Dive Brief:

• Pivotal Research analyst Brian Wieser reviewed the full-year 2016 results for WPP, Omnicom, Interpublic Publicis and Havas, then averaged the findings to treat the five largest agency conglomerates as an isolated group. In the process, Wieser learned that the group saw an average 3% organic revenue growth globally with just 1.5% growth in North America, according to a MediaPost report. 
• In Q4, growth was 2.2% year-over-year globally, while dropping 0.3% in North America. 
• The average numbers across the major agency holding groups were lower than expected, with Pivotal forecasting 5% growth for the year and 3.6% for Q4.

Dive Insight:

As a group, the major agency conglomerates brought in less revenue than was expected in 2016, which in the past would have been an indicator of overall softness in advertising spending. While spending was almost flat among big advertisers last year, per Pivotal, this may not be main reason why the agency conglomerates aren't doing as well as they could.

There are signs that brands are still spending on digital marketing, an area where traditional agencies have struggled. Facebook recently beat expectations with a 51% year-over-year increase in revenue during Q4 while Google, also beating expectations, saw revenue grow 22% year-over-year during the same period.

​Pivotal, in its analysis, points to the emergence of a new category of marketers who simply don't use agencies, but instead prefer to work directly with Google, Facebook and others, which Pivotal believes is the biggest factor in revenue not meeting expectations for agency conglomerates. This category includes small businesses, but larger brands are also looking for ways to bring in-house at least some tasks previously handled by agencies.  

Couple the strong revenue growth of Google and Facebook with the fact that traditional agencies are also facing pressures on a number of other fronts — including investigations into their business practices and allegations regarding a lack of diversity — and the poor revenue is  just the latest reflection of a weakening relationship between brands and agencies. 

Other factors negatively impacting revenues for agency conglomerates, per Pivotal, include increasing competition from independents, clients pressuring agencies to lower fees and the fact that all of the major conglomerates, except for WPP, don't use net revenue when defining organic growth, meaning proprietary trading activity and related costs go into the calculation.