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‘India seems to lack self-confidence at the moment’

WPP’s Sorrell says some recent buys in India by global advertising firms have pushed valuations to unrealistic levels
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First Published: Thu, Nov 22 2012. 11 45 PM IST
Martin Sorrell says it is not a question of China and India, but that the markets that were dominant 200 years ago are becoming dominant again. Photo: Pradeep Gaur/Mint
Martin Sorrell says it is not a question of China and India, but that the markets that were dominant 200 years ago are becoming dominant again. Photo: Pradeep Gaur/Mint
Updated: Thu, Nov 22 2012. 11 47 PM IST
New Delhi: There has to be some sort of state subsidy to maintain professional journalism, if it’s worth maintaining,” Martin Sorrell, chief executive of WPP Plc, said in an interview on Thursday.
WPP, the world’s largest communications services company with £10 billion (around Rs.88,000 crore today) revenue in 2011, expects to see a 3% growth this year. Keen on acquiring small businesses in India, Sorrell said some recent acquisitions of local agencies by global advertising conglomerates have pushed valuations in the country to unrealistic levels. Edited excerpts from a discussion on global advertising markets and the future of media:
What are your views on the state of the global advertising industry?
Print continues to shrink; digital grows. We manage a portfolio of about $70 billion around the world. There are two big disconnects between what we invest with our clients, and what you and I consume as consumers. The first is old-form newspapers and magazines where we spend about 20% of our budgets, although consumers spend (only) 10% of their time on them.
Then you have digital, including mobile, which again accounts for about 20% of the budgets and consumers spend a third of their time online.
The amount that we invest on television and the amount of time that we spend on television or radio or outdoor is roughly in balance. The amount that is invested in newspapers and magazines will decline, and the amount invested in Internet and mobile will increase.
Hasn’t the overall advertising market shrunk?
No. With the exception of 2009, it hasn’t shrunk. It has grown. It includes geographical expansion...the growth in BRICS (Brazil, Russia, India, China and South Africa) and the next 11. It also includes new media like digital search, display, video, social or mobile.
What is the future of digital?
It is about a third of our business now and increases its share of our business by 1 percent(age point) a year. So, you would expect it to be 30-40% range in the next five years.
Is that true for emerging markets as well?
We don’t call them emerging markets, we call them fast-growing markets. In fast-growth markets like India, (the share of) digital would be difficult to estimate, but it would be about 10%. Worldwide it would be about 20%. The fast-growth markets tend to be under-represented as media like free-to-air television or newspapers and magazines are much stronger. You may see (that in) Germany this week— several newspapers have gone into bankruptcy or are being withdrawn. The fast-growth markets are at an early stage of development of digital media and early stage development of the maturity of older media.
Having said that, in India you have 900 million mobile phone subscribers and 950 million in China, with 650 million on one network alone. Mobile has permeated the country much more rapidly and is seen as a cheap form of access to the Internet. In the UK and the US, we have gone from laptop to mobile; in India you go straight to the mobile.
Can companies monetize social media like Facebook?
We have said that Facebook is a social medium and a branding medium rather than an advertising medium. It is dangerous to invade people’s social space. A conversation on Facebook is inherently a social conversation and not a commercial conversation. So the means of engagement are far more subtle. If I engage you to write something nice about me or WPP on your Facebook page, that would be better than taking a display ad on Facebook. I have said this historically—that Facebook is a powerful branding medium. It has a billion people. It is the third largest country on the planet. It is short of becoming the largest.
It is believed that you are more bullish about China than you are about India.
I said I was an Indian bull as well as a Chinese bull. I think the faster-growth markets are higher growth, therefore higher risk. I won’t discriminate between India and China. Our marquee position in India is very strong. We have leadership in here, in China, Brazil and Russia.
I would say India seems to lack self-confidence at the moment. I was talking to one of our clients this afternoon; he said that people and his peers are depressed, disconcerted about what is happening in the country.
Having said that, we (would) cut off our right arm for the 5% growth. The UK is struggling to get to 1% or even 0.5%.
It is not a question of China and India, it is the markets that were dominant 200 years ago are becoming dominant again. India and China were 40% of worldwide GNP (gross national product), which is where they will be shortly, if things go according to plan.
But your China revenue is more.
Currently, China revenue is $1.3 billion and 14,000 people; India is just under $500 million with 12,000 people. China is (our) third largest market. The UK is $2.5 billion and the US $5.5 billion.
You mentioned a lack of self-confidence in India. How does the world view India from the outside?
Probably, in the BRICS, India slowed first. This year we would grow by 10% in India, which is a bit better than I thought we would do.
If we look at the context of the world, WPP will average 3% growth. The world is a very uncertain place. Among other things, there is the euro zone crisis and the US fiscal cliff, and also the debt. These things have made businesses very uncertain. Interestingly, not so much the consumer... Since Lehman in 2008, business balance sheets have improved immeasurably and there are large pools of cash that multinationals have, that remain uninvested. There seems to be at least $2 trillion sitting on US-based multinationals’ balance sheet with relatively little leveraged position.
What kind of media brands will survive in the future?
Three things have to happen. One is you have to have paywalls; consumers should pay for the content they value. Second thing we say is that there has to be further consolidation because journals are becoming unprofitable.
I was always struck by Jeff Zucker’s (former NBCUniversal CEO) quote, which was “replacing analogue dimes with digital pennies”, implying that digital was less profitable—which I think is true.
Third, there has to be some sort of state subsidy to maintain professional journalism, if it’s worth maintaining. There was a wonderful BreakingViews piece this week. We have had the Australians subsidize television stations by refunding money; the FTC (Federal Trade Commission) in America putting a fund together to subsidize professional journalism few years ago. We’ve had wealthy individuals in America try and buy local news services in order to protect trophy properties. But what BreakingViews suggested is that given this flurry that we’ve seen in Germany with the news service going down and FT Deutschland withdrawn, the state may need to think (of supporting) professional journalism.
Seriously, I think true investigative journalism has largely disappeared when you see what’s happened with the BBC...that’s just another example of the lack of depth of journalism. People talk about the Indian media in this context.
Are you planning to acquire more companies in India?
Valuations in India have been boosted, if I’m being polite, or pushed to unrealistic levels in transactions where Anil Ambani removed the fingers of Omnicom and then also when Taproot removed Dentsu’s fingers. It raised people’s expectations. These transactions are (at) economically unjustifiable levels.
Is there any development on the suit NDTV filed (against a WPP company and Nielsen) in the US?
You saw (that) Nielsen filed the response pretty much following exactly what we said. NDTV doesn’t have just their restaurant lawyers involved, they have others as well now. They have upgraded. There is no development. Not to my knowledge, no. NDTV seems to have gone quiet on it.
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First Published: Thu, Nov 22 2012. 11 45 PM IST
More Topics: Martin Sorrell | WPP | BRICS | Facebook | digital media |