Public relations business rides on rising budgets

Global PR firms are estimated to have forked out Rs 400-500 crore to acquire stakes in India. The attraction is not the size but the revenue growth rate

The Tata group’s decision last week to end its long-term contract with Edelman, which was routed through Rediffusion Y&R, by January, has turned the focus on the sweeping changes taking place in the public relations (PR) business.

The possibility of a change of PR mandate by the Tatas has created a flutter in the industry. The Rs 60-crore account, one of the largest in the business, represents over 4.4 per cent of the Rs 1,315-crore turnover of the PR industry. 

Only nine Indian PR companies have annual revenues of more than Rs 30 crore and five earn over Rs 60 crore, according to a study undertaken by Feedback Business Consulting Services along with the Public Relations Consultants Association of India. The Tata account can change the fortunes of any agency. A Tata group spokesperson declined to comment on the matter.

The PR industry in India is tiny when compared to advertising. Advertising billings for 2017 are estimated at Rs 62,000 crore and the fees ad agencies and media buying houses charge are around Rs 6,200 crore. The PR industry’s revenues are a fifth of those of advertising. 

“This is true anywhere in the world as they (advertising agencies) earn the largest share of marketing dollars. However, PR will continue to grow at a higher pace compared to advertising in the next 5-10 years,” said Madan Bahal, managing director of Adfactors, the largest PR company in the country.

It is this growth that has drawn global PR companies to India and China. Most of them, including Dentsu, which bought Perfect Relations this year, MSL, Weber Shandwick and Ketchum, have used acquisitions to build heft in these markets. 

“India and China are becoming critical public relations markets because of rising budgets. It is hard to think of a credible international PR agency that has not entered India and their presence will deepen as growth slows in western markets,” said Arun Sudhaman, Hong Kong-based chief executive officer of the Holmes Report, which analysis the global PR industry. 

Global PR firms are estimated to have forked out between Rs 400 crore and Rs 500 crore to acquire stakes in India. 

The main attraction is not the size — the Indian PR industry is only 1.4 per cent of the $14 billion global business — but the revenue growth rate. The PR business in India grew 18 per cent per in 2015-16 and was backed by attractive margins of over 20 per cent. In contrast, the global business grew only 7 per cent in 2016, based on the Holmes Report, which tracks all the top agencies in the world.   

According to Feedback Business Consulting Services, media relations, the bread and butter business, is expected to constitute only 49 per cent of PR revenues in 2017, a big drop from 68 per cent in 2016.  The new businesses that are bringing in the money are content management, including paid media, digital and social media and financial communications. 

“As the media is shrinking, so is the media relations business. With younger audiences on the Internet and social media, what we are seeing is a fundamental transformation of the model. Companies are spending now on digital, social media and content management, which includes text, video, infographics and paid media,” said Nitin Mantri, vice-president of the International Communication Consultancy Organisation that represents global PR associations. He also runs Avian Media. 

With over 1,200 agencies across the country, of which as many as 1,000 are basically freelancers, consolidation could become a problem. Bahal said 95 per cent of these companies did not have the critical mass that would make them desirable for acquisition. 

“Most of them earn less than Rs 5 crore in annual revenue, while a reasonable size for a transaction would be upwards of Rs 10 crore,” he added.  

Sam Balsara, who runs an advertising agency as well as Madison PR, said one had to see whether there was any consolidation in revenues. That has happened in PR, just like in advertising, with the top nine companies earning nearly half of the industry’s revenue.