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Big 3 Seek Spending 'Spark'

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Advertising's Big Three holding companies expect a spark that will spur an ad recovery, but, in the meantime, reduced budgets have cut deeply into their bottom line.

Falloff in client spending was the key reason why worldwide revenue declined 15 percent and 2 percent, respectively, at Interpublic Group and WPP Group in the first quarter of 2002 compared with the first quarter of 2001.

Interpublic, in particular, was hurt by its heavy reliance on the U.S. market, where client purse strings remain tight. The holding company also cited the "carryover effects" of 2001 client losses such as PepsiCo.

And while Omnicom reported an 8 percent revenue gain in the first quarter, industry analysts said its organic growth was lower than expected.

IPG CEO John Dooner indicated that clients now seem more positive about the economy. Still, he told analysts last week, "a lot of people are waiting for the gun to go off."

Indeed, a catalyst is needed, said Omnicom CEO John Wren. In the last recession, it was Procter & Gamble that increased its ad spending ahead of the pack.

Dooner also noted signs that May's upfront media-buying market will be more vibrant than last year's.

Despite the revenue shortfalls, IPG and WPP expect to meet their goals for earnings growth and operating margin for the year. "We remain on target to deliver double-digit earnings-per-share growth," Dooner said.

Omnicom led the pack in new business in the first quarter with an estimated $1.02 billion in net new billings from wins such as Adidas and Saturn. WPP was next, with about $750 million in net new billings (Domino's, Haagen-Dazs), followed closely by IPG, at $745 million (MCI, Sony Media).

A breakdown of first-quarter revenue by discipline shows that public relations was particularly hard hit, owing to cutbacks by technology clients, the Big Three said. And geographically, the revenue decline in Europe was significant, although the U.S. shortfall still led the way, IPG and WPP said.

Omnicom and IPG reported first-quarter earnings last week, a week after WPP. Havas and Publicis Groupe S.A. will report their numbers tomorrow and on May 14, respectively.