, its new general market agency. This came on the heels of Bank of America increasing their multicultural ad budget from $10 million in 2001 to more than $40 million in 2002. CHWA handles several Interpublic clients, including General Motors Corp. It also picked up Federal Express.

GlobalHue had a 6.1% increase in billings and held on to its Daimler-Chrysler business after the Chrysler Group put its estimated $40 million multicultural advertising account into review. In addition, the agency picked up the Courvoisier business and dropped Kmart after five years. Kmart, currently in bankruptcy, was rumored to have owed GlobalHue more than $3 million. GlobalHue will continue to expand in the soft drink fast food, and computer categories.

Burrell Communications helped bring to life Crest Rejuvenating Effects ads featuring actress-singer Vanessa L. Williams. The Chisholm-Mingo Group Inc. (No. 5 on the BE ADVERTISING AGENCIES list with $100 million in billings) recently won the Tropical Rhythms fruit drinks account of Grace Foods. The Jamaica, West Indies-based company produces more than 10,000 canned foods and beverages. Chisholm-Mingo also acquired Kmart after its separation from GlobalHue.

Footsteps L.L.C., which also fell off this year's advertising agencies list, has been hired by HBO to execute an African American branding campaign. The three-year-old agency also has accounts with several healthcare and pharmaceutical firms such as Alcon Labs, Roche, Bayer, and Continuum /St. Lukes Health Partners.

"In our business development we looked for pockets of opportunity and multicultural marketing, and the healthcare arena is underdeveloped and under served," says Verdia Johnson, president and co-founder.

Pepsi-Cola North America gave Spike DDB (No. 9 on the BE ADVERTISING AGENCIES list with $35 million in billings) its African American business--estimated by AdAge.com to be worth $10 million--after it's contract with UniWorld Group ended in December. Spike DDB's Pepsi television ads star actress and singer Beyonce Knowles of Destiny's Child.

UniWorld Group had been Pepsi's agency for four years. In September, Pepsi pulled UniWorld-created spots, featuring rapper Ludacris, after Fox News commentator Bill O'Reilly called for viewers to boycott Pepsi because of the rapper's hard-core lyrics. "Pepsi didn't trust UniWorld to do what it knows best. Clients are asking, 'How do we use controversial rap artists, with enormous appeal to young black and white consumers, in a way that won't make our other consumer segments angry or confused?' In this case, Pepsi got a case of cold feet," says Smikle.

Russell Simmons threatened a boycott of Pepsi for applying a double standard by launching commercials featuring foul-mouthed rocker Ozzy Osbourne and family after pulling the Ludacris spots. In February, Pepsi agreed to contribute $5 million to the Ludacris Foundation and to continue working with Simmons' Hip-Hop Summit Action Network.

General market agency Leo Burnett in Chicago hired Los Angeles-based Muse Cordero Chen & Partners (No. 7 on the BE ADVERTISING AGENCIES list with $70 million in billings) in September to handle the African American segment of its $95 million U.S. Army account after a disagreement with Atlanta-based Images USA over fees paid to subcontractors.

Some agency CEOs advocate that black agencies could come together to work toward some common goal and form an association where we can talk to each other and share ideas. Adds Eugene Morris, chairman of the African American Advertising Committee, which was formed by the American Association of Advertising Agencies in 1999, "It would give our industry a cohesive voice. In the end, we're all the worse for not doing so."

Top 15 Billings & Empoyees 2001-2002

Black-Owned Ad Agencies          2002          2001   % Change

Number of Employees               945           900      5.00

Billings *                 $1,354.373    $1,279.047      5.89

* MILLIONS OF DOLLARS, TO THE NEAREST THOUSAND. AS OF DEC. 31, 2002.
PREPARED BY B.E. RESEARCH. REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING
FIRM EDWARDS & CO.