Winds of change: amid shifting dynamics, black ad agencies are adapting to stay alive.

When it comes to operating an African American-owned ad agency, change is good.

Perhaps no one knows better than Tom Burrell, chairman emeritus of the highly successful Burrell Agency. The founder of the Chicago-based firm stepped down from his post last year to make room for a new leadership team.

Since ownership of the company was transferred to industry execs McGhee Williams-Osse and Fay Ferguson, the agency has not skipped a beat. In fact, Burrell (No. 4 on the BE ADVERTISING AGENCIES list) maintained its billings of $190 million in 2004.

To ensure longevity in the industry, many black agencies like Burrell took time last year to beef up their game plans. In an increasing trend to gain staying power, many realized they had to think outside the proverbial "black" box to compete against general-market rivals for plum accounts. Others expanded their services to offer more nontraditional methods of reaching multicultural consumers.

"Agencies have to be broad. They have to be responsive to the ebb and flow of the market," says Ken Smikle, president of the Chicago-based research firm Target Market News. "Bight now the smaller shops are making bigger noise and are positioning themselves to do more of the kinds of marketing that clients are looking for now--meaning a mix of events, PR, promotions, and advertising--as a way to create some buzz about the product," Smilde says.

That's not to say that black ad agencies have abandoned their niche. In fact, in 2004, African American-owned agencies had to compete with mainstream shops for opportunities to reach urban audiences.

According to Universal McCann's Insider's Report, ad spending increased by 7.4% in 2004 to more than $263 billion. "I think the industry is just coming back," says Constance Cannon Frazier of the American Advertising Federation. "Also, as a general rule, usually during an election year you have an increase in advertising spending."

While a rebounding economy and money-generating events such as the presidential election and the Summer Olympics helped increase spending overall, Smikle contends that last year's gains meant little for black ad agencies. "We're seeing some incremental growth, but there have not been major new accounts that have come on board, nor have we seen a really big increase in current spending by most of the clients that agencies already have," says Smikle. "I think it has to do with companies second-guessing themselves about where they ought to focus their marketing dollars. And African American marketing is now competing with Hispanic marketing and Internet-based media."

Agency owners are standing their ground amid what they say is ongoing insensitivity to black consumers, increased focus on a growing Hispanic market, and constant competition from mainstream agencies convinced they have a finger on the pulse of the ethnic market.

Overall, 2004 was a year of recovery for black ad agencies. The abysmal performances during the 2001-2003 recession left many agencies reeling, or worse. Advertising pioneer Chisholm-Mingo Group failed to survive the downturn and closed its doors in New York after 27 years of operation.

Still others formed strategic alliances, restructured internally, and adopted new strategies to help anchor their agencies for the long haul. Los Angeles-based Muse Cordero Chen & Partners, for instance, changed the name on its door to Muse Communications (No. 6 on the list with $60 million in billings).

Billings for the top 15 agencies on our list rose 14.8%, from $1.55 billion in 2003 to $1.78 billion in 2004. New to the list is Fuse Inc. (No. 7 on the list with $53.4 million in billings), while Images USA (No. 12 on the list with $41.3 million in billings) rejoins the roster. Prime Access Inc. and The King Group Inc. dropped off the list.

THINKING OUTSIDE THE 'BLACK' BOX

The biggest hurdle in this industry is anticipating and delivering what potential clients envision. "The advertising business is no longer what it was 20, or even five, years ago," says Jo Muse, who adopted the new moniker for his firm to better reflect its focus on multicultural marketing. "In fact, the biggest challenge we face is [expanding] from a traditional agency doing 30-second spots to becoming a marketing problem solver that looks at different media forms and marketing techniques to solve client problems."

To compete, Muse says black ad agencies have to go beyond solely developing black ads and attract more general-market accounts. Otherwise, he says, they risk becoming redundant. Black advertising agencies have to offer more than the African American connection. "When we talk to consumers, their world is not just black. Their world is becoming more and more diverse, and the interactions that they have on a daily basis are more multi-cultural than ever before," says Greg Head, president of HEADFIRST market research inc. in Atlanta. "Those African American ad agencies or other agencies that focus on the African American consumer are in a position to get incremental ad spending when they can speak about this consumer as a part of a larger market."

The strategy of R.J. Dale Advertising & Public Relations (No. 15 with $35.5 million in billings) last year was to "focus on more than just segment business." It paid off" The Chicago-based agency beat 13 other ad shops to win a $19 million-a-year general-market account with the Illinois state lottery, making it the first time in the state's history that an African American-owned ad agency won such an account. Before it won the account, RJ. Dale had handled only the African American market for the state lottery. But when DDB Chicago, the lottery's then general-market agency, resigned from its contract, president and CEO Robert J. Dale stepped in. His campaign, which included a series of television spots featuring comedian Bernie Mac, resulted in record lottery sales of more than $1.7 billion for fiscal 2004.

R.J. Dale also picked up three new clients, including Nielsen Media Research, for which it will serve as a public relations agency. Another agency, New York-based UniWorld (No. 3 on the list with $220.8 million in billings), which was named the African American ad agency of record for the John Kerry campaign, continued its general-market advertising work with 3 Musketeers candy bars.

Other new business secured by BE 100s advertising agencies include:

* Carol H. Williams, BE'S 2004 Advertising Agency of the Year and No. 2 on this year's list with $350 million in billings, won an account with Starwood Hotels & Resorts Worldwide to develop black ad and marketing campaigns for its Sheraton, Four Points by Sheraton, W Hotels, and Westin brands.

* GlobalHue (No. 1 on the list with $400 million in billings) picked up a direct marketing assignment with State Farm Insurance.

* Spike DDB (No. 10 on the list with $45 million in billings) added telecommunications giant Alltel and Royal Caribbean International, for which it will handle all marketing communications targeting African Americans, to its client roster.

* Equals Three Communications (No. 8 on the list with $50 million in billings) was chosen by Choice Hotels International to create an African American travel guide. The firm also grew business with existing client the National Institute of Mental Health.

* Muse Communications added Honda, Wells Fargo, the U.S. Army, MGM Mirage, and Heineken.

STANDING THEIR GROUND

The pressures to compete are greater than ever for black ad agencies, which must contend with giant general-market firms not only for mainstream accounts but also African American business. The increasing focus on the Hispanic market also poses a challenge for black ad agencies, particularly those that want to stay dedicated to African American work.

Agencies such as Muse Communications and UniWorld have turned to Hispanic professionals to cater to the growing needs of this market. SWG&M Advertising Inc. of E1 Paso, Texas (No. 14 on the list with $36.7 million in billings) formed strategic alliances with three Latino agencies. "I think it's up to us to make sure that as black agency owners, we get our fair share because even though the Latino market is growing rapidly, the African American market is still a very significant market," says Robert V. Wingo, SWG&M president and CEO. "We have to look at this from a visionary point of view and begin to place the emphasis on how we're going to handle this emerging market before it becomes so huge that we lose control of the opportunity because we hadn't paid any attention to it."

RAISING A COLLECTIVE VOICE

Moving forward, black ad agencies realize that part of their bench strength relies on working together to create a better competitive environment for their shops. Last year, 10 African American-owned agencies formed The Association of Black-Owned Advertising Agencies Inc. The association will represent the interests of black agencies, lobby government and large corporations for increased sensitivity to black consumers, and ensure that organizations stay true to their diversity efforts while establishing opportunities for African Americans to enter the advertising and marketing communications field.

"I think that this organization will really help us across the board in giving African American ad agencies more credibility," says Eugene Morris, the association's interim chairman. "There are a lot of things that need to be addressed, and addressing them as an individual agency just does not give you the leverage that's needed. We need to be able to speak with a collective voice to make sure that we don't become complacent or allow ourselves to be marginalized and have other people define who we are and what we should be."

Advertising Agencies [Eligibility]

An advertising agency must be at least 51% black-owned and have been fully operational for the previous calendar year. To qualify as a full-service advertising agency, the company must provide creative services as well as make media placements: purchasing time and/or space for a clients' advertising. Companies that only provide consulting services, create or produce advertising, or do media placements do not qualify as full-service agencies. (We canvassed the Standard Directory of Advertising Agencies, combed industry publications, and made inquiries in the field to identify full-service agencies.)

An agency's financial status is measured in terms of billings--monies allocated by an advertiser to its agency to buy time on television and/or radio or space in publications. These media outlets then pay a commission back to the agency in the form of a discount, typically between 15% and 20%, which the agency counts as revenue. Other sources of revenue include production fees that the agency charges its clients and fees for adjunct services such as public relations, consulting, and promotional work. Our ranking of the 15 top agencies is based on a combined total of actualized billings, in addition to capitalized billings (commissions that haven't been paid but the media buys were completed), and other agency fees reported as revenues--an accepted industry practice for reporting earnings.

Top 15 Billings & Employees

Black-0wned Ad Agencies         2004          2003    % Change

Number of Employees              981           961       2.39
Billings *                $1,780.594    $1,551.419      14.77

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