Falling share price hits WPP – will mooted mega-mergers make a reappearance?

WPP’s market capitalisation has dropped below £20bn following a downgrade to “underperform” from broker Exane BNP Paribas which reckons it and other agency-based holding companies will lose out to other “nimbler” providers better able to offer automation and ecommerce.

Consultants, independent trading desks and big digital owners like Amazon, Facebook and Google in other words.

So is it a crisis for WPP boss Sir Martin Sorrell (below) and his peers?

Sorrell himself has acknowledged the structural challenges facing media agencies, hitherto the most profitable part of his empire, as it becomes possible for big advertisers to operate without them. He’s already merged Maxus into MEC and Neo@Ogilvy into Mindshare. Other “rationalisation” may follow.

Media agencies themselves don’t seem clear about where to head. The new boss of MEC/Maxus (or whatever it’s to be called) Tim Castree says he hopes to make content creation 20 per cent of the agency’s business, up from five per cent. But isn’t this what WPP’s creative agencies are supposed to do?

In some ways media agencies are facing the same threat creative agencies have been grappling with for the last decade or more. Creative agencies saw, first, their hold on media vanish then they found themselves sharing clients with big production agencies like Tag and WPP’s Hogarth. So, compared to 30 years ago, they’re now doing a third of it.

Media agencies seemed to have an iron grip on the market; pushing around even the biggest media owners to get the deals they wanted. But, unlike the European Commission with its ability to issue whopping fines, they can’t push the digital giants around. Most of the time they can’t even gain access to their fabled data-stuffed “walled gardens.”

And much of their clever technology is actually produced by the adtech industry but offered as their own. If the adtech inventors can sell this to someone else – like advertisers – then they lose another key weapon.

So Sorrell, new Publicis boss Arthur Sadoun and Omnicom’s John Wren among others do indeed face a crisis. Sadoun has admitted this publicly.

Agencies of all hues are good at adapting to change – eventually. But they’re likely to find themselves inhabiting a smaller marketplace (in relative terms) thanks to the big, powerful new players. There’s also an opportunity for new, well-funded technology companies to enter the market and eat some more of the holding companies’ lunch.

The obvious consequence of this for the holding companies is, as many have said, to merge not just their own agencies but to merge with each other. Omnicom and Publicis tried and failed to do this a few years back. Falling share prices make any company vulnerable.