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What Ad Giant WPP's Earnings Say About Media's Future

The world's largest advertising and marketing company, WPP Grouptoday reported a 47 percent drop in profits, but while the outlook is bleak, its digital business is still robust. WPP's results speak volumes to the challenges and opportunities the advertising business faces. First, to the upside, WPP is evolving with the times. In the first half of 2009, a full quarter of the company's revenues came from digital business. And WPP has moved far beyond being just a traditional ad agency, now over 60 percent of its revenues are from businesses *other* than traditional media buying (think publicity, consumer metrics.)

The bad news is that the company just can't escape the downturn: CEO Sir Martin Sorrell said that while profitability should improve in the second half of the year there's unlikely to be revenue growth until next year. The company's operating margin fell to 8 percent, down from 13.6 last year and a full two percentage points lower than expectations. Next year promises a bump from the Winter Olympics and the World Cup, but the company still only expects roughly flat revenues.

WPP is certainly building up the businesses that will leverage future digital trends, the question now is how and whether the advertising market recovers. The company noted that its clients feel better about the economy, which should result in a resurgence of ad dollars, but they haven't seen that correlation yet. The company is protecting itself if the rebound takes time, with more cost cutting. In the meantime CEO Sir Martin Sorrell looking to expand in new mediums and new markets.

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Here's what Sorrell had to say on CNBC Europe this morning: "Our 3 strategic priorities are: (1) New markets, that's brics and Next 11, (2) New media, that's the digital media, both of which are now 25, 26% of our business, of our 13 billion dollars of revenue, and last but not least (3) consumer insight - insights into consumer motivation we thing those are the key drivers out of the recession"

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