End Of Sorrell's Reign Heralds Change For Big Ad Empires

By Steve Wynne-Jones
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End Of Sorrell's Reign Heralds Change For Big Ad Empires

Martin Sorrell's departure from the world's biggest advertising company heralds change for his sprawling WPP empire and may accelerate a shake up of the big ad groups that followed his lead.

WPP and its major rivals Omnicom, Publicis and IPG face challenges on every front, from the might of Google and Facebook - whom Sorrell famously dubbed "frenemies" - to the rapidly encroaching consultants Accenture and Deloitte.

With clients demanding ever-lower fees, big advertising groups must learn to be more nimble and efficient to protect their revenues and avoid pressure on them to break up.

"I don't think this is the event that brings down the holding companies," industry adviser and MediaLink Chief Executive Michael Kassan told Reuters. "I do believe this is going to force everybody to rethink."


Ad groups embark on their latest transformation without Sorrell, the godfather of the modern industry who quit after 33 years over an investigation into misconduct. WPP does not plan to release results of the probe. He denies the allegations.


The clear industry leader WPP employs 200,000 staff who offer advertising, branding, media buying, lobbying and data analytics via more than 400 separate companies.

Sorrell built up the group since the 1980s. When he set out, elaborate television campaigns ruled. Complexity was added as the ad market moved online and become more fragmented. The structure he began with, now looks dated.

Several years of strong organic growth at WPP evaporated in 2017. In March, it said it did not expect to grow in 2018. WPP's stock has fallen by a third in a year. FIS Astec Analytics, a data provider, says 51 million of WPP's shares are on loan to short sellers, up from just 1 million a year ago.

WPP valuation has slid to 9.9 times future earnings, compared with a FTSE average of 13.6 times, while its big three rivals still boast multiples of 12 to 14 times.


Sorrell's resignation further dented WPP's share price but the firm's executives still say they are upbeat. "I think some people might feel a bit liberated," Stephen Allan, who runs WPP's media-buying agency MediaCom, told BBC radio.

Client Pressure

WPP, the owner of agencies JWT and Ogilvy & Mather, has been hit hard by a reduction in spending from the world's biggest consumer goods groups, Unilever and Procter & Gamble, which complain about having to deal with WPP's multiple agencies.

They also want more transparency in how ads are viewed, after an Association of National Advertisers report showed some ads were only seen by bots and many were not watched at all.

P&G Chief Brand Officer Marc Pritchard said the media supply chain was "murky at best and fraudulent at worst", adding it was time to end the era of "Mad Men", referring to ad leaders in the 1960s credited with laying the foundations for the industry that Sorrell built on.


Digital consultant Ian Maude said advertising agencies needed to provide creative services and strategies for planning and buying media space, all reinforced by data insight, public relations and input on how a user shops and acts online.

"The question is whether the holding companies are the right structure any more and whether they can be turned into something that is nimble and agile in a reasonable timetable that is going to satisfy investors," he said.

Sorrell said in March WPP would accelerate plans to break down barriers between agencies to create a cohesive global team.

That is not easy when many of them are run as individual entities competing with rivals inside and outside WPP.


"WPP probably still has the best portfolio of assets," said Brian Wieser at Pivotal Research. "It's direction wasn't wrong. The problem was one of execution and articulation."

One group that is earning plaudits, however, is Publicis. Tech groups, independent agencies and consultants have told Reuters the French group has a more joined up offering.

Run for decades by Sorrell's rival Maurice Levy, Publicis set out plans in March under its new boss Arthur Sadoun to foster more collaboration between its agencies and to become a consulting and technology partner to global advertisers.

Publicis on Thursday reported better-than-expected sales growth in the first quarter of this year.

Omnicom, the biggest holding company in the United States, is also drawing together single teams from across its agencies to support individual clients. IPG, the fourth of the big four, has said it expects a stronger 2018 after a slow 2017.

Tipping Point

Michael Farmer, author of the book Madison Avenue Manslaughter, says the holding companies need to stop accepting demands to produce more work for lower fees. He also said they need to compete more effectively for talent against firms such as Accenture.

"The tipping point has been reached," said Farmer, who works with advertising agencies and major brands such as Ford and Kraft on strategy. "WPP is not growing."

Mark Read, WPP's co-Chief Operating Officer since Sorrell's departure last weekend, told staff WPP needed to hold together.

"There's been speculation about breaking up the group. We don’t believe this makes sense," he wrote in an email that was the first in the group's history to go directly to all WPP staff worldwide. "We need to get closer together, not further apart."

To improve their offering, the ad groups could start by being more transparent. Michael Moszynski, previously of Saatchi who now runs the agency London Advertising, said clients wanted to see more clearly how their money was spent.

And some clients remain loyal. A marketing chief at one major packaged goods company, who asked not to be named, told Reuters that WPP provided a powerful service, wrapping data analytics and insight with its creative work that helped clients navigate changing markets.

WPP must now make that kind of joined up offering the norm if it is to avoid unravelling. But it will have to do this without Sorrell at the helm, which may prove tough.

"It's the fall of an emperor," David Jones, the former CEO of WPP peer Havas, told Reuters. "One that I think will not only take the empire down with him but will also have massive ramifications for that entire industry."

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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