And management consulting firms such as Accenture and Deloitte are moving into digital marketing and muscling onto agencies’ turf.
This is not just a WPP problem. America’s Interpublic and Japan’s Dentsu have voiced similar warnings.
But WPP is under particular scrutiny because it is the biggest and most complex ad group and Sorrell, who is 72, is the most high-profile of the agency leaders.
He is notoriously well paid, earning £43 million in 2014, £70 million in 2015 and £48 million in 2016, but was able to see off shareholder revolts and questions about succession planning because he was delivering record revenues and profits.
Now life has got harder. This year’s sales downturn could turn out to be a blip, following the loss of big accounts including Volkswagen and AT&T, and Sorrell is a formidable and brilliantly connected operator.
But questions about the agency business model are mounting. Trading scale — WPP controls about 30% of the global ad market — now matters less than digital smarts in an online world.
Advertisers have also tightened up their contracts after warnings last year that some agencies have boosted profits through opaque pricing practices for buying adverts.
WPP and the other agency groups maintain they have been transparent but a report this week claims global advertisers are reviewing £6.1 billion worth of media agency contracts in the wake of the transparency debate.
WPP reckons the talk of Google and Facebook or the consultants eating the agencies’ lunch is overdone and insists it can “weather the storm”.
One ally says the WPP chief has always been a dealmaker and an opportunist, which raises the possibility that Sorrell could consider a transformational merger to rejuvenate the group and cement his legacy.
But those close to WPP maintain there is no need for any dramatic move when it has a successful, long-term strategy and it won’t be distracted by a couple of quarters of disappointing growth. Chairman Roberto Quarta has publicly offered Sorrell his support.
History matters to Sorrell, who controls about 1.5% of the stock and often uses revenue and earnings graphs dating back over the past 31 years in his investor presentations.
He must know more change is required to get the WPP graph pointing the right way again.
