Advertising agencies under the gun from major contract reviews

* $27 billion in media buying contracts up for grabs

* Brands like Unilever, Volkswagen demand cheaper fees

* Tech changes role of ad agencies, threatens margins

* Trust between big companies, agencies at an ebb

By Leila Abboud and Jennifer Saba

CANNES/NEW YORK, June 23 (Reuters) - An unprecedented numberof blue-chip companies have put their advertising contracts upfor review this year, underlining the growing pressure on adagencies as online marketing threatens their traditional roleand profit margins.

At the industry's biggest annual conference in Cannes thisweek the main topic of conversation among the 13,000 delegatesis the 18 companies - from consumer products giants Proctor &Gamble and Unilever to automakers like BMW and Volkswagen - that have decided tore-think which agencies they want for marketing advice.

About $27 billion in media planning and buying contractsacross television, radio, print, text and online are up forgrabs, according to Ad Age, more than in the past three yearscombined.

The reviews are an unnerving prospect for top agencies WPP, Omnicom, and Publicis

Morgan Stanley estimates that if advertisers' pressure onagency fees drives prices down by 15 percent or more, companieslike leader WPP or number 2 Omnicom could seeearnings per share drop by about 10 percent.

Analysts say Interpublic and Publicis have the mostto lose given their exposure to key clients like L'Oreal and Coca-Cola that have also initiated areview. Challengers to the top three like Havas havethe most to gain, but few expect new players outside the top sixagencies to capture elite contracts from the world's top brands.

A board director at one major advertising firm who did notwant to be named said the crop of contract reviews represent a"watershed moment" for Madison Avenue - a reference to theworld's biggest ad agencies based upon the New York street wherethey grew from the 1920s.

The reviews represent a "harbinger" of how the ad firms aregoing to have to change their business models to survive, hesaid, particularly since the reviews include the media buyingand planning area, which has traditionally been a profitable onefor the agencies.

ONLINE VIDEO BOOM

One Cannes invitation touted a party for the book "MadisonAvenue Manslaughter," written by a veteran industry exec andpromising a peek into the rough reality facing ad firms.

That reality stems from the fact that brands have had todramatically rethink the way they seek to woo consumers and thesize of the budget they use to do it. Since the financialcrisis, procurement executives have gained more sway to ask forproof that marketing spending is working.

As an example, food giant Mondelez International,which has put its media account now with Omnicom and DentsuAegis up for review, has been whittling down the numberof agencies it works with from 12 to 2 so as to save money andre-invest it in the business.

Not only do companies want to pay less to their ad agencies,they also want to make sure that their agencies really know howto help them succeed in a world where consumers spend less timewatching television and more using a dizzying array of websitesand apps via their mobiles.

Messaging apps like Snapchat and media outlets like Vice andBuzzfeed have fuelled a boom in online video with the creationof hybrid editorial and marketing content known as native ads:Some executives at big brands think big ad agencies are simplynot skilled enough at banging out these kinds of snippets.

With Internet advertising expected to overtake TV in 12 keycountries including China and Germany and represent 28 percentof global ad spending by 2017 - according to research bymedia-buying firm ZenithOptimedia - the pressure is on agenciesto adapt.

WPP announced on Tuesday that it was forming a smallcreative agency with the Daily Mail and Snapchat tocreate new online content.

"In a slow growth world, where agencies have little pricingpower and advertisers are focused on costs, we need to try newthings," said WPP CEO Martin Sorrell.

DISTRUST

Another source of pressure on agencies is that fact thattheir old-school negotiation skills with sellers of TV mediaspace are no longer needed in a world where most online ads canbe bought via automated systems in real-time.

On top of that a row has broken out about the transparencyof contacts and whether some agencies are passing on to theirclients - the marketers - the volume discounts they often getfor buying ad space on TV or on the web.

Called rebates by proponents and kickbacks by their foes,the tussle basically shows how big companies are demanding moretransparency from their agencies.

Another source of tension has been concerns about on-lineadvertising fraud after the U.S. Association of NationalAdvertisers estimated last year that businesses were losing $6.3billion a year to so-called "click fraud," in which robots wereviewing ads instead of humans.

Since agencies are often paid in part based on how manypeople see a campaign online, this is causing particularfrustration among big brands.

That has some big companies questioning why they needagencies to place ads. Some have gone directly to socialnetworks like Facebook, Twitter or Google's YouTube.

"There is the lowest amount of trust that I have ever seenbetween clients and agencies right now," said Michael Kassan,the founder and chief executive of MediaLink, a consulting firmfor marketer and agencies.

"Big marketers simply do not believe what the agencies aresaying on a range of issues - rebates, effectiveness ofadvertising, bots."

One survey from Credit Suisse that interviewed 25 marketingexecutives about trends in the European ad market found "anincreasing skepticism about the value-added by agencies indigital which could inhibit their ability to benefit from anyincreased ad spend."

Fifty-two percent of the number of respondents believed thatagencies are adding "less value" than before versus 36 percentin 2014. About half said they planned to do more placing of adsdirectly with online outlets, and lack of transparency oncontracts and terms were the executives' biggest concerns.

Nonetheless Dominique Delport, global managing director atHavas Media Group, said agencies could navigate the toughclimate if they adapted to new demands from customers.

"The market is too complex, you cannot swim alone," he said."Marketers need us." (Editing by Sophie Walker and Kate Holton)