The advertising agency arena has always been a cut-throat world, one where being caught just a little behind the eight-ball can have disastrous consequences. Throw into that mix the fact that online marketing is threatening the profit margins (and essentially the very roles) of many advertising agencies and you have some murky waters to navigate.

As the industry’s heavyweights gather in Cannes, some of the world’s biggest companies have put their contracts up for renewal, including heavyweights like Proctor & Gamble, Unilever, BMW and Volkswagen. The numbers make for pretty staggering reading as the New York Times reports:

About $27 billion in media planning and buying contracts across television, radio, print, text and online are up for grabs…more than in the past three years combined.

Morgan Stanley estimates that if advertisers’ pressure on agency fees drives prices down by 15 percent or more, companies like leader WPP or number 2 Omnicom could see earnings per share drop by about 10 percent…

The reviews represent a “harbinger” of how the ad firms are going to have to change their business models to survive…particularly since the reviews include the media buying and planning area, which has traditionally been a profitable one for the agencies.

There is also a sense of distrust towards some ad agencies as to whether or not they are passing on to their clients the large discounts they receive when buying ad space in bulk:

Called rebates by proponents and kickbacks by their foes, the tussle basically shows how big companies are demanding more transparency from their agencies.

Then there is the small matter of agencies like WPP, arguably the world’s foremost agency, hopping into bed with the Daily Mail and Snapchat to create new online content. Partnerships like these do little to help bridge the gap between agency and client, with consulting firms citing the current levels of distrust as the worst they have ever seen.

Interesting times ahead folks, looks like you ad agency kids might have to tighten up those belts just a little.

[source:nytimes]