Sunday, July 05, 2009

Sir Martin Sorrell on recession, media, clients and his India plans

Prajjal Saha of afaqs.com interviewed Sir Martin Sorrell, Chief Executive Officer, WPP Group in Cannes. Excerpts:

On recession: You can argue that this recession has been more severe and shocking. I am not talking about the post-subprime scenario, but particularly the post-Lehman crisis period or the following weekend, which was really frightening. Noted economist Warren Buffet termed this recession as an economic Pearl Harbour.

We also hear that the British government was planning a bank holiday by statutory instrument if it couldn't agree with the bank. Though I am not as old as to go back to the 1920s or 30s, but I must say that it is a pretty tough time.

On whether advertising clients have been tougher this time: Yes, they have been tougher. As I said, the situation was so severe that people were looking at it more as a biss.

We were already facing a tough time since August 2007. However, I must say that the client was more aggressive, particularly on the procurement or financial side. In the time of recession, there are two words that get used a lot – these are effectiveness and efficiency. Effectiveness means quality and efficiency means cost. I think that in the current situation, efficiency is winning over effectiveness.

In the advertising business, the marketing function has also lost primacy or even parity.

On when and how recovery of the economy will shape up: The year 2009 looks like a difficult year but I think it will be relatively better in the second half. However, we will have to wait till 2010 to see a recovery. It will not be anaemic but a recovery of sorts in the shape of italic 'L'. The recovery will depend on what we all have been talking about – long term returns and not short term ones.

On whether recovery would start with emerging markets such as India and China: The conventional wisdom is that the recovery will start with America but I am not sure that's right. The rise in the Indian stock market has been quite interesting. There has been a sort of decoupling of stock markets in emerging economies, though in reality, there is no decoupling as such as we are all dependent on one another. However, India is less dependent on exports and imports.

Even in China, there was a flip up in the stock market in April this year, but that couldn't continue in May. We thought that it was a good sign, but we found out later that it was because of destocking in the post-Lehman scenario.

This actually reflected a belief which I would like to share - that recovery will be first in the emerging markets, China in particular.

Besides, India is in a relatively better condition than the other markets, although it did slow down around the elections.

On what he would like to convey to his 1,00,000 employees: Whether it's right or wrong, the strategy is very simple. First it's the new markets (which include the BRIC countries) and the next 11 markets – that makes 27 per cent of our business.

Next is new media, which is again 25 per cent of our business. The Consumer Insight business is $4 billion out of the $15 billion, which is another 26-27 per cent. So together with the direct half of our business, we are almost there, or rather we are there where we need to be.

Given that strategy, if I am in India, then I am feeling very good. First, India is one of BRIC countries. Second, new media is increasingly important in the Indian context, and third, consumer insight is also very important here, too. So it all fits together from the Indian perspective.

On whether the marketers' spends would continue to move away from mass media advertising: Yes, it's still moving away. The good news is that it's one-to-one, and the bad news is that it's one-to-one. The problem is - it's still one-to-one because it's highly fragmented.

Will Twitter, Facebook, MySpace or YouTube ever make money? The answer is that it's going to be a very volatile environment. And these brands will come and go, just like the magazines which come and go.

In fact, Jeff Zucker (President and CEO, NBC Universal) put it very well – 'We are moving from analog dollars to digital pennies'. Then he modified it to digital dimes.

That's the problem.

Steve Ballmer (CEO, Microsoft) also said – The problem is in monetising these brands. It's a fancy world for making money.

So we have to spot where the opportunities are.

On whether brands like Google worry him: Google worries our clients because there is no balance in the search marketing space, which we all think should be there. Google's disproportionate share is the problem. We work closely with Facebook, My Space, YouTube and Twitter, but in terms of money making business, the giants are Yahoo, AOL, Google and Microsoft. But I must say that they will all have their own challenges, and the core issue is to find a balance in the search marketing space.

On how he profiles digital companies: Last year, during the debate, I asked them – Who are you? They said they are technology companies but I didn't accept that. To my mind, they are media owners.

I don't think they are engineers with spanners trying to tighten the nuts and screws while we send messages to one another.

I think they have responsibilities relating to privacy and editorial contact.

On monetization of digital companies: They are used as advertising platforms, but tell me, if I am having a dialogue with you on Facebook or Twitter, do I want to be invaded with commercial messages. The answer is 'No'. Videos can be different, which is why I think there is more advertising potential in My Space and YouTube. It's much more difficult in the social media.

I know of two occasions when Mark Zuckerberg (founder of Facebook) had fallen fowl. There was another situation besides Beacon.

On the media decline: So, there is a general decline in activity, whether offline or online. Ironically, online looks cheaper, though offline looks even cheaper because there is a lot of radio, TV, magazine and newspaper inventory – all falling like flies.

Who would have thought that the New York Times would be in such a situation, when a few years ago, it was arguably one of the strongest newspaper brands in the world? Similarly, who would have thought that Rupert Murdoch will not be able to buy the Wall Street Journal?

Life is changing and so are the rules. Consolidation is taking place everywhere. For instance, as per a new rule in Spain, one owner cannot control more than 25 per cent of the market in the television business.

Similarly, rules in Brazil and Australia have changed a few years ago. Even in the UK – because a lot of these newspapers and magazines are falling away – they have to change the regulation if they want to maintain a competitive environment and an environment of choice.

Yes, one likes to see a healthy media business and I think fragmentation gives our clients more opportunities.

Until a few years ago, the cost of TV ad space used to increase more than the inflation every year, and in such a scenario, you either buy less of it or look for alternatives.

On PR and Cannes: If there is any criticism on the awards, it's about the way of handling the awards. For instance, this year in the PR Lions, there were no PR agencies. It's a joke and it's ridiculous.

After all, it is expensive to come here and also to put in your entries. So, you, too, learn the way to grab the jury's eye and win.

On his plans for WPP in India: We have a very strong share in advertising and media in India, and we need to maintain that growth. But we have more to do in areas such as PR, information and consultancy business, brand building and identity, healthcare and digital. It will first be organic growth, backed by smaller acquisitions. Unless Anil Ambani agrees to sell off Mudra - but he came from Wharton, so his price is very high (laughs).

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