ANALYSIS: Rankings - Agencies query ranking format. The switch to fee payment has sparked calls for the 4As to overhaul its agency rankings

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