Pressure grows on ad agencies as stocks are downgraded
- Pivotal Research Group released an advisory note rating publicly-traded companies including Interpublic, Omnicom, Publicis and WPP as a “hold” due to what was described as a “difficult time for the agency holding companies” by analyst Brian Wieser in the note and reported on by MediaPost.
- A number of reasons for the downgrade were cited including slowing underlying business growth, fee impacts from transparency-related issue, the fragmentation of media and the potential that the ad agency marketplace may have fundamentally changed from the traditional agency model, according to Wieser.
- WPP had already faced a “double downgrade” from Exane BNP Paribas to “underperform” from “outperform.”
While market pressures and analyst downgrades are just the latest challenge for traditional agencies, these developments could signal that more dramatic steps by public agency holding groups are imminent to try to right the ship and keep investors happy.
Trouble has been brewing in the space for a while. Over the last couple of years, brands have been very willing to put agency relationships under review looking to exact cost-savings and address issues like transparency in media buying, a topic that wasn’t helped by an agency rebate scandal from last June.
Along with the shifting power dynamic between brands and agencies, the advertising and marketing industry is also undergoing an influx of new competition from management and financial consultancies like Accenture and Deloitte opening digital services divisions that directly compete with traditional agencies on what had previously been their exclusive turf.
So far, the most notable response from agencies seeking to address industry challenges is consolidation and restructuring. WPP has been merging a number of its agencies such as Possible Worldwide in Wunderman and Maxus and MEC while Publicis Media recently dropped its Mediavest brand from the renamed Spark Foundry. Earlier this year, WPP's Ogilvy underwent a major restructuring with the goal of better meeting marketplace demands.
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- Marketing Dive What Ogilvy's 'refounding' says about the state of agency-brand relationships