Sir Martin Sorrell, the CEO of international advertising group WPP plc (LSE: WPP; Nasdaq: WPPGY) rarely misses the meetings of the World Economic Forum. He attended the latest conference, the World Economic Forum and the Annual Meeting of the New Champions, held in China, with a history of extensive business in the local market. In an exclusive interview with Globes held in the communications room of the Davos Conference in China, he describes how he sees the contemporary world of advertising, and which markets are likely to grow rapidly in the coming years.
Globes: Can you tell us what are the new trends in the advertising industry. Are the trends likely to change in the coming year?
Sorrell: ‘We’re operating in a trillion dollar market, and advertising amounts to $500 billion of it. The other $500 billion is public relations, market research, branding and image, and what we call ‘special media’, which is digital, direct marketing, and the Internet. I’m talking about one trillion, not about 500 billion, and I think that there are three very clear trends, which can be summarized in a single sentence: new markets, new media, and consumer comprehension.’
New markets
‘The new markets are the BRICs and the ‘next 11’, in other words Brazil, India, and China and 11 other countries, which include somewhat controversially Iran, so it might be better to call them the ‘next 10’, at least for the foreseeable future. The definition is by Goldman Sachs.'
‘After these countries come the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa. However, four of the CIVETS are included in the ‘next 11’, so there is some duplication. We’re talking about the rapidly developing parts of Asia, Latin America, Africa, the Middle East, and Central and Eastern Europe. They account for 28% of our business, and we want them to account for a third of our business within 3-4 years. After that, we’ll take it to a new level let’s assume 40% of our business. That’s the first thing new markets.’
The new media: ‘The new media and digital already account for 27-18% of our business. Here too, we want to reach about 33%. We also know that customers spend 12-14% of their global budgets on online advertising. In China, for example, 5% of budgets are spent on online advertising. I can’t remember the exact figures for Israel, but it’s definitely not more than 3-5%.'
‘Mobile advertising is naturally playing a growing role in both Israel and China. In China, China Mobile alone has 550 million subscribers, and that’s just one network. There are 650-700 million subscribers altogether, and the number is growing by eight million a month. India currently has 425 million subscribers, and the number is growing by twelve million a month. That’s just on three networks, each of which has more than 100 million subscribers. What is happening in these new markets is that the new media especially mobile is surpassing the traditional media.’
Consumer comprehension
‘In strong contrast to our competitors, we believe that technology applications, information, information analysis and manipulation which can be acted on it are very important. This is an important part of our business in terms of quantity. Consumer comprehension already amounts to 25-26%, and we believe that we’ve met our target. In another five years, we’ll want to see more work based on information and based on technology.’
Do you think that the new media has already become a key source of revenue, or will tradition media continue to lead?
‘If you examine this solely in our terms, when I look at $14 billion revenue, we can say that $5.5-6 billion of it comes from traditional media, in other words from traditional advertising, the media and from planning. This is how it is divided: creative amounts to up to $3.5 billion, and the media accounts for about $2.5 billion. Obviously some of this is digital. The things are not totally separate. This is what could be called ‘traditional’. Digital accounts for about a quarter of our business, maybe a bit more. So you’re talking about $4 billion revenue here, of which traditional advertising still accounts for a large part of revenue.
‘If you look at the global media markets, television still accounts for about 30%, and print still accounts for about 30%, and all the rest is the other third. So except for Britain and Denmark, where the internet surpassed traditional television last year, except for these two markets, we still experience traditional media as the largest media. Nonetheless, the growth rates of the new media are so high that the gap is definitely narrowing.’
Sorell says that WPP’s financial results for the first half of the year actually showed substantial improvement in the US. He describes these months as ‘the return of America and the traditional media.’
Sorell says, ‘It turns out that our revenue rose 8% in last August compared with the corresponding month last year in terms of global figures. As for the year as a whole, revenue rose 3.5%. There was a rebalancing in the period following the Lehman Brothers crisis, and one of the reasons is that the owners of traditional media simply had so much inventory in media in terms of television, newspapers and magazines that they simply cut prices. This also changed the price ratio between traditional advertising and the new media.’
Zuckerberg also made mistakes
How do you assess social media?
‘Social media has great power. Facebook is the third largest country in the world with more than 500 million members.’
Do you have a Facebook profile?
‘No, in truth no. It’s simply that there is so much to do with my iPad that I haven’t yet figured it all out. I obviously should create a profile. I have enough screens and enough communications devices that the multitude of tweets and Facebook would kill me. I am also an old man, so therefore, no, I don’t have a Facebook page, and I don’t send tweets.
‘That said, these are nonetheless very strong communications tools, but and people tend to get annoyed when I say this they are merely sophisticated ways of sending letters. I mean that we once wrote letters to each other, but we now send tweets, or send pages to each other on Facebook. That’s how we communicate.
‘The problem with the social media is that when you enter this space, which is a private space with commercial messages, people get angry about it. Even Mark Zuckerberg (the founder and CEO of Facebook A.F.), possibly the man who understands social media more than anyone else on earth, even he made some mistakes (consider the launch of the Beacon advertising platform in late 2007 to report online purchases made by Facebook users without their consent. The platform infuriated users, and Facebook folded and apologized A.F.). I think that the thing that worries Google most of all today is Facebook.’
How do you see the competition in this market?
‘In terms of competition, there is no reason why Facebook should not merge all the applications and services into the search and display world. It seems to me that they have reason to worry, especially given Facebook’s super-fast growth rate. It seems to me that the issue that Facebook itself will have to be face is the issue of privacy.
‘For example, the front page of the "Daily Mail" had an article by a correspondent who went on line and impersonated a 15-year old girl, and within 20 seconds he received all kinds of messages of a pedophile nature. Parents who read this article in the Daily Mail - which has the widest readership targeting the middle class in the UK began to worry what exactly their children were doing on Facebook.’
Are they still worried?
‘I think so. This is a critical issue, and I think that Facebook doesn't fully understand the fill significance. Advertising on social networks should be very careful; it mustn’t be invasive. That’s why the search element is so important, because you know that if you make this search it means that you’re looking for something specific. This is a medium with great power.’
How, in your opinion, will the new media adverting market develop?
‘There are three things that have to happened to the new media. First, there is not enough advertising to justify keeping the entire field, so that subscribers or payment for content is critical. It’s very important that the initiative of Rupert Murdoch (the owner of the Wall Street Journal, Britain’s Sky TV and the US’s Fox TV networks A.F.) on payable content will work, because we think that this should not be distributed for free. It doesn’t work. If consumers appreciate the content, we should charge money for it.’
‘Second, there will be more consolidation, because newspapers will continue to be under pressure, the number of subscribers will continue to plummet, and young people will continue to read fewer and fewer physical newspapers. They read more on their iPads, as I’ve also begun to do. I read. I don’t read more than one actual newspaper. I’ve become a little nervous because I don’t see the whole newspaper when I read it online, but you understand that that’s just me. The old man inside me has come out again.
‘Finally, subsidies. The government in the name of its citizens should contribute toward financing and saving traditional communications for the dinosaurs.’
Dinosaurs?
‘No, the name isn’t fair. Rupert Murdoch isn’t a dinosaur. After all, he owns MySpace. He’s invested a lot of money in the new media. I’m referring to the fact that people with businesses who leave some kind of heritage behind them are called dinosaurs.’
By this definition, WPP is also a dinosaur.
‘I hope not. I don’t think that that will happen to us. How can that be the case when we enjoy almost $1 billion revenue in China, and we have 12,000 employees. In India, we have a 15% market share, in Brazil 25%, and in Russia 25%. In other words, it seems to me that we cannot really be a dinosaur or be invisible. According to figures of the Forrester Research, which conducts independent research on digital leaders, we own three of the seven leading companies. No one else has more than one company in the list. So I don’t think that we’re a dinosaur.’
There is a phenomenon of small and more creative companies bursting forth.
‘The data do not support that at all. The truth is that during the current crisis, the Davids have suffered much more than the Goliaths. Since you write for a newspaper, you’re looking for the shining story; in other words, it’s always better for David to beat Goliath, no? But at the moment, the Goliaths have the upper hand. Take China for example; we dominate business in that country. We’re three or four times larger than all the other companies.’
The solution for Israel’s image: communicate, communicate, communicate
Your company is apparently the leader in branding and public relations. What is your opinion about Israel’s brand in the world?
‘Indeed, it’s tough. If I might be blunt, it’s clear that the American administration’s attitude toward Israel is different from what it was two years ago, in my view. This mood is very influential whether I like it or not as a Jew, someone who is emotionally very interested to preserving Israel’s interests. The current situation is no easier from what it was a few years ago, and international pressure is only increasing. On the other hand, the Israeli economy is strong and business is good. We have agencies that show consistent good performance.
‘But what can Israel do about it? It’s very hard to generalize, but I think that the matter is critical, and I talk about it a lot with Israelis, as well as with Israelis in Britain who feel that the BBC is not as neutral as it should be, or that "The Guardian" is not objective. They say, ‘What should we do?’ I always reply in a single sentence, ‘You must do three things: communicate, communicate, communicate.’ It’s easy to say, but it doesn’t matter what you do, what you say, clearly is something constitutes real libel, deal with it. This point must be made clear.
‘It’s necessary to be both proactive and reactive. After all, we’re still talking about a political campaign, and like any political campaign, you have to be available and in defensive position at all times. You must reach everywhere. You must have a clear strategy, and you must be able to respond to everything immediately, so I don’t see a situation that you can ignore.
‘It seems to me that the fatal mistake in these situations and Israel is not the only national state that has to deal with such situations is to say, ‘They are ignorant, they don’t understand, I will simply ignore them’.
‘This brings me back to the discussion about the new media. Today it’s more important than ever to operate in all media forms. You know that the reputation of entire companies can be destroyed by a single attack in a blog, an attack that makes its way through the entire blogosphere and the internet, and these things now happen much faster.
‘By the way, the opposite is also true - things disappear much more quickly, because of the volume of information, and because of the number of opinions. We tend to give too much meaning to words that appear on the screen.’
You mean?
‘It really depends on the thing’s ranking in Google, the number of people who are really exposed to it. We attach too much importance to this. But I think that the main thing is to be communicative. Obviously, some things are sometimes so outrageous, so disproved that you simply don’t respond to them. But it seems to me that the heart and mind are the basis.’
What do you mean?
‘The issue is people’s hearts and minds, which is why you must communicate intensively and widely. You may get angry, but you must never show it. Simply be rational and unemotional. I’m talking about times of increased activity, times when the media is critical.’
Champion of acquisitions
Sorrell’s road suggests a daring and target-oriented man since his youth.
Sir Martin Sorrell was born in London to a Jewish family, and he wanted to be a businessman from a young age. In 1975, after completing an MBA at Harvard University, he joined Sacchi and Sacchi as CFO, a position he held until 1984.
Sorell relates that during his midlife crisis, he decided to go to work for himself, and with options received from Sacchi and Sacchi, in 1985 he bought stock market shell Wire Plastic Products plc (WPP) and became its CEO a year later.
The acquisition of the shell was the first of a string of daring acquisitions of sales promotions and advertising companies. Within three years, he acquired 18 advertising firms, including a hostile takeover of J Walter Thompson (JWT) for $566 million, and the 1989 takeover of Ogilvy & Mather for $825 million. Since 2000, WPP has acquired two more international advertising firms Young & Rubicam and Grey.
Today, WPP is one of the three largest firms in the global advertising industry, and Sorell heads the largest advertising group in the world, employing 140,000 people at 2,700 offices in 107 countries.
WPP is traded on the London Stock Exchange at a market cap of ₤5 billion. The company’s revenue is ₤37 billion and its net profit is ₤7.5 billion. The company offers its clients advertising services, media acquisition management, public relations and branding service, digital marketing, direct marketing, sales promotion, and specialized communications services.
Sorell owns a substantial portion of WPP’s shares, worth an estimated ₤70 million. He was knighted in 2000.