Ad Firms Say the Threat From Digital Challengers Is Overplayed

(Bloomberg) -- Top executives from the big four advertising companies hit back against concern their industry is in structural decline, blaming most of their recent woes on temporary cutbacks in marketing spending.

“It’s certainly not the disaster that the Street seems to think is hitting our industry,” Interpublic Group of Cos. Chief Executive Officer and Chairman Michael Roth said at the Morgan Stanley TMT Conference in Barcelona. “This is nothing like 2008.”

The global ad giants -- WPP Plc, Publicis Groupe SA, Omnicom Group Inc. and IPG -- are having their worst year since the financial crisis, driven by major consumer-goods clients such as Procter & Gamble Co. and Unilever NV scaling back advertising spending and growing concerns over the rise of digital challengers.

Each of the groups have cited pressure from activist investors and management consultants leading to packaged-goods companies reducing marketing budgets. But they expect the trend to reverse.

WPP’s Chief Financial Officer Paul Richardson already sees signs of spending returning, while Roth said advertising investment will increase as companies seek to build their brands and grow revenue.

“At some point I believe they will be coming back,” Roth said.

Martin Sorrell, WPP’s CEO, has cited the consumer-goods cutbacks as the industry’s top headwind and Publicis CEO Arthur Sadoun agreed on Thursday, but he said the ad agencies needed to stop griping.

“They are fed up that we put the blame on them for our problems,” Sadoun said. “I don’t want to spend a second on this. I want to spend time on what are the solutions.’’

The advertising agencies have also faced questions over whether they risk losing business to new challengers. On one side, consultants like Accenture Plc and Deloitte LLP have been buying up creative businesses in a bid to poach digital marketing work, such as website design and app-building. On the other, the likes of Facebook Inc. and Alphabet Inc.’s Google increasingly offer advertising solutions direct to companies, threatening to cut out the agency middlemen.

Omnicom CEO John Wren says he doesn’t see a threat from the consultancies, and instead views them as potential future partners.

No Trenches

“It’s something we watch but it’s not something we’re afraid of,” Wren said. “They don’t want to get in the trenches of actually executing” advertising campaigns, he said.

Meanwhile, Publicis’ Sadoun said his firm was best-placed among its peers to tackle the consultants, given its ownership of Sapient Corp., which specializes in digital transformation.

On the Facebook and Google threat, WPP said its top clients continue to use them for advice and execution when buying advertising from the tech giants because they can give an impartial view on where ad dollars are spent most effectively.

The world’s largest advertising company did concede that concerns over the quality of digital ads has damped spending this year, with marketers increasingly questioning their return on investment and whether ads were appearing in appropriate environments.

“There was a pause in the major multi-nationals to understand how effective their digital marketing was,” Richardson said. “It has caused a slowdown in our digital business in the last 12 months.”

©2017 Bloomberg L.P.

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