BoAML: WPP best placed to exploit data-driven audience trading

According to the latest advertising industry review from Bank of America Merrill Lynch (BoAML) WPP is best placed to deal with the structural changes in the industry.

The bank’s forecast expects slow growth in developed markets due to government and consumer debts. Moreover, the slowdown negates the scope for a cyclical recovery in 2013/14. Equally emerging market growth will not all be incremental like the past decade. Developed markets were only able to sustain growth and consumption via increased borrowing. Going forward they expect emerging market growth to cannibalise growth in developed markets.

BoAML expect digital and social media to accelerate the shift from “paid” to “paid, owned and earned” media as brands seek to engage and interact with the consumer. This will put further pressure on media spending, particularly traditional media given the on-going shift to online.

Digital drives efficiency and reduced wastage through improved targeting. The bank’s view is that this will allow corporates to “spend less and get more,” with marketing spend continuing its 10 year decline relative to GDP.

The bank goes on to comment that digital “complexity creates value”, with the role of the agency, and its share of marketing budgets, becoming increasingly important. However, the growing importance of data and insight could lead to increased competition.

WPP’s market research issues are company specific, relating to the integration of TNS and a focus on cost savings at the expense of revenue growth. BoAML expect WPP to resolve these issues over time and return to industry growth.

Further they see the industry facing significant structural changes given the new information sources, an abundance of data and a shift from “asking” to “listening and observing”. Traditional market research companies can add value by combining and interpreting multiple data streams to give advice to their clients.

As agencies move up the value chain, they may face new competition. The bank expects WPP has the ability to combine a broad range of data assets and provide global insight. Additionally, the most important trend for media buying is the shift from traditional buying to data-driven audience trading.  MediaTel’s recent event “first party data – the publisher’s black gold?” expanded on this theme and unveiled many market tensions.  Read the full reports here.

BoAML expect media buyers to increasingly act as principal to drive efficiencies for their clients and also higher margins. Scale, technology and the ability to combine and interpret both offline and real time data will be essential to secure the best prices and optimise inventory.

The bank upgrades Havas to buy and maintains a buy on WPP. It downgrades Aegis to neutral and Publicis to underperform.