At WPP's first-half earnings presentation to analysts in London today, CEO Martin Sorrell dismissed the big data capability that a merged Publicis Groupe and Omnicom Group could bring clients. He also warned of potential regulatory trouble, and generally derided his rivals' bid to join forces -- despite the fact that in terms of revenue, it would knock WPP from its position as the world's number one communications group.
At the same meeting, WPP announced that it was optimistic about its own performance this year, raising its revenue forecast to more than 3% organic growth for the full year. Net profit for the first half increased slightly to $436 million.
Whilst addressing the Publicis Omnicom merger, Mr. Sorrell referred to the new entity as "POG," poking some fun at the name. WPP charts represented "POG" with what he described as "a sludgy brown color," which Mr. Sorrell gleefully explained was what you get when you mix purple and orange [the corporate colors of Publicis and Omnicom].
He criticized the proposed new entity from many angles, calling it "stucturally clunky" and strategically unsound and a "180-degree turn for both companies."
Where's the Beef?
On the subject of data, Mr. Sorrell suggested that Publicis Omnicom is touting false benefits to clients. "WPP has a real big data business where we own the data," he said. "We have access to the data. We don't buy third party data. [For Publicis Omnicom] there is no big data business. It might exist in the figment of the imagination above the Arc de Triomphe, but where's the beef?"
(Incidentally, Wendy's, which for years used the 'Where's the Beef' slogan, is a Publicis client).
Mr. Sorrell added: "I don't know what [Publicis Omnicom's] big data business is other than noise to divert the regulator away from the heart of the regulation problem, which is the impact on traditional media. That's where the regulation issues are going to be -- German publishers, U.S. networks. We'll see."
He even played down the potential benefits of scale. "There are economies of scale in our business, but as we have said to you continuously for 25 years, it is really confined to media buying," adding that it will be hard for "POG" to take advantage of its potential media muscle. He said, "POG has four and a half media buying points and they will have to consolidate, which will cause great stresses and strain – we know, we went through it with Group M."
Outside of media buying, Mr. Sorrell said, "There are diseconomies of scale. The bigger a creative operation becomes, the more difficult it is to run."
US a Sore Spot
Mr. Sorrell did acknowledge that a newly-formed Publicis Omnicom Group would have some impact on WPP. He said, "The one part of the world where we will see a difference will be in the United States, which we will address." Pressed for specifics about how the holding company will strengthen its U.S. operations, Mr. Sorrell refused to give details, saying only: "It was a forward looking statement, I'm not going to tell you today," before adding, enigmatically, "The great phrase is 'if the stars align'. Isn't that the phrase that everybody uses?'
It's a sign that the company could going forward look at small to midsize deals stateside. He's alotting up to $620 million for such acquisitions.
Meanwhile, Mr. Sorrell said that WPP would continue to focus on four key areas: new markets, new media, data investment management, and last but not least, WPP's "horizontality" or agency team approach. That latter tactic is one that the holding company hopes will help it grow organically by picking off clients of the merged Publicis Omnicom that could be concerned about client conflicts; WPP promises the ability to build custom solutions for marketers.
Mr. Sorrell sidestepped the issue of a potential WPP deal to reclaim the number one spot by talking about a "duopoly" developing in the advertising and communications market, pitting "POG" against WPP. Asked about further consolidation, he said, "You'll have to ask IPG and Denstu and Havas what they think. It makes it more difficult for them… I would anticipate little short term or medium term consolidation."
Other details from WPP's first half results showed slower rates of growth in the traditionally fast-growing markets of Asia Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe. Like-for-like revenue growth in these regions -- which account for 29.3% of group revenues – fell to 5.2% in the second quarter from 7.8% in the first quarter. In Latin America, third quarter revenues were up 9%, down from a 12% rise in the first quarter. Mr. Sorrell responded, "Yes, they are slowing, but they are still significantly better than western markets."
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