Online trend buffets ad agencies

While Madison Avenue wants to believe its headwinds are cyclical, one analyst on Thursday said ad agency troubles could be systemic.

Giant ad agencies’ biggest clients are moving business online — siphoning profits away from the Mad men.

Behemoths like WPP, which saw its stock plunge 11.5 percent on Wednesday after it reported an unexpected slowdown in ad spending, are overly dependent on large advertisers, Michael Nathanson of MoffettNathanson said in a report.

Indeed, on looking at the Top 200 US advertisers, Nathanson found they ac- counted for 64 percent of TV revenue last quarter.

Yet these same large advertisers — mostly dependent on traditional agencies — provided only 29 percent of Internet revenue.

The distinction is key to understanding why traditional advertising fell 4 percent last quarter — the worst decline in a non-Olympic quarter since the recession ended in 2009.

By comparison, digital advertising continued to hum with a growth rate of 23 percent.

“Simply put, traditional media and agencies in the US face the same problem,” Nathanson said. “They have too much client concentration in sectors like retail, consumer products and auto that are not growing budgets.” The converse is also true. Traditional media and agencies have too few small-to-medium-size clients — advertisers “that continue to fuel online growth,” the analyst said.

Last quarter’s gain in online advertising made up 128 percent of the 8 percent gain recorded for all of US advertising, according to MoffettNathanson.

Facebook and Google continue to be the beneficiaries of these trends, which the analyst expects “to keep chugging along.”

Spending on traditional media, meanwhile, is projected to fall 7 percent in all of 2017.