The coronavirus will reshape the PR industry, from squeezing small firms to elevating internal communications

Richard Edelman

The coronavirus will materially change the public relations industry long after the crisis ends, industry insiders said.
Mergers and acquisitions could pick up as small, independent firms struggle.
The reliance on digital PR experts will accelerate as companies look to social media to protect their reputation.
The coronavirus crisis underscored the importance of internal communications, which will play a bigger role going forward.
Click here for more BI Prime stories.

The coronavirus pandemic will ravage some public relations firms and benefit others in the short term, but the effects of this crisis will be felt far into the future.

Art Stevens, managing partner of The Stevens Group, a mergers and acquisitions consultancy focused on the PR industry, said clients focused on hard-hit sectors like tourism, hospitality and restaurants have lost upwards of 70% of their revenue, forcing them to layoff or furlough staff, reduce salaries, and plead with their landlords to reduce their rent.

"Everyone is grappling with this crisis and trying to stay alive," he said.

Meanwhile, some public affairs PR firms are doing better than ever as state legislatures pass rules and regulations to slow the spread of the virus, he said.

Dealmaking could pick up as small firms struggle to survive

Before the coronavirus pandemic struck, PR was consolidating at a faster rate than in past years, according to Phillip Palazzo, founder of Palazzo Investment Bankers. This trend was driven by private equity, reflated capital markets, lowered interest rates and an expanding economy.

There were 18 completed acquisitions of PR firms in the first few months of 2020, more than double the amount in the year-ago period, said Michael Lasky, an attorney at Davis & Gilbert.

Dealmaking has paused as buyers and sellers wait for the economy to stabilize.

However, as small, independent firms struggle to survive the economic downturn, other PR experts predict an uptick in consolidation across the industry.

An independent PR agency CEO who asked to be anonymous said at least a dozen PR firms have reached out in recent weeks to gauge the CEO's interest in buying them. Instead of presenting a "poker face," the prospective sellers were open about their overhead and payroll.

"They know they can't waste time," the CEO said.

While experiential firms struggle, digitally focused agencies will benefit

The pandemic has hit experiential PR firms hard, but firms that specialize in digital PR will benefit as companies lean on online channels to manage their communications and reputation.

"There are firms focused on experiential that are experiencing significant pain," Palazzo said. "Meanwhile, if you're digital only, it's almost business as usual, with very little change in client spend."

The pandemic will speed business leaders' use of social as a way to speak with a clear, consistent message to customers, stakeholders, and employees, said Roy Tristan, COO of digital at Edelman.

The crisis could cement the importance of internal communications

Internal comms was already gaining importance in response to the rise of employee activism and social media as a place where workers can voice their beliefs and objections. But lately, companies have doubled down on efforts to keep their employees informed about business strategy, what they're doing to ensure their health and safety, and how their operations are affected.

"'Our people are our most valuable asset' has become a kind of nice leadership cliché," said Steve Astle, senior adviser and west coast lead for employee engagement firm Gagen MacDonald. "This week, employees at Instacart, Amazon and elsewhere showed the world that there's nothing nice about it – it's just an indisputable fact."

Astle said internal comms used to focus on sending out open enrollment packets and telling employees about changes in company travel policy, and sees it playing a bigger and more strategic role.

"Now and for the foreseeable future, people responsible for employee communications need business acumen and strategic thinking skills – muscles many of them are going to have to develop in a hurry," he said.

Insiders predict the industry will rebound by Q4

Analyst Michael Nathanson predicted the ad industry would shrink by 10.6%, or almost $26 billion this year. But consultants that serve the PR industry think PR will be less scathed.

Stevens said after a short-term hit, PR would rebound as clients seek out counsel and comms support even as they dial down their advertising.

Edelman CEO Richard Edelman, whose earnings serve as a bellwether for the industry, said business was coming back in China, where his agency just won four clients in late March.

"Communications is now more important than advertising," Edelman said. "People want facts and credible spokespeople."

Join the conversation about this story »

NOW WATCH: Here's how to escape a flooding vehicle