Behind the headline growth figures released at IAB Europe's AdEx Benchmark 2025 Report launch on July 7, 2026, a candid fireside conversation exposed a structural problem the industry rarely states so plainly: the agency business that plans and buys Europe's advertising is, by one estimate, three-quarters dependent on a media margin that artificial intelligence is actively eroding.

The AdEx Benchmark 2025 Report, IAB Europe's twentieth annual measurement of European digital advertising, put the continent's market at 131.1 billion euros for 2025, a figure PPC Land reported in detail the day after the launch. That number, and the video and retail media milestones sitting inside it, formed the first half of the London event, hosted at the IAB UK offices and streamed to an online audience. The second half took a different shape entirely. Once Daniel Knapp, IAB Europe's chief economist, had walked the room through thirty national markets and a dozen advertising formats, the event's moderator invited him to remain onstage for a fireside conversation with Ian Whitaker, a former City equity research analyst who spent two decades covering media and technology stocks before founding his own advisory business six years ago. What followed ran considerably longer than a typical Q&A, and it produced a set of financial claims about the agency sector that the AdEx report itself does not, and structurally cannot, address.

A market growing 10.5 percent, but unevenly

Knapp's presentation established the frame the conversation would later interrogate. Europe's digital advertising market grew 10.5 percent in 2025, a deceleration from the roughly 16 percent pace recorded the year before, though Knapp noted that once Turkish and Ukrainian hyperinflation is stripped out using an IAS-27-based adjustment applied for the first time in the report's history, underlying growth settles closer to 9.4 percent. Sixteen of the thirty markets tracked posted double-digit nominal growth, and every single market expanded, even if the Baltic states did so only marginally.

What the moderator flagged, opening the fireside portion, was that this aggregate figure conceals almost total divergence beneath it. Formats within the study grew anywhere from roughly zero to 60 percent, with no coalescing around the reported average. Standard display, stripped of video and audio, actually contracted 0.8 percent. Social video grew close to 20 percent. Established streaming video and broadcaster video on demand, the formats Knapp's presentation labelled ESOT and BVOD, expanded nearly 60 percent even in the report's second year of tracking them, following growth rates that had exceeded 200 percent the year before as Prime Video and Netflix launched advertising tiers in 2024.

Knapp offered a two-part explanation for the divergence. First, he pointed to an increasing bifurcation in the market driven by social formats and by automated buying platforms, specifically naming Meta's Advantage Plus and Google's Performance Max as examples of the automation layer now dominating budget allocation. Second, he described what he called a financialization of the advertising community, in which rapid, top-line metrics demonstrating whether advertising affects a company's bottom line have become central to how budgets are justified, concentrating spend on formats that produce those metrics quickly while still leaving room for growth in slower, harder-to-automate categories such as digital audio, which Knapp described as more locally rooted and less dependent on any single platform.

The iceberg beneath the agency business

Whitaker introduced his own framework for the same divergence, describing what he called an iceberg effect running through advertising more broadly. The portion of the market visible above the surface, he said, is the one traditional agencies and traditional advertisers, naming Pepsi, Coca-Cola, and Unilever as examples, have always operated in. Below the surface sits a segment of small and medium-sized advertisers who never engage agencies at all, transacting directly with platforms instead.

Whitaker estimated that roughly 40 to 45 percent of all global advertising spend now originates from that lower segment, and that its share is expanding year over year. He supported the estimate by pointing to platform-level revenue composition, noting that Meta and Google have each indicated that 75 to 80 percent of their revenue derives from smaller advertisers, and cross-referencing that against Google's 19 percent search revenue growth and Meta's 31 percent growth in the most recent quarter each company reported publicly. If those growth rates hold across a revenue base that concentrated in smaller advertisers, Whitaker argued, small-advertiser spending must be expanding considerably faster than the market overall.

Knapp added a complementary data point drawn from platform transparency disclosures required under EU rules. Depending on the platform, he said, between 2.5 and 3 million active advertisers currently operate within the EU, a figure he described as still growing, and he cross-referenced it against Eurostat business data indicating that only around 33 to 35 percent of businesses with one to ten employees currently advertise online, implying meaningful headroom remains. Knapp connected the pattern directly to a recent acquisition: Walmart's agreement to acquire Vibe.co, announced June 23, 2026, which brings a self-serve connected television advertising platform with more than 10,000 existing advertisers into Walmart Connect specifically to extend reach into smaller, agency-less advertisers. That kind of deal, Knapp said, requires heavy capital investment and functions only in a consolidated environment capable of onboarding third-party sellers who lack agency relationships and are unaccustomed to managing digital advertising's complexity. The industry's historical positioning of itself as a manager of that complexity, Knapp argued, is a narrative that has largely run its course; what increasingly wins in the small-business segment is simplification, not management of complexity.

Where retail media's growth money actually comes from

The conversation turned next to retail media, which Knapp's presentation had shown crossing 13 percent of European search spend and growing 16.7 percent overall in 2025, a milestone PPC Land covered at the time the report was released. The moderator asked where that money originates, given that it does not appear to be drawn primarily from existing media budgets.

Knapp described a structural shift in how brand-side teams organize their budgets, noting that a considerable amount of retail media funding remains locked in trade relationships between retailers and manufacturers, structured as supplier discounts and vendor agreements rather than conventional media spend. He described a slow harmonization occurring on the brand side, where teams that once maintained duplicate structures for trade marketing and media are consolidating, driven in part by a forcing function requiring everything to become measurable. Whether that harmonization reflects genuine strength in the advertising market or simply a relabeling of budgets that already existed, Knapp said, is a separate and unresolved question.

Whitaker offered a financial-markets account of why retail media took off specifically when it did, roughly four to five years before the July 2026 event. Amazon had been operating retail media advertising for years, he said, without triggering broader market attention, largely because Amazon is covered by technology analysts within investment banks rather than by retail analysts, keeping retail media siloed away from the retail sector's own investor base. The pattern changed, in his account, when Walmart disclosed in a quarterly earnings call that it had achieved close to 30 percent advertising growth and that approximately 25 percent of its profit growth had come from retail media, a disclosure that mattered because Walmart's business runs on roughly a 3.5 percent operating margin. A category of advertising revenue carrying 70 to 80 percent margin, Whitaker argued, does not require large revenue figures to produce a disproportionate effect on overall company profit. Once retail analysts, who do cover Walmart, absorbed that disclosure, Whitaker said they began asking every retail company they cover about retail media plans, prompting those companies to set public targets they then came under pressure to meet.

That dynamic, in Whitaker's account, has generated the tension now surfacing between retailers and their advertiser base. Whitaker described hearing anecdotal reports of advertisers who feel pressured to fund retail media programs despite seeing weak returns and no additional money available, while retailers continue pushing the category because their chief executives made growth commitments to investors that must be honored. Knapp responded that the pattern is visible beyond anecdote, pointing to growing involvement from procurement teams in retail media negotiations and tightening scrutiny of what he described as often fictional cost-per-mille figures being charged. He added a concentration finding from the underlying data: among retailers without a developed third-party marketplace, roughly 70 to 80 percent of retail media revenue typically comes from five or fewer advertisers, meaning that if a procurement team intervenes with just one or two of those advertisers, the growth narrative sold to public markets comes under direct pressure. Building third-party marketplaces to diversify beyond that narrow advertiser base, Knapp said, is why capable retailers are now moving to expand seller access, a category of investment that includes the Vibe.co acquisition discussed earlier in the conversation.

Whitaker: advertising has lost its way

The most pointed exchange of the fireside chat concerned the structure of agency economics itself, and it produced the assessment that anchors this piece. Asked whether the market's uneven growth reflects genuine bifurcation or simply finance and procurement departments asserting control over media plans that were previously the marketing department's domain, Whitaker offered an unambiguous view. Advertising, he said, has lost its way, arguing that the direct line that once ran from a business's actual commercial needs to what an agency executed on its behalf has broken down, and that the industry now spends much of its energy talking to itself rather than answering that more basic question.

He traced the underlying economics to a specific historical decision inside agency holding companies. He recalled a conversation, held more than fifteen years before the July 2026 event, with a senior agency chief executive who stated plainly that media buying was where the profit sat, that creative work generated no meaningful profit, and that the company intended to treat creative as a loss leader used to grow the media business. Whitaker attributed this to a plain margin difference: media buying at that time commanded roughly 25 to 30 percent margins for agencies, he said, while creative work sat in low single digits.

Whitaker then supplied the estimate that gives the current moment its edge. No listed agency holding group discloses the specific share of its profit that derives from media buying rather than creative or strategic services, he said, and there is a clear reason for that omission: markets would react adversely to learning how dependent these companies are on the media business specifically. Based on his own analysis conducted several years earlier, Whitaker estimated that the most exposed holding groups derive somewhere between 75 and 80 percent of total profit from media buying, with other groups somewhat lower but still substantially reliant on the same segment.

The consequence, in Whitaker's framing, is that a business generating three-quarters or more of its profit from a scale, efficiency-driven activity is structurally exposed at precisely the moment artificial intelligence is emerging as what he called the ultimate efficiency tool. He compared the position facing agency chief executives to the position once occupied by classified advertising and regional newspaper businesses roughly two decades earlier, describing companies that believed themselves protected, loaded up on debt with substantial interest obligations, could see the shift from print to online occurring in real time, but could not transition quickly enough because servicing that debt and preserving reported profit depended on continuing the old model. Getting from the current agency structure to a sustainable one without collapsing investor confidence in the interim, Whitaker said, is the challenge every chief executive in the position now faces, with continued employment itself often riding on the outcome.

Creative pricing in a token economy

Knapp extended the conversation into a related but distinct question: what artificial intelligence is actually doing to media economics as measured in the AdEx data itself. He confined the AdEx report's own treatment of AI strictly to a media spend perspective, noting separately that the study team estimates approximately 8 billion euros of creative production spend in Europe currently sits in a category that AI could plausibly absorb, a figure tracked outside the core AdEx measurement.

The more consequential shift, in Knapp's account, is not creative production cost reduction in isolation but the collapsing of a historical separation between media buying and creative work. Media, he said, has traditionally functioned as the segment's financial engine while creative did not, but the emergence of AI systems capable of making actual media purchasing decisions, rather than simply feeding measurement into a separate silo, is combining creative production, media buying, and optimization into a single integrated function, reversing what he characterized as an artificial historical split within the industry.

That integration raises a pricing question neither participant treated as resolved. Knapp noted that creative production has conventionally been priced on an hourly or full-time-equivalent basis, and asked how long that model can persist once the underlying work is performed using computational tokens rather than billable hours. He raised, without endorsing, the possibility that agencies might need to function as something closer to futures markets for tokens, holding and licensing them to clients if token costs are expected to rise, in a manner resembling how some AI companies already license capacity to customers. Auditors, Knapp predicted, will scrutinize closely how cost savings from AI adoption are passed through to clients and how durable the resulting pricing models prove to be.

Whitaker agreed that the current full-time-equivalent, hourly billing model cannot survive in the present environment, but expressed skepticism about how quickly the industry will actually resolve the pricing question, suggesting the transition could stretch across a decade or more and noting that several parties currently advising agencies on the transition have a financial incentive in prolonging the advisory engagement itself. He drew an analogy to equity valuation, describing agency pricing as similarly resistant to a fixed formula, arguing that a durable solution will instead involve agencies demonstrating the value they have generated for a client and negotiating compensation around that demonstrated value rather than around hours logged, while acknowledging that the industry has, in his view, lost some of the confidence required to have that conversation directly with clients.

Cross-border spend and where the study's blind spots sit

Knapp closed the discussion by returning to a figure from the underlying report that he said had not received sufficient attention relative to the headline growth numbers: approximately 15 percent of European digital advertising spend now crosses national borders. He connected that figure to the continuing absence of a genuinely unified European advertising market comparable to the United States, describing Europe instead as a set of fragmented national economies, and argued that efficiency gains remain available specifically in bringing those markets closer together through consistent, pan-European operating structures paired with local implementation, media partnerships, and execution.

Asked what had struck him as most surprising in Knapp's presentation, Whitaker pointed to the difficulty inherent in producing estimates of this kind generally, noting specifically that Google's reported search revenue growth of roughly 18 percent for the prior year seemed, on its face, difficult to reconcile with Europe's reported search growth figures, though he attributed part of the gap to complicating factors such as Chinese advertiser activity within European search inventory. He offered a second observation on AI's role in platform revenue growth, distinguishing between AI driving genuinely new product-based revenue for online platforms and AI functioning primarily as a more persuasive messaging tool platforms use to convince existing clients of their products' value, describing the distinction as one worth tracking closely in subsequent reporting periods.

Timeline

  • 2006: IAB Europe launches the first AdEx Benchmark study, then covering a European digital advertising market of approximately 6.6 billion euros.
  • April 20, 2026: Basis publishes its 2026 Advertising Agency Report, an independent survey finding that 87.3 percent of agency professionals consider the traditional agency model already broken or likely to break within three to five years.
  • June 23, 2026: Walmart and Vibe.co announce a definitive agreement for Walmart to acquire the self-serve connected television advertising platform, a deal referenced during the fireside chat as an example of retail infrastructure investment aimed at agency-less small and medium-sized advertisers.
  • July 7, 2026: IAB Europe launches the AdEx Benchmark 2025 Report at a hybrid event hosted at IAB UK's London offices, presenting Europe's 2025 digital advertising figures followed by a fireside conversation between chief economist Daniel Knapp and advisor Ian Whitaker.

Summary

Who: Daniel Knapp, chief economist at IAB Europe, and Ian Whitaker, a former equity research analyst who now runs an independent advisory business, in a fireside conversation moderated at IAB Europe's launch event for the AdEx Benchmark 2025 Report.

What: Following the presentation of Europe's 2025 digital advertising figures, showing 131.1 billion euros in total market size and 10.5 percent nominal growth, the two speakers discussed the structural forces driving uneven growth across advertising formats, including retail media's expansion, the concentration of small-advertiser spending outside traditional agency relationships, and Whitaker's estimate that the most exposed agency holding companies derive 75 to 80 percent of profit from media buying, a segment now under direct pressure from AI-driven efficiency gains.

When: The launch event and fireside conversation took place on July 7, 2026.

Where: The event was held in a hybrid format at the IAB UK offices in London, with an online audience joining via livestream.

Why: The exchange matters to advertisers, agencies, and platform vendors because it supplies a financial-markets explanation for patterns the AdEx report's own methodology cannot address directly, namely why agency holding companies face mounting pressure to justify media-dependent profit structures to investors precisely as AI compresses the labor and margin assumptions those structures were built on.