Study Finds PR Industry Suffering From Slump

While an advertising rebound may be under way, the public relations sector is seeing budgets and staff levels waning, according to a study released last week by the USC Annenberg Strategic Public Relations Center.

According to the study, PR budgets last year among companies on Fortune’s “Most Admired” list were down 5.5 percent from 2002. (In comparison, total ad budgets were up 6.1 percent in 2003, according to TNS Media Intelligence/CMR.) PR staffing in 2003 dropped by an average of 15 staffers within Fortune 500 companies, according to the study. (On average, however, Fortune 500 companies on the “Most Admired” list employed more PR people than Fortune 500 companies not on the list—66 versus 40.)

SPRC polled more than 250 companies for the second annual study. The research was conducted in the second half of last year, and results were analyzed during the first quarter. Fortune’s 2003 “Most Admired” list includes companies such as Starbucks, Wal-Mart and Federal Express.

The findings reflect an “extraordinary confluence of events” in 2003, said Jerry Swerling, director of the SPRC in Los Angeles and a PR-industry consultant. He said factors contributing to cutbacks included the general economic malaise, the war in Iraq, terrorism and—from a regulatory and litigation standpoint—the Kasky v. Nike free-speech decision and the Sarbanes-Oxley corporate-disclosure act. (In Kasky v. Nike, the Supreme Court declined to rule on whether Nike could defend its overseas labor practices in its communications, leaving open the possibility that companies could be sued for false advertising by defending themselves in public.)

“Senior management was feeling cautious in general, so they focused more on bottom-line functions such as legal and finance operations … [which is] not the kind of environment in which PR flourishes,” Swerling explained. “What this suggests is that money continues to be spent on marketing-related activities like advertising and marketing-oriented PR, and where the cuts came were in other areas, such as community relations and internal communications.”

Although the use of PR shops remained high, “extra arms and legs” was cited most by clients as a reason to hire an agency, a shift from 2002, when “strategic and/or market insight” was No. 1, the study found. The research also found that the setbacks in 2003 created an overall “bunker mentality” in the sector, a finding disputed by some.

“[That] is not what is reflected in the marketplace in the last year or two,” said Smooch Reynolds, president and CEO of The Repovich Reynolds Group, a management consultancy in Pasadena, Calif. “I have seen communications practitioners rise to the occasion during a societal crisis and partner even more effectively with their senior-management teams.” But, she added, “There is still a tremendous amount of effort needed on the part of senior PR leadership to more intimately connect itself to business development and revenue generation.”