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WPP's Martin Sorrell explains the three reasons the ad market is struggling — but one is an opportunity

Key Points
  • The three main reasons why the ad market is struggling is because of digital disruption, activist investors and the low cost of capital money, Sir Martin Sorrell tells CNBC.
  • However, digital disruption creates opportunity, because it is changing the way people consume media, how items are produced and how products are distributed, he says.
There is a disconnect between the top line growth and the valuations: WPP CEO

The weakening in the ad market is due to digital disruption, activist investors and the low cost of capital money, WPP CEO Sir Martin Sorrell told CNBC.

WPP's earnings report on Wednesday showed a larger-than-estimated decline in advertising spending by consumer-product companies. The stock declined more than 12 percent on the news.

While the the current outlook is bleak, digital disruption provides opportunities for growth, Sorrell said.

"It's the digital disruption in consumer consumption of media, the digital disruption you see in distribution, and the digital disruption you see in production through 3-D printing, and digital forms of production, autonomous cars, electrical cars, whatever it is disrupting legacy models," Sorrell said on CNBC's "Squawk on the Street."

"It's all of the above. That for us is a bigger opportunity."

About 41 percent of WPP's $20 billion revenue comes from digital sources, signaling the company has made the transition to today's digital world, Sorrell said. Still, he sees opportunities to expand.

Google partnering with Wal-Mart to offer voice-enabled shopping — which will directly compete against Amazon — was an example of how companies can adapt to changing purchasing behavior, he noted. Sorrell said earlier in July that WPP would be investing heavily in digital services, particularly with Google and Facebook.