As Generative AI continues to accelerate, some agencies will be better positioned than others to reap the benefits. Our Europe Media & Entertainment analyst, Laura Metayer, explains.----- Transcript -----Welcome to Thoughts on the Market. I’m Laura Metayer, from the Morgan Stanley Europe Media & Entertainment team. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss what the future may hold for advertising agencies amid fast-paced Generative AI developments.It’s Wednesday, July 31, at 2 PM in London. Right now we’re still in the early stages of GenAI’s impact on ad agency offerings; although the debate around technology removing the need for ad agencies is not new. Soon after the release of ChatGPT in early 2023, my colleagues in North America started mapping out the potential impact of GenAI on the ad agencies. They concluded that GenAI should represent an opportunity for the ad agencies, at least near-term. First, Gen AI would lead to productivity improvements from automatable tasks in creative, media, digital transformation consulting and central functions like HR and Finance. Second, GenAI would boost client demand for advice from agencies to help navigate the coming evolution in digital advertising. Fast-forward to now and the impact of GenAI on the ad agencies has become an active investor debate, with concerns centering around the Creative business. Many eyes are on the Gen AI-powered text to image/video tools, which could disrupt the ad agencies' Creative & Production business. We this has weighed on agency stock prices recently. Essentially, the bear case has been – and is – that technology would devalue agencies’ offerings and agency clients may rely more on tech platforms and in-house services. That bear case – twenty years into online advertising – has not played out. We think that in these early days of AI’s impact on marketing, there may be more upside to agency equities than risk over the next 12 to 18 months. On the one hand, the introduction of Gen AI tools may mean reduced pricing power and challenged top-line growth. At the same time, replacing creative personnel with software may increase earnings power, even with less revenue. We think it's likely that a key value-add of the ad agencies' Creative business would be campaign personalization at scale, powered by data and technology. Looking back, technology has been commoditizing certain areas of creative and production for years, well ahead of AI; and yet creativity and creative services remain core value propositions by agencies to brands. Overall, there is as much – if not more – opportunity than risk for ad agencies over time. So let me leave you with two key takeaways: First, we see the larger ad agencies as better positioned to remain relevant to customers in the GenAI era. However, we would caution that their large scale may also lower their ability to adapt quickly to evolving customer requirements when it comes to GenAI. Second, we expect GenAI to drive more consolidation in the industry. We think it’s likely that some of the large ad agencies take market share from other large ad agencies. As these trends play out over time, we’ll continue to keep you updated. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

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