1. Introduction

This reports seeks to scope the advertising industry in the UK in terms of its size and structure; the types of company which operate within it; significant internal sectors; the future prospects for advertising expenditure; and profiles of the companies which supply advertising services.

The market for advertising is worth over £14bn in the UK and has been showing strong growth in real terms despite media costs which are rising significantly.

The major sector is television, where UK agencies have always had a strong creative reputation, but there is rapid growth in previously minor media such as cinema, radio, and, most of all , direct mail. The Internet, however, is still negligible in comparison.

Direct marketing, assisted by the development of sophisticated consumer databases held by client companies, can be seen as a major threat to press and broadcast advertising, but for the immediate future there appears to be no limit to the demand for all types.

Although some major advertisers are announcing that television is becoming too expensive (notably packaged goods companies) there is a stream of new industries and advertisers willing to take their place. The 'dot.com' companies head the list.

Leading agencies have consolidated into international groups covering a wide range of services from media buying to marketing consultancy, and often running several agencies of different styles under the same umbrella organisation. However, many clients prefer a small agency which may be regarded as sharper or simply more responsive: they need the business more.

However, for a such a large, high profile industry which goes to considerable lengths to regulate itself and avoid the need for legislation, consumer response is mixed.

In an exclusive survey for this report, 72 percent of the general public think there should be more control over tone and content, 54 percent think advertising to children should be banned, and 39 percent think alcohol advertising should be banned. In addition, 59 percent are concerned that companies seem to have a lot of information about what consumers buy ñ as shown by direct mail or other direct marketing techniques.

The future demand for advertising must be set against the potential for future legislation or other forms of consumer revolt: advertising is still very much an industry which operates only with the consumer's permission.

Advertising is a quintessential service industry: there are very few physical products or assets, while turnover is either fees for sales of creative services, or agency fees for booking advertising space.

Most advertising agencies are small businesses. Not many have a turnover of more than £5m. They are considerably smaller than most of their clients, and most of the media companies where they place client advertising. They also have a rapid turnover in start-ups, failures, de-mergers and take-overs. Little capital backing is required for agency start-ups, although the financial requirement for media buying companies is much more stringent.

Scoping the UK agency scene is therefore more difficult than for some other service industry sectors since it has always been a rapidly changing picture. However, there are also substantial international and UK quoted businesses within the sector, and these are profiled in the report following.

N.B. In the UK, many agencies define their size by their billings. This is not the same as turnover.

Historically, advertising agencies offered clients a 'full service approach' which included developing creative ideas; research costs for testing the ideas; management fees; and costs of producing the final advertisements (whether artwork for press or TV commercials), plus planning and buying media ñ all within a commission on the value of air-time or press space which was booked for the client. This commission was set at an accepted 15 percent of the value of media space or time bought on the client's behalf.

Actual commission rates are frequently discounted, especially for large clients, and there is now a much greater fee element in agency remuneration. However, the practice stands of expressing client account sizes (and therefore the size of the agency which holds these accounts) as billings equivalent. An agency 'billing' £10m, therefore, would have an actual turnover of £1.75m, and in reality this could be considerably less.

Methodology

The report was compiled through the use of published statistics obtained from the major trade and industry associations, company reports, trade press reports, and interviews with senior management and representatives in the industry.

In addition, attitudinal research on advertising and its use by consumers was commissioned from National Opinion Poll (NOP) Solutions, which took place between 5th and 7th January 2000, on a sample of 1005 individuals.