Dubai: Don’t place all the blame for the indifferent times the global advertising industry is facing on China’s slowdown, the US Federal Reserve rate hikes, the oil price slide, the many wars being fought or the spiralling migrant crisis.
Sir Martin Sorrell, for one, doesn’t.
The CEO of UK-headquartered holding company WPP and the de facto power centre in advertising and marketing services, the industry should be looking within to get a grip on an extremely fluid situation.
“The fundamental issue for our industry is we are just focused on the short term,” said Sorrell, who was in Dubai earlier this week as a member of the advisory board of the Global Education & Skills Forum organized by Varkey Foundation.
WPP holds quite a few aces, all operating in the region — pre-play ad agencies such as J. Walter Thompson, Ogilvy & Mather, PR entities Asda’a Burson-Marsteller and Hill+Knowlton Strategies, media agencies Mindshare and MEC, and data analytics consultancies Kantar and Millward Brown.
“Our business is about investing in brands for the long term. There is too much focus [now] on the costs and too much focus on the short term. The only way our clients will win — and therefore we win — is if we focus on the long term.
“Actually, the fast growth markets are not growing as fast as they used to. The slow growth markets are growing faster now. [But] one does not compensate the other... or the latter does not compensate for the former.
“Traditionally the differentiator among agencies was talent and price. While those are still important, there are three things that have become much more important — technology, data and content. So [they] are the three key differentiators when you ask me what should change.”
It explains why Sorrell and WPP have no immediate plans to hit the pause button on acquiring the technology and skills that it does not already have within its already substantial portfolio. Just take a moment to digest these numbers: its group entities were involved in 52 deals last year — through outright purchases or strategic equity stakes. And already this year, it has notched up 16 transactions.
Sorrell lets it be known that his appetite has not been whetted. Far from it.
“We acquire companies with a target of adding another 0-5 per cent,” he said. “If you do the math on that, our earnings per share we grow about 10-15 per cent. So our model is an organic growth model supplemented by acquisitions.
Growth model
“Our EBITDA (Earnings before interest, taxes, depreciation and amortisation) is about $3 billion. Out of the $2 billion [Dh7.34 billion] free cash flow, a third goes on acquisitions — that’s about $600 million, a third goes on dividends and a third on buy-backs.
“Our model is to grow our top-line 0-5 per cent. The industry is growing 4.5 per cent this year... we are expecting to grow 3-4 per cent. The other people [the competing holding companies] give you billing figures — they don’t give you net sales. We give you billings and net sales.
“I think we have the best talent — not necessarily the lowest prices. But I think we have the best prices that are justifiable because a lot of people make promises they can’t deliver. When you have wounded competitors or competitors that have disadvantages, they often lash out and they make extravagant promises they can’t fulfil. [If] somebody runs the business based on irrational promises, somebody else is left to clear up the mess.”
WPP is to be doing quite well cleaning up – it had billings of £47.63 billion ($67.5 billion; Dh248 billion) for 2015, up 3.1 per cent, while revenues were helped by a 6.1 per cent to £12.23 billion ($17.3 billion). Net sales got a 4.6 per cent boost to £10.52 billion ($14.9 billion). And the margins too firmed up, by 0.2 margin points to an “industry leading 16.9 per cent”, according to a statement issued along with the results. WPP has set its sights on increasing the share of revenues from “new media” to 40-45 per cent by 2020. But wouldn’t that necessarily come at lower margins than what the ad industry is used to from TV commercial or print advertising?
Sorrell seems irked by the question — “Maybe you are saying this because you are in newspapers and magazines and you see the difference between traditional and digital. We often say when we come up with a big idea, we often don’t get compensated to the degree that we should do.
‘Still viewing’
“If you said what you just said to a group of millennials or centennials, people born after 1997 — the Snapchat generation as opposed to the Facebook generation — they would be disappointed. Because to them something that lights up Snapchat or Facebook or WeChat is just as significant as whatever it is that made an impact on you when you were young. “So you are watching it in a different way. It’s just a smaller/smarter/different screen. It’s [still] viewing.
“Eighty per cent of what we do — media is $5 billion, data is $5 billion, digital is $6 billion — is stuff that that Don Draper [of Mad Men] would never recognise in his time.”
