Beyond the Frontiers

For insecurity, there are few businesses like the advertising business. Even in the best of times, agencies' fortunes depend on their ability to retain fickle clients, who often switch accounts at the slightest whim. Some of the nation's largest agencies have become publicly owned corporations in recent years, and they feel a need to impress both stockholders and watchful clients with steadily rising profits. To do so, more than a dozen firms have ventured into enterprises well beyond the frontiers of advertising.

Lately the diversification pace has quickened. Young & Rubicam. which has become the nation's second largest agency under President Stephen Frankfurt, agreed two weeks ago to acquire J.K. Gill Co., a retail chain that sells books and office supplies through eleven stores in Oregon and Washington. Y. & R. openly admits that it wants to escape from the agency field's traditionally slender profit margins, which average about 4% of gross volume. From billings of $532 million, Y. & R. last year grossed $78 million. "We would have to have more than $100 million in new billings to bring in the same amount of gross revenues we can get from Gill's annual sales of $14 million." says Edward L. Bond, Y. & R. chairman.

LaRoche, McCaffrey & McCall has just picked up a half interest in Aqua Dynamics Corp. of Wareham, Mass., which cultivates oysters. Doyle Dane Bernbach agreed to purchase Snark Products Inc. (annual sales: $1,000,000), a New Jersey-based producer of low-priced ($125-$500) plastic-hulled sailboats. Quite naturally, the agency plans to handle Snark's advertising and capitalize on techniques that Chairman Bill Bernbach developed to plug a more famous low-priced product. D.D.B. hopes to establish Snark as "the Volkswagen of the sea." The agency also owns a 20% interest in Georg Jensen, an elegant Manhattan houseware and silver store; last year D.D.B. agreed to buy a small ice cream producer, Frose-Mar Corp., but the deal later fell through. "We will continue to diversify," says Senior Vice President James Madden, who has examined 300 potential acquisitions during the past six months.

Reflecting the Boss. A promising new area for growth opened up last spring when the American Association of Advertising Agencies agreed to permit its members to own media. The action came after several agencies had resigned from the association over its ban; among them were Minneapolis-based Kaufman, Spicer, which bought the New Richmond (Wis.) News, and Dallas-based Tracy-Locke, which purchased Tulsa's KCNW and Fort Worth's KJIM. Foote, Cone & Belding acquired eight cable-TV systems before the A.A.A.A. came to consider CATV an advertising medium and was influential in persuading the association to drop the rule against media ownership altogether. The stations serve 13,000 customers in New York, Colorado and California, and the agency often uses the systems to test-market its commercials.

Agencies frequently choose new fields that reflect their special talents, or the bent of the boss. Wells, Rich, Greene, mirroring President Mary Wells Lawrence's flair for drama, recently established a motion-picture company, W.R.G./Dragoti Ltd. Two films, Dirty Little Billy, a saga of Billy the Kid, and Spoiled Priests, about a Catholic priest who leaves his order, will go into production within the year. Most of the photographic, writing and editing talent for Billy will be drawn from the W.R.G. staff. Lois Holland Callaway's ventures are in keeping with the canny flamboyance of its president, George Lois. The three-year-old firm founded Mantle Men and Namath Girls, a glossy employment agency aimed at young job seekers. The placement agency's three Manhattan offices grossed $2,000,000 in their first year of operation and Lois has signed up franchisers in twelve major cities. More recently, Lois Holland Callaway founded a recording company, whimsically named Tonsil Records; its first offering features a rock jazz group called The Gas Mask.

The desire to diversify has also affected J. Walter Thompson, the world's largest agency (1969 billings: $740 million). In what President Dan Seymour calls "a financial investment," the agency in 1965 bought an insurance company, Puerto Rican-American, which specializes in auto coverage. Having paid $5,000,000 for 84% of the insurance firm's stock, Thompson replenished its working cap ital by borrowing $5,000,000 from another insurance company--at a low 51% interest rate. This year Puerto Rican-American is earning $1,000,000 on premiums of $14 million.

Unhappy Clients. Some advertisers disapprove of agencies' diversification moves, fearing that they will divert management attention from client services. Last year Procter & Gamble and Warner-Lambert pulled out of P.K.L. Companies Inc. (formerly Papert, Koenig, Lois) partly because they were unhappy with the agency's acquisition of a motorbike company. Century Cycles. .Critics who foresaw disaster when agencies began going public now argue that admen venturing into new fields will fail because they lack experience in production, distribution or retailing.

After surveying 50 top agency chiefs on their diversification plans, Barton A. Cummings, chairman of Compton Advertising, recently concluded that the trend is likely to increase. Outside ventures have a powerful attraction for agency men trying to improve their chances for corporate growth and bring more stability to their all-too-volatile business.

This file is automatically generated by a robot program, so reader's discretion is required.