The debate between Saatchi & Saatchi and Ogilvy & Mather over who
is top dog in China (media April 27) has cast doubts over the Hong Kong
4As billings and income reporting guidelines for member agencies.
Some members have described the guidelines used to draw up the annual
Hong Kong and China rankings as "behind-the-times".
Agencies currently report their audited numbers under four major
categories: capitalised billings, total gross income, media income and
production income.
However, since a significant number of clients are increasingly
favouring fee-based compensation over traditional commissions, agencies
have no choice but to place their fee earnings into the production
income category.
This explains why the overall growth of media income is slower compared
with production income in 2000 - media grew four per cent, while
production shot up 23 per cent in Hong Kong and China.
But the question being asked is: "Apart from fees, what else is being
rolled into the production earnings category?"
Saatchi's Asia chief executive, Patrick Pitcher, points out: "I am not
talking about O&M here. It's a fine company. But if the agency was not
reputable, it could hide a whole host of sins in the production
category."
At the centre of the debate is O&M's rise to the top of the China
rankings, a position Saatchis has held for the past six years.
O&M outpaced Saatchis with a huge 84 per cent rise in production income
and the agency's regional chairman, Miles Young, attributed this to
clients switching to fees and its rapidly-growing interactive business.
"There's no place for us to put it other than in production," Young says
and adds, "The figures don't surprise me because we are a much more
rounded communications company."
Other 4As agencies, including Leo Burnett, D'Arcy, Grey and FCB, have
also experienced a massive growth in production income compared with
media billings.
Burnett's Greater China chief executive Dennis Wong said the shift for
his agency has been fuelled by Procter & Gamble, its largest client,
which has switched from commissions to fees. "This is the key reason and
this is the trend of the future," Wong predicts.
The chairman of the 4As, Jeffrey Yu, said he is satisfied with that
explanation.
"All figures are audited before they reach us. Anyone willing to take
the risk of cooking the books face public censure and embarrassment, but
I think the market is mature enough not to do that," says Yu, who is
also president of Bates Asia.
The issue has nevertheless given rise to calls for greater
transparency.
Saatchis' Pitcher said that production income should be broken down into
fees, interactive, below-the-line, direct and production.
Burnett's Wong went a step further, saying that he would propose to the
4As that it break down income by business units within a group.
"This would allow us to easily identify where the growth is coming from,
whether advertising, interactive or media. This kind of information is
more useful. The way it is now is behind the times; we're no longer
dealing with just television and print any more," he adds.
Yu said he supported further breakdowns and acknowledged that "the
production category is becoming very broad in terms of what is going
into it".
Meanwhile, Pitcher has refused to concede defeat until the release soon
of a similar ranking by the China Advertising Association (CAA), which
ranks agencies based on taxes paid.
But Yu said the CAA list could not be considered reliable because
"agencies might be able to book part of their China income in Hong Kong
so what do you do then? It all depends on the way in which the agency
operates".
2000 4As AGENCY CONSOLIDATED INCOME REPORT FOR HONG KONG AND CHINA
Capitalised Billings Total Gross Income
YOY YOY
chng chng
Name of Agency HKdollars % HKdollars %
Ogilvy & Mather 2,448,036,740 +23 367,022,000 +23
J Walter Thompson 1,834,953,418 +9 275,105,460 +9
Bates 1,645,136,517 +19 246,647,154 +19
DDB Worldwide 1,552,371,878 +19 232,739,412 +19
Leo Burnett 1,513,249,580 +4 226,874,000 +4
Saatchi & Saatchi 1,375,561,117 +5 206,231,052 +5
Grey 1,320,870,599 +9 198,031,574 +9
FCB 1,115,985,414 +8 167,314,155 +8
Euro RSCG Partnership 962,051,632 +8 144,235,627 +8
McCann-Erickson Guangming 833,672,535 +12 124,988,386 +12
D'Arcy 622,951,320 +6 93,396,000 +6
*Dentsu, Young & Rubicam 598,932,650 +27 89,795,000 +27
BBDO 516,105,424 +4 77,377,125 +4
*Publicis AD-Link 362,379,519 +15 54,329,763 +15
*TBWA 267,563,935 +56 40,114,533 +56
*Dentsu Inc 204,273,979 +40 30,625,784 +40
** *Lowe Lintas & Partners 193,298,714 +27 28,980,317 +27
*Fortune 58,029,000 -32 8,700,000 -32
no. *Mason Manda 47,230,270 - 7,081,000 -
Total 17,472,654,241 +12 2,619,588,342 +12
Media Income Production Income
YOY YOY
chng chng
Name of Agency HKdollars % HKdollars %
Ogilvy & Mather 164,680,000 +5 202,342,000 +42
J Walter Thompson 201,197,863 +12 73,907,597 +3
Bates 174,038,989 +38 72,608,165 -11
DDB Worldwide 126,349,499 +12 106,389,913 +29
Leo Burnett 93,166,000 -15 133,708,000 +23
Saatchi & Saatchi 177,965,873 +6 28,265,179 -4
Grey 107,685,491 +3 90,346,083 +18
FCB 72,589,135 -6 94,725,020 +22
Euro RSCG Partnership 66,972,647 -3 77,262,980 +19
McCann-Erickson Guangming 50,137,940 -11 74,850,446 +35
D'Arcy 30,220,000 -31 63,176,000 +43
*Dentsu, Young & Rubicam 40,106,000 -6 49,689,000 +80
BBDO 37,803,433 -4 39,573,692 +14
*Publicis AD-Link 28,320,260 -5 26,009,503 +49
*TBWA 16,570,173 +27 23,544,360 +86
*Dentsu Inc 16,514,811 +18 14,110,973 +79
** *Lowe Lintas & Partners 11,985,208 +108 16,995,109 -0.2
*Fortune 7,200,000 -18 1,500,000 -6.3
no. *Mason Manda 2,935,000 - 4,146,000 -
Total 1,426,438,322 +4 1,193,150,020 +23
* No China Income figures submitted
no. No Income Report submitted for 1999
** Lowe & Partners/Live and Ammirati Puris Lintas merged in July 2000;
the figures reported represent Lowe & Partners/Live only
