New Delhi: The day Ogilvy and Mather India announced the acquisition of Hyderabad-based PennyWise Solutions, a digital marketing agency, Martin Sorrell , chief executive of the £10.4 billion in revenue WPP Plc , of which O&M is part, spoke to Mint on legacy media and digital media, political advertising, and why he remains an India bull. Edited excerpts:
WPP’s agency JWT India is likely to be among the firms getting the Congress party account. Does political advertising work?
Well, you have to ask Presidents and Prime Ministers and the people who did not become Presidents and Prime Ministers. The consumer is not a moron. You can fool people once, you can’t fool them twice. The same rule applies whether you are in FMCG (fast moving consumer goods) or in politics. Our agencies around the world take individual decisions whether they work in politics or not.
Look at Blue State Digital (a WPP digital marketing agency), and the work it did for president Obama in two elections.
Penn Schoen Berland (a market research, political polling and strategic consulting agency that is also part of WPP) worked historically for Clintons.
The key issue is to understand the demographic change. Clearly, President Obama won the second election when there were unprecedentedly high levels of unemployment. Mostly elections are determined by the state of the economy. Voters vote with their pockets, I think. What President Obama managed to do in the second election was to understand the demographic changes, the rise of the new mainstream in America whether it is the Hispanics, Afro-Americans, Asians...; understand the importance of single women, the gay sections of the community; things probably the Republicans didn’t understand. That was reflected in the political and the social media campaign (he ran). He understood the implications of social media on voting and fund-raising which in the American elections play an important role.
What we do is very important and politicians who understand that are likely to be more successful than those that don’t.
So you are saying political advertising works.
Demonstrably, it does. We have a tremendous capability in that area as do others. But it could go wrong. Mark Penn (of Penn Schoen Berland) handled Mrs (Hillary) Clinton’s nomination campaign against President Obama. That didn’t work well.
Is digital media reducing the role of intermediaries between customer and companies?
No, it increases it. As the environment gets more fragmented, the intermediary becomes more important.
Because it is more fragmented, it is more difficult to optimize. So clients become more reliant (on us). There was an interesting report that clients were bringing new media more in-house. I have seen no evidence to suggest that. If anything, it has gone the other way. Facebook sells Facebook, Google sells Google, Twitter sells Twitter. But you will not give media plan to media owners to execute because they will be biased towards one platform. We have no bias.
How much of your revenue will come from digital in the next five years?
We have set a target. It will be 40-45% of our business in five years. Currently, digital is about 20% worldwide. My guess is, in five years—and it is a pure guess—it would be 25-30% for the industry. Money might move from print to digital. There will be shifts from free-to-air and legacy television too.
Which legacy media companies are making that transition to digital really well?
Most analysts can’t find one. Because it is about turning analogue dimes into digital pennies (as former NBC Universal CEO Jeff Zucker said). Axel Springer (German media company), which sold its regional papers recently, has handled it pretty well. The Daily Mail group in UK has done it.
It is a bit like flying a plane and changing the engine while you are flying. The traditional businesses are delivering the goods, cash flow, profitability.
It is a very difficult thing to do when you have legacy businesses which are churning out the sales and profits. Nordic company Schibsted was supposed to get it right years ago. But I think they have trouble now.
Fundamentally, online media disintermediates the supply chains. So you and I benefit as consumers as the prices get reduced. But because the prices are reduced, the inherent profitability of any supply chain is reduced.
Isn’t India in a bit of a spot now?
If I was to rank the BRICS (Brazil, Russia, India, China and South Africa) in degrees of worry, starting with the least, I would put Russia at the top at the moment. China comes second because I think China will have a soft landing. Then I put Brazil, and India I would say is the most worrying at the moment. Now, that’s not long term. I think medium and long term, I’m still extremely bullish; it’s just that every Indian that I talk to is worried and worried not just for the short term, pre-election, but worried what the result of the election might bring in terms of lack of strong leadership.
Is it just a leadership-related worry?
I think politics is always about leadership, just like companies are all about leadership.
How do your clients in India feel?
For the overall year, it (growth) will be 10%. But in general, clients are feeling very pressurized. Clients are very concerned about the 10+2 (advertising cap per programming hour on television) in October where the net result would be significant media inflation if it’s implemented. Ironically, it will drive more spending into digital, which appears to be cheaper and even towards print because it’ll make print look competitively better. I think media analysts need to be careful about this because it may not achieve the desired results and what they think they gain on price they’re going to lose on volume.
How is WPP doing in India?
If I look at our business in India, our Q2 revised forecast would be close to $500 million in India and 15,000 people by the end of the year. So, our business has done well. It’ll grow by about 10% this year if the forecast proves to be accurate. Till date, we have done about 6%, so we’ll have a better last five months against the market because the market has weakened. I think we will hit our budgets for this year. We’re used to GDP (gross domestic product) growth well in excess of 5% and advertising is a proportion of GNP (gross national product). Because India is underbranded and underinvested in, it should grow faster.
We had this arrangement with Twitter and one academic institution in the UK reckons they can tell the mood of the nation by analysing the Twitter feeds and I think if we analysed India’s Twitter feeds at the moment it would be a pretty depressed place. The problem is that if people don’t feel good, it reflects in their consumption behaviour.
This is India, which made the right decisions in the early 1990s about catching up with China; this was the neighbourhood’s envy (then). This is a cyclical correction, which I don’t think is going to be long term or even medium term. But having said that, I’d love the UK to grow at 5%. I mean our business is, but I’m talking about GNP.
Online video is big in the US and the UK and now even in India. How does that alter video content and advertising in digital media? And how digital is your business in India?
The whole of our business is shifting towards digital advertising. I think our business in India is digital enough. It is ahead of the market here; we are the strongest by far. If you add up our digital assets here, it dwarfs everybody else but that’s not sufficient. It is strong competitively, but is it enough strategically? No, it has to be more and our people understand that.
Online videos have different length, purpose and content. It’s more varied and not as restricted. It is an unregulated space. So it comes back to the power of the Internet. Basically, it’s a much more free form as compared to television so we get much more varied opportunities. We have invested in Vice.com which News Corp. has just invested in. We have invested in Fullscreen, which is a Peter Chernin company.
It’s defensive. I think it’s born out of some of the issues that we’re talking about—people running out of space or running out of room. Structurally, it’s clunky. Of course, there are regulatory issues for them.
And last but not least, there are totally unexplained client benefits and people benefits. Apart from these things, it is fine.
Will it impact the advertising landscape?
For us, it makes us move faster, which is a good thing. Nothing like a good piece of competition.