Marketers Feeling the Squeeze, WPP CEO Martin Sorrell Says

Rival Agency Holding Companies, Meanwhile, Plonk Down Too Much

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WPP CEO Martin Sorrell
WPP CEO Martin Sorrell

The ad giant WPP expects to net sales to grow 3% next year but is witnessing scenes suggesting pressure on the marketers it counts as clients, CEO Martin Sorrell said at a conference in New York on Monday.

"Things have tightened up in the third quarter this year," he said. U.K.-based Premier Foods, for example, asked suppliers including agencies to pay a fee for the right to serve the company, he said, calling the request "emblematic" of businesses' tough economic position, he said.

Clients are also asking agencies to take responsibility for any "I.P. contract breaches," another indiciation of heightened pressure to reduce costs, he said.

WPP is in the midst of two-week budget meetings, but Mr. Sorrell took a break to give his remarks at the UBS Media and Communications Conference in New York. WPP's shops include digital giants AKQA and Possible, the GroupM media agency network, and creative shops such as J. Walter Thompson and Grey Worldwide.

Rival agency holding companies, in contrast to marketers, may be spending too much, Mr. Sorrell suggested.

"We don't plonk large amounts of money down on deals," he said. He was likely referring to Publicis Groupe's planned $3.7 billion acquisition of Sapient, which surprised the industry for the high premium over Sapient's recent trading price and its businesses outside core marketing services.

Mr. Sorrell described one non-traditional transaction that WPP had looked at but ultimately descided against, despite a reasonable price in relation to the target's revenue. "We're talking about relevant revenue multiples," he said. "Still, the business is unprofitable. In a world where there are asset bubbles you see a difference of values."

WPP is currently focused on minority investments in ad-tech company Appnexus and research firm Rentrak. The company spent around $28 million on expanding its position in Appnexus and $8 million to $9 million to invest in Rentrak, gaining a 15% stake in each cases. Appnexus will enable WPP to create an ad tech stack that can simplify the chain between marketers and digital ad buys without leaning heavily on companies that have a vested interest, according to Mr. Sorrell.

"Appnexus is very significant because it gives us an agnostic tech stack between Google and Doubleclick and Facebook and Atlas," he said.

Google and Facebooks which "try to position themselves as tech companies," he added. "Doubleclick sells Google. They're media owners. I wouldn't give a media plan to ... Rupert Murdoch, etc, so why would I give it to Eric Schmidt or Mark Zuckerberg?"

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