Behind the AI frenzy, are traditional advertising giants facing a "Kodak moment"?

"Kodak Moment" = Core technology paradigm shift, value chain rewritten

Original leaders lose bargaining power within 1-2 product cycles if they lack exclusive data or execution valves.

AI-driven advertising industry chain is "compressing intermediate links"

Behind the soaring stock prices of digital advertising giants like Meta and Applovin, traditional media advertising giant WPP finds itself squeezed from both upstream and downstream in the traditional media agency segment, forming a typical "sandwich layer" dilemma. The 16% single-day drop in WPP's stock price is not due to a single "black swan," but rather multiple negative logics being "priced in" by the market on the same day.

Direct Trigger: Sudden Performance Warning + Guidance Halved

Management admitted that June's performance was "significantly below expectations," forcing the company to temporarily lower its full-year guidance four weeks before the official mid-year report and hold a morning conference call. After the news was released, the stock price briefly fell to 444 p (a new low since 2016), with a single-day drop of 16% – 18%.

The original "moderate decline" assumption → "continuous shrinkage + profit margins being eroded" assumption, Bayesian posterior instantly turns pessimistic, killing valuations beyond the profit downgrade itself.

Why is traditional advertising share being "acceleratedly eroded" by digital advertising?

Digital advertising inherently possesses three major advantages: measurability, iterability, and automation. Under the dual push of generative AI and retail media, budgets are being siphoned from traditional channels like television and print into platform ecosystems and e-commerce closed loops, causing traditional "billboard-style" businesses of large agencies like WPP to suffer continuous blood loss.

Market Overview: Budget focus has completely shifted

• eMarketer's latest forecast: By 2025, digital advertising will account for over 75% of total global spending for the first time
• GroupM's "This Year Next Year" year-end report also shows that nearly all of the 9.5% advertising increment in 2024 will come from digital media
• The additional $75 billion advertising budget in 2024 will mostly flow to "billion-dollar club" companies like Google, Meta, and Amazon, with Amazon alone expected to see a year-on-year increase of +19% in Q1 2025 advertising revenue, reaching $13.9 billion.

Therefore, budget migration is not a slow "leak," but an exponential expansion; any agency model relying on traditional channel commissions faces structural pressure

The "Blood Loss Speed" of Traditional Media

At the same time, CTV and retail media (Amazon, Walmart, Instacart, etc.) have become new entry points: advertisers reconstruct the delivery path using "retail closed-loop data + attributable ROI," compressing the CPM pricing power of traditional media.

Why are large agencies like WPP the first to suffer? Value chain position is "double-killed" by upstream and downstream

Upstream: Google/Meta provides self-service delivery + AI Creative, allowing brands to bypass agencies and operate directly. Peers: Publicis took the lead in integrating media + data + e-commerce with Power of One, surpassing WPP in revenue for the first time in 2024, with an operating profit margin as high as 18%. WPP Media's new business proposal count for H1 2025 is only one-third of the same period last year, with iconic large orders from Mars, Coca-Cola, and others flowing out successively. WPP invests about £300 million annually in its self-developed platform WPP Open, but it is still in the "R&D - verification" stage, and ROI has not offset the pressure of client loss. The new CEO (from Microsoft) is seen as an emergency measure to respond to the "AI Kodak moment."

Where does digital advertising win?

Core Mechanism: ROI + measurement advantages → budget concentrates on digital → platforms enhance models due to scale effects → ROI continues to improve — forming a self-reinforcing flywheel that further dilutes the cost-effectiveness of traditional media.

The "Upstream and Downstream Siege" in the Industry Chain, WPP's passivity and gaps in the AI era are evident

① Audience Data Sources (First-Party ID and Closed-Loop Transactions)

AI Era Dominators: Google, Meta, Amazon, and retail media networks.

In the past, WPP's value was reflected in advertisers' reliance on third-party DMPs and media procurement data to build audience panels. Now, platforms use login/transaction data to train exclusive models, and precise audience packages can only be delivered within their own ecosystems, making it difficult for external agencies to obtain signals of the same granularity. WPP's Choreograph data has less than 20% exclusive first-party data; after the exit of third-party cookies, the signal attenuation problem has intensified, leading to lagging targeting accuracy ② Creative Generation

AI Era Leaders: Built-in Asset Studio, Meta Advantage+, etc.

In the past, WPP's value was reflected in offline shooting, manual scripting, and editing processes. Now, text-to-image/video one-click generation and multi-version A/B testing have compressed creative production costs by over 90%. WPP has just launched Open Canvas, which is still in its early stages in terms of functionality and scale, making it difficult to compete with platform-level tools in terms of production costs and speed.

③ Media Planning

AI Era Leaders: Machine learning budget allocation for public domain DSP and retail media DSP.

In the past, WPP's GroupM relied on manual modeling and human negotiation for media planning. Now, Auto-budget and cross-channel MMM model iterations are faster, with shorter feedback loops. “Open Intelligence” attempts to counter with LLM but currently only covers 75 markets, with a customer trial rate of less than 10%.

④ Buying / Bidding

AI Era Leaders: Self-service advertising platforms like Google Ads Console (AI Max) and Meta Advantage.

In the past, WPP's value: Concentrated bulk purchasing for discounts and rebates. Now, AI automatic bidding + prepaid point cards reduce complexity, allowing brands to self-serve directly. WPP's “discount dividends” have been reclaimed by platforms, with commission rates decreasing by about 1 percentage point per year (3% → 2%).

⑤ Delivery / Channel Control

AI Era Leaders: CTV platforms and retail media's own SSP controlling premium inventory.

In the past, WPP unified scheduling and prioritized negotiation for placements. Now, scarce traffic platforms sell directly, retaining quality inventory and no longer passing it to agencies. WPP's repricing space has significantly shrunk, having lost large contracts from Mars, Coca-Cola, and others.

⑥ Measurement & Attribution

AI Era Leaders: Platform closed-loop data reporting + LLM automatically generating insights.

In the past, WPP relied on third-party reconciliation from Nielsen / MRC. Now, AI can provide real-time full-link conversion feedback, charging via SaaS subscriptions, allowing brands to view data in real-time. WPP still needs to call Google / Meta APIs for further processing, lacking discourse power over underlying data and methodologies.

Thus, the AI-driven “platform endogenous + industry breakthrough + brand internalization” strategy is simultaneously eroding WPP's pricing and bargaining power at the three core value nodes of data, creativity, and media. If WPP cannot achieve breakthroughs in the depth of its own data, AI-native tools, and integrated solutions in the short term, its profit model will face a continuous compression in a “double-sided squeeze” pattern For traditional media advertising giants (WPP, Omnicom, IPG, Dentsu, Publicis), AI-driven full-process automation is bringing this moment forward to 2024-2026:

AI is Accelerating "Disintermediation": Power Shift in Five Key Value Chain Links

Audience Data (ID & Behavior)

From 1995 to 2020, traditional agencies relied on third-party panels, cookies, and offline transaction prices to piece together audience profiles; now, the login and transaction closed-loop data controlled by platforms has become the "only truth." eMarketer predicts that by 2025, digital advertising will account for 75%+ of global advertising spending for the first time, with nearly all new shares coming from Google, Meta, Amazon, and various retail media's own closed-loop placements.

Creative Production

In the past, shooting large productions and manual post-production were high-margin moats; generative AI compresses "storyboarding → copywriting → multiple versions A/B" into a few minutes. Google will launch AI Max in 2025, supporting "one-click scripts + videos" and has already begun global testing; Meta's Advantage+ can also automatically break down materials and generate multiple size variants. Traditional shooting costs, cycles, and version iteration speeds have completely lost their comparative advantage.

Media Planning and Bidding

Scale bargaining and rebate models are being replaced by platform self-service Consoles and LLM budget models. Brands can now scale with zero code, and AI automatic bidding continues to learn. Industry associations are lowering the minimum commission for large clients' digital media to 3% in 2023-24 and prohibiting additional discounts, indicating that the commission pool is approaching 1-3%; several consultancies expect agency commission rates to drop another 50-100 bps annually.

Measurement and Attribution

In the Nielsen/MRC sampling era, "whoever controls the panel speaks"; now, closed-loop APIs + retail POS allow platforms to directly provide conversion pathways. Publicis integrates 1P data with platform APIs into a unified dashboard through CoreAI, achieving +4.9% organic growth in Q1 2025, proving that "data + AI" integration can directly translate into new revenue.

Financial Safety Net

High discounts and labor outsourcing used to be a buffer; now profits are squeezed by SaaS subscription fees and outcome-based revenue sharing. WPP's new orders sharply declined in June, and profit margin guidance was cut by 175 bps, causing the stock price to plummet -16% on the same day, highlighting that traditional models have almost no "safety margin" under high leverage 2024-2026 will become the "de-intermediation inflection point." Upstream platforms will use AI + data closed-loop forward integration, industry leaders will upgrade horizontally with a unified AI layer, and downstream brands will build in-house teams to trace upstream. These three forces will simultaneously erode the traditional agency's three major profit nodes: data - creativity - media. Unless a qualitative change is achieved in the depth of proprietary data, generative toolchains, and results billing models, the old advantages of WPP, Omnicom, IPG, Dentsu, and Publicis will be rapidly compressed into "thin-margin outsourcing" within two years.

How does the "double kill" closed loop trigger the Kodak moment?

1. Upstream forward integration — Platforms package "data → creativity → delivery" for advertisers,

2. Horizontal upgrades among peers — Taking the lead in writing private domain data into the AI engine (Publicis CoreAI),

3. Customer reverse self-building — CMOs use SaaS DSP + Gen-AI to internalize creativity and bidding.

When these three forces occur simultaneously, the traditional agency's three moats of discount dividends, human gross profit, and information asymmetry will collapse, and valuations will enter the "Kodak curve" (the decline in cash flow and valuation compression present a multiplicative effect).

Upstream platform forward integration, Google AI Max, Meta Advantage+, and other "one-click production, one-click scaling" AI Creative + Auto-Bidding. WPP's bargaining and scheduling capabilities are replaced by algorithms. Discount rebates are transferred to platforms, and the profit pool shrinks. Brand clients shift to self-service delivery, and agency commissions continue to decline.

Horizontal upgrades among peers, Publicis CoreAI consolidates 2.3 billion exclusive data points and 35 years of process into a unified AI layer, claiming "every employee = data analyst." WPP's data depth and coverage have been surpassed by competitors. End-to-end intelligent systems are more persuasive in bidding, eating into large contracts. Publicis's revenue scale surpasses WPP, and scale effects further suppress WPP.

Downstream brand self-building capabilities, DTC brands and Fortune 500 companies are forming in-house media teams and adopting SaaS / DSP for self-investment. The "zero commission" model has cost attractiveness, accelerating the loss of long-tail clients. Direct channel investment weakens agency stickiness, and WPP's market share in small and medium clients is shrinking.

High-risk determination: Private domain data < 30% and AI tool penetration < 15% → Loss of renegotiation and algorithm barriers.

When the share of digital advertising has exceeded 75%, generative AI compresses "creativity - placement - attribution" into a one-click process. If traditional media advertising giants cannot reconstruct their business models using private domain data + execution thresholds within 24 months, they will enter a true "Kodak moment."

Upgrade Roadmap (must be validated within 24 months)

• Transform "discounts" into "closed-loop data" – encapsulate negotiated discounts and offline transaction price data into ID-less semantic packages, embedded in WPP Open → forming a private domain data moat.

• Outcome pricing + SaaS transformation – change commissions to "incremental GMV/ROI sharing + platform subscription," aligning with Publicis and platform API's result charging logic.

• Vertical integration of traffic thresholds – acquire retail media DSP or CTV SSP to gain partial inventory control, rebuilding execution thresholds.

• Industry deep vertical – launch compliant-AI media SaaS in highly regulated and high-barrier fields (pharmaceuticals, finance), leveraging compliance capabilities and networks to rebuild barriers.

In the future, under the impact of AI, more and more industries will face a Kodak moment if they do not change!

Source: Bayesian Beauty, original title: "Behind the AI Rush, Are Traditional Advertising Giants Facing a 'Kodak Moment'?"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk