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WPP's Sir Martin Sorrell on the Ad Recession

Here at the Allen & Co. Conference in Sun Valley I sat down with WPP CEO Sir Martin Sorrell for a live on-camera interview, and we continued our conversation off camera. There's no question the ad market is suffering, this year down just over six percent globally, according to his numbers, and even more in the US. And based on Sorrell's month-to-month analysis there's no sign of a bottom just yet, though it looks like the market could turn around in the beginning of 2010.

The economy is obviously hitting advertising hard, and from Sorrell's perspective the US stimulus plan isn't doing enough to turn the global economic downturn around. And the cyclical challenges are exacerbating the structural issues the ad industry faces: a shift away from traditional formats like newspaper and broadcast television to less expensive ads online.

But some parts of Sorrell's business are faring much better than others. He tells me that the public relations industry is riding out this downturn better than previous ones, as his big clients like American Express worry about how they're perceived in every media format. And new media like social networks provide an opportunity for his businesses to help clients build a brand on all these new platforms.

When it comes to the question of ads on social media platforms, Sorrell says advertising alone probably won't sustain the business, instead advocating a combination of ads and subscription services. I was surprised by how skeptical he is of social media ads considering how much he stands to profit from this business, but perhaps his reluctance speaks to the industry's ad challenges.

Sorrell equated Facebook and Twitter to writing letters to one's friends; do you want to see ads on your correspondence? Maybe not, but from my perspective, people are so receptive to ads on their search results it doesn't seem out of the question.

Sorrell is far more bullish on the prospects for ads on YouTube videos or entertainment content on MySpace .

Sorrell said a CEO of a small company here at the conference told him that ad placement while videos load could be a silver bullet, and he agrees. People are used to ads on entertainment content, and Sorrell says they can be far less intrusive.

WPP has committed 100 million British pounds this year to acquisitions. He acknowledged rumors that WPP would be interested in buying Microsoft's digital ad company, Razorfish, though he said they haven't been given the opportunity to fully evaluate a deal yet.

But Sorrell says that most of the deals they're looking at are smaller than Razorfish. And any deal would have to fit into their three key growth areas: emerging markets like China, Brazil and India, new media formats, and consumer insights.

One thing's for sure: WPP will become increasingly digital and relationships with tech giants like Microsoft and Google will only grow in importance. Sorrell likes to share the fact that his company spent $850 million of his clients' money on Google ads. It seems digital revenues and so called "consumer insights," which measure the impact of all these different kinds of ads, will become the company's bread and butter in the increasingly web-oriented future.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.