Madison Avenue Gets a Big Shock, Delivered From Paris

(Bloomberg Opinion) -- The digital revolution in the advertising industry, and the emergence of a new type of tech-savvy competitor, has left the mega-agencies like Publicis Groupe SA and WPP Plc looking like a bucket that’s sprung a leak. They have to keep topping it up with new clients to replace the ones they’re losing.

Publicis has been managing this better than most. It has examined consulting firms like Deloitte LLP and PricewaterhouseCoopers LLP, who’ve been stealing so much ad business by offering a “full-service” model (doing everything from product development to branding and e-commerce), and it’s copied them. By some measures, Publicis added more new business last year than any of its traditional Madison Avenue peers.

Madison Avenue Gets a Big Shock, Delivered From Paris

Which is why the Paris-headquartered firm’s lower-than-expected organic growth in the fourth quarter had a drastic ripple effect on the world’s advertising stocks. Omnicom slipped 5 percent and Interpublic Group Inc. 5.6 percent in the U.S. after their French rival reported its earnings on Wednesday. Britain’s WPP tumbled 7.9 percent. Publicis itself fell as much as 14 percent.

If even Publicis is struggling to replace business, was the implication, then the portents should be just as bad for advertising companies that have been slower to adapt to the changes brought about by Facebook and Google becoming advertising’s preferred platforms. Publicis blamed its decline on losing business from consumer goods brands in North America because of the economic environment there. “This is not us losing market share to competitors,” said chief operating officer Steve King.

That assertion will be tested pretty quickly, though. Publicis’s American rivals Omnicom and Interpublic both report yearly earnings next week. If they show growth in the U.S., as expected, it will look as though the problems are more specific to Publicis. WPP struggled too in North America in 2018.

Organic sales growth at both Publicis and WPP has lagged the two U.S. firms by 200-300 basis points over the past year. That suggests they are indeed losing market share, Bloomberg Intelligence analyst Matthew Bloxham said.

The French company appeared to be doing better than most in keeping pace with the profound changes in ad land. Audiences are shifting online faster than expected, and agencies are racing to adapt to new ad formats such as Instagram Stories. But all Publicis’s work will mean nothing if it can’t keep hold of the big American brand names that are the bread and butter (or margarine) of the ad industry. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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