New York - An unprecedented number of blue-chip companies have put their advertising contracts up for review this year, underlining the growing pressure on ad agencies as online marketing threatens their traditional role and profit margins.
At the industry's biggest annual conference in Cannes this week the main topic of conversation among the 13 000 delegates is the 18 companies - from consumer products giants Proctor & Gamble and Unilever to automakers like BMW and Volkswagen - that have decided to re-think which agencies they want for marketing advice.
About $27bn in media planning and buying contracts across television, radio, print, text and online are up for grabs, according to Ad Age, more than in the past three years combined.
The reviews are an unnerving prospect for top agencies WPP , Omnicom, and Publicis.
Morgan Stanley estimates that if advertisers' pressure on agency fees drives prices down by 15% or more, companies like leader WPP or number 2 Omnicom could see earnings per share drop by about 10%.
Analysts say Interpublic and Publicis have the most to lose given their exposure to key clients like L'Oreal and Coca-Cola that have also initiated a review. Challengers to the top three like Havas have the most to gain, but few expect new players outside the top six agencies to capture elite contracts from the world's top brands.
A board director at one major advertising firm who did not want to be named said the crop of contract reviews represent a "watershed moment" for Madison Avenue - a reference to the world's biggest ad agencies based upon the New York street where they grew from the 1920s.
The reviews represent a "harbinger" of how the ad firms are going to have to change their business models to survive, he said, particularly since the reviews include the media buying and planning area, which has traditionally been a profitable one for the agencies.
Online video boom
One Cannes invitation touted a party for the book "Madison Avenue Manslaughter," written by a veteran industry exec and promising a peek into the rough reality facing ad firms.
That reality stems from the fact that brands have had to dramatically rethink the way they seek to woo consumers and the size of the budget they use to do it. Since the financial crisis, procurement executives have gained more sway to ask for proof that marketing spending is working.
As an example, food giant Mondelez International, which has put its media account now with Publicis' Starcom and Dentsu Aegis up for review, has been whittling down the number of agencies it works with from 12 to 2 so as to save money and re-invest it in the business.
Not only do companies want to pay less to their ad agencies, they also want to make sure that their agencies really know how to help them succeed in a world where consumers spend less time watching television and more using a dizzying array of websites and apps via their mobiles.
Messaging apps like Snapchat and media outlets like Vice and Buzzfeed have fuelled a boom in online video with the creation of hybrid editorial and marketing content known as native ads: Some executives at big brands think big ad agencies are simply not skilled enough at banging out these kinds of snippets.
With Internet advertising expected to overtake TV in 12 key countries including China and Germany and represent 28% of global ad spending by 2017 - according to research by media-buying firm ZenithOptimedia - the pressure is on agencies to adapt.
WPP announced on Tuesday that it was forming a small creative agency with the Daily Mail and Snapchat to create new online content.
"In a slow growth world, where agencies have little pricing power and advertisers are focused on costs, we need to try new things," said WPP CEO Martin Sorrell.
Another source of pressure on agencies is that fact that their old-school negotiation skills with sellers of TV media space are no longer needed in a world where most online ads can be bought via automated systems in real-time.
On top of that a row has broken out about the transparency of contacts and whether some agencies are passing on to their clients - the marketers - the volume discounts they often get for buying ad space on TV or on the web.
Called rebates by proponents and kickbacks by their foes, the tussle basically shows how big companies are demanding more transparency from their agencies.
Another source of tension has been concerns about on-line advertising fraud after the US Association of National Advertisers estimated last year that businesses were losing $6.3bn a year to so-called "click fraud," in which robots were viewing ads instead of humans.
Since agencies are often paid in part based on how many people see a campaign online, this is causing particular frustration among big brands.
That has some big companies questioning why they need agencies to place ads. Some have gone directly to social networks like Facebook, Twitter or Google's YouTube.
"There is the lowest amount of trust that I have ever seen between clients and agencies right now," said Michael Kassan, the founder and chief executive of MediaLink, a consulting firm for marketer and agencies.
"Big marketers simply do not believe what the agencies are saying on a range of issues - rebates, effectiveness of advertising, bots."
One survey from Credit Suisse that interviewed 25 marketing executives about trends in the European ad market found "an increasing scepticism about the value-added by agencies in digital which could inhibit their ability to benefit from any increased ad spend."
Fifty-two percent of the number of respondents believed that agencies are adding "less value" than before versus 36 percent in 2014. About half said they planned to do more placing of ads directly with online outlets, and lack of transparency on contracts and terms were the executives' biggest concerns.
Nonetheless Dominique Delport, global managing director at Havas Media Group, said agencies could navigate the tough climate if they adapted to new demands from customers.
"The market is too complex, you cannot swim alone," he said. "Marketers need us."