All industries go through cycles and evolve. Most follow a common trajectory that begins with rapid growth, then slows down, matures and ultimately faces creative destruction (which J. Schumpeter coined the “ultimate fact of capitalism.”) I’ve been thinking about this in relation to the state of the Hispanic marketing industry, as the industry trade association AHAA recently celebrated its 20th anniversary.
Not a Growth Industry Anymore
The state of the Hispanic ad business generates a lot of emotional responses, as seen in my January 2011 article, "2011: The Year of Creative Destruction." Ask anyone who works in Hispanic marketing for their perspective and you’re likely to get a gloomy response. You’ll hear, “It’s in decline” or “it’s never been harder” or “the future is uncertain.”
Is Hispanic Marketing Dying?
A number of indicators point that way.
There has been an appreciable decline in the number and size of Hispanic agencies in the last five years. From the closing of former powerhouse agencies like Bromley, to consolidation of shops like Vidal Partnership and MGSCOMM, the Hispanic ad business seems to be heading in the wrong direction. There are very few mid-sized Hispanic agencies left in some of the biggest Hispanic markets in the U.S. like Los Angeles, New York and Chicago. A simple comparison of the 2007 membership roster of AHAA shows 93 member agencies compared to only 48 in 2015.
Mergers and acquisitions (M&A) are another gauge for the vitality of an industry. M&A in the Hispanic ad business has dropped off a cliff since its peak in the early 2000s. All the big agency holding companies have Hispanic shops and do not appear to be in the market for Hispanic agencies. The only Hispanic ad agency to be purchased by a major network in the last 10 years was La Comunidad by SapientNitro in 2014. The valuation multiples I hear for Hispanic agencies are pretty low – probably the best indicator of the bearish outlook on the business. The situation is similar in the Hispanic media business.
A Growing Market?
Yet the Hispanic population continues to grow and is quickly approaching 60 million and 20% of the total U.S. population. Investment in Hispanic marketing has never been higher. Hispanic ad spend continues to post annual increases, with 12% growth in 2014 following almost continuous year-over-year growth since 2003 (Kantar Media). Hispanic consumers are also generally viewed as one of the most attractive consumer segments in the U.S. with their rising socioeconomic status, large and growing families, and increasing consumer spending.
Maybe it’s Maturity
Hispanic marketing has all the markers of a mature industry whether you look at media or ad agencies.
Most of the largest Hispanic advertising accounts are consolidating with a handful of agencies. Of the top 50 Hispanic ad spenders in 2014, 50% of the ad spend is occurring among 27 companies that are working with just seven Hispanic ad agencies. Hispanic ad agency revenue in 2014 paints a similar picture: the top 10 Hispanic ad agencies represent 48% of the revenue generated by the top 50 Hispanic ad agencies (as reported by Advertising Age).
On the media side, TV represents 76% of all Hispanic ad spend in 2014. That media spend is concentrated within eight companies, with Univision, NBC Universal and 21st Century Fox dominating.
Two macro-trends point to further industry maturation:
The next five years will likely see more consolidation. Instead of new start-up Hispanic agencies or media companies, we’re likely to see something akin to what happened in the African American marketing business – fewer agencies, fewer media companies and the continued move of multicultural marketing out of the silos.