It’s the Age of Google and Sorrell has no time – or money – for Twitter

The most interesting thing about WPP Group’s first quarter financial results were not the numbers, but its chief executive’s obiter dicta.

The numbers themselves were a curate’s egg. They beat the revenue forecast, bizarrely enough they delighted in Britain, but they disappointed in the United States. Which is just about the only part of the world economy currently showing signs of dynamism.

The obiter dicta, on the other hand, were curiously memorable. WPP CEO Sir Martin Sorrell used the occasion (well, near enough: he was actually speaking at the FT Digital Media Conference the previous day) to highlight a singular phenomenon. So far as his company is concerned (and it  is, after all, the number one spender of advertising money in the world), Google will soon become a bigger destination for his clients’ money than the biggest traditional media owner in his stable, News Corporation. Google is currently in receipt of $2bn of WPP’s quarterly spend; while NewsCorp gets about $2.5bn. But, given the Google figure represents a 25% increase year on year, it can only be a short time – Sorrell assures us – before the search giant moves into pole position.

I say “search giant”, but that of course is history. Sorrell’s underlying point is that Google – after some initial fumbling – has made the transition from a techie company, peopled by nerds, into a multi-media corporation with global reach. He calls it  “a five-legged stool”: there’s search (of course); display advertising; social media (google+); mobile (via Android and AdMob); and video through YouTube.

Note well where Sorrell places his chips, however. From an advertising point of view, the Age of Google (as he calls it) is primarily defined by video. YouTube has made big inroads into what traditionally would have been television viewing. He’s bullish about mobile, too: Android is now the most popular smartphone platform and in some developing markets, like China, it accounts for two-thirds of all mobile sales.

But social media: Oh dear, what an advertiser’s no-no! Yahoo, though generally lacklustre these days, garners about $400m of WPP spend. Facebook, infinitely more successful with its audience figures, receives only $270m. And Twitter a lot, lot less. What’s the logic? Well, Yahoo “gets” the commercial need for a five-legged strategy (indeed, TechCrunch speculates it is about to buy Dailymotion, a smaller competitor to YouTube). Whereas Facebook and Twitter do not. Facebook, Sorrell reckons, is important for brands – but in a negative sense – absence of criticism, which has little to do with any advertising content. Twitter, on the other hand, is simply a PR medium with almost no value to advertisers.

“It’s very effective word of mouth,” Sorrell told Harvard Business Review last month. “We did analyses of the Twitter feeds every day, and it’s very, very potent…I think because it’s limited in terms of number of characters, it reduces communication to superficialities and lacks depth.”

That last may sound a little harsh. And is certainly not a universally accepted view among admen. Significantly, it is not shared by Sorrell’s deadliest rival, Maurice Lévy – chief executive of Publicis Groupe. Lévy has just announced a four-year pact with Twitter which will involve PG’s media planning and buying arm Starcom MediaVest Group committing up to $600m of client money to monetizing Twitter’s audience. Details, at this point, are sketchy.  It is clear, however, we are not just talking “pop-ups” here. Lévy makes specific reference to video links and “new formats” yet to be developed. He admits to there being “some risk” involved in the project, though whether this relates to his own reputation, clients’ money or both is not apparent.

Brand makeover fails to paper over the cracks in ITV’s strategy

It has been compared to bottoms – and also the most fiendishly complicated sex toy yet devised by Ann Summers. Yes, the new ITV logo, spearheading the TV station’s most ambitious rebrand in 11 years, has turned us into a nation of amateur psychologists desperately attempting to infer inner meaning from the Rorschach blot of its revitalised colour ways.

Let’s face it, we haven’t had so much fun since the London Olympics logo – that appalling camel of a horse designed by a committee – first surfaced in 2007.

My own theory? It’s an hommage to Sir Martin Sorrell, craftily contrived to lure extra advertising revenue from WPP media house GroupM in the wake of the Channel 4 spat. Look very carefully at the new logo and you will see – provided you stare long enough – an ‘L’ followed by a ‘U’ and a ‘V’. Spelling of course LUV – which those familiar with the Sage of Farm Street’s dicta will immediately recognise as the shape of the current recession!

Joking aside, the mega-rebrand – however aesthetically regarded – triumphantly fanfares chief executive Adam Crozier’s dramatic turnaround of ITV’s fortunes only three years into his five-year programme of reform. In 2010, when Crozier moved over from a similar position at the Royal Mail, ITV was burdened by £2.7bn annual losses, a £1m pension deficit, staff demoralisation and seemingly intractable problems in transitioning from analogue to digital broadcasting.

But look at it now. It is debt-free, indeed harbours about £800m cash, and on track to announce £350m profits for 2012. What’s more Downton Abbey (and – who knows? – Mr Selfridge), not to mention the investigative exposé revealing Jimmy Savile’s systematic sexual abuse, mark a new confidence in programme-making ability.

These are not inconsiderable achievements for any chief executive to crow about. The question is: like the branding makeover, are they more window-dressing than real?

Crozier is master of the well-timed stakeholder-pleasing initiative – a quality all too appropriate to the former joint chief executive of Saatchi & Saatchi (1995-2000). Wherever his career has taken him – latterly as chief executive of the Football Association (2000-2002) and the same again at Royal Mail – the result has been identical. Controversial reforms that gain grudging respect at the time, but on closer retrospective judgement lack substance.

Just so, perhaps, at ITV. Unlike the world of football management and passing the parcel, as a former media director, Crozier knew exactly what he was getting himself into when he took over from Michael Grade at the UK’s premier commercial TV station. In a sense, he only had to bide his time and exploit preternatural presentation skills.

ITV is a quintessentially cyclical business, its fortunes ebbing and flowing with the tide of advertising revenue. In early 2010, cyclically-depressed ITV had yet to emerge from the recession, but given time there was an inevitability about it doing so. True, it wasn’t quite the “licence to print money” it had been in its heyday, but the erosion caused by competition from proliferating digital channels was an irritant at the peak of the cycle, rather than a cancer. And for one very good reason: advertisers (for which read members of ISBA) continue to believe that, when it comes to branding a mainstream product, there is no substitute to airing it on ITV.

Time, however, was something that Crozier’s predecessor, Michael Grade, had run out of. The usually fleet-footed entertainer had, for once, made a pig’s ear of running a media business and, in effect, the City gave him his marching orders by severely depressing ITV’s share price.

Enter the slick Crozier, doubly endorsed by Asda’s peerless school of management: first by Allan Leighton, who had recruited him at the Royal Mail; and secondly by ITV’s new chairman, Archie Norman (there was also a Pedigree Chum connection: Crozier and Leighton had previously worked together at Mars).

Crozier airily announced a five-year strategic programme that would transform ITV from a single, highly volatile, profit centre based on display advertising to plural revenue streams, knowing full well that – with a bit of luck – all he had to do was sit back and wait for the financial tide to come rolling in.

And so – three years later – it has. With ITV’s share price riding high at about 110p, Crozier is well on his way to cashing in £4m-worth of share options this April. But what of the fundamental restructuring he promised? Well, yes and no. Crozier has certainly revolutionised ITV’s production department – profits are forecast to exceed £100m this year. But his target of 50% of revenues derived from non-advertising sources after five years looks as elusive as ever. Particularly lacklustre is the performance of ITV’s digital channels (ITV2, 3 and 4 respectively) which last year achieved an embarrassing £28m revenue out of a total of £2.2bn.

No amount of cheerful new colour ways can disguise the fact that ITV remains firmly planted in the analogue age.

Yes, we Cannes: WPP, McDonald’s and McKinney grab top Effie Index rankings

It might seem counter-intuitive to announce the global Effie ‘Effectiveness Index’ winners at the Cannes International Festival of Creativity but then, as my colleague Stephen Foster points out, Cannes has become such a monster event it serves as global launchpad for virtually any marketing services event these days. So, before becoming immersed in a week-long self-congratulatory orgy of advertising creativity, let’s just remind ourselves of those advertisers, brands and agencies that actually bring home the bacon:

• Unilever is the most effective advertiser;
• McDonald’s is the most effective brand;
• WPP Group is the most effective advertising holding company;
• Ogilvy & Mather is the most effective advertising agency network;
• Ogilvy & Mather (Mumbai) is the most effective individual agency office;
• McKinney (Durham, North Carolina, USA) is the most effective independently held advertising agency.

Yes, I was wondering about that last one, too. It recently appeared in ‘The Pitch’, AMC’s unscripted programme in which two agencies vie over 7 days for  a piece of business, in this case Subway restaurants. McKinney won. It’s notable for its Audi A3 campaign, Art of the H3ist, which garnered two Effies and a Cannes Lion. And also for something called “connection planning”, which I take to mean an integrationist skill that ensures campaigns work smoothly across all channels.

Good for McKinney, I say. But I do have a qualification. Last year’s winner in this category was the slightly more universally recognised Wieden & Kennedy of Portland, Oregon. Now, I’m all for merit making its way to the forefront without having to await Buggin’s Turn. But I also look for consistency in results. The Effie Effectiveness Index, which is sponsored by insight portal WARC and compiled from 39 individual national Effie competitions, was only inaugurated last year and therefore lacks granular historical perspective. That said, there is a repeat winner this year: McDonald’s, with the most effective brand accolade. Here, for quick reference, is last year’s roll of honour:

• Procter & Gamble was the most effective advertiser;
• McDonald’s was the most effective brand;
• Omnicom was the most effective advertising holding company;
• BBDO Worldwide was the most effective agency network;
• Sancho BBDO (Bogota, Colombia) was the most effective agency office;
• Wieden & Kennedy (Portland, Oregon, USA) was the most effective independent advertising agency.

I don’t suppose that Sir Martin Sorrell will be worrying too much about historical perspective, as he wipes the blood away from his nose. One way or another, WPP has collared most of this year’s top Effies. So, he is worth it, after all.

Belligerent WPP builds up its stake in Chime

For those who – like me – have been following the buyout shenanigans at Chime with some bemusement (see my two posts here), the following item from Bob Willott’s Marketing Services Financial Intelligence will be of more than passing interest:

Chime Communications confirmed yesterday evening [Friday last] that long-term shareholder WPP has continued its recent buying of shares so that it now holds over 20% of Lord Bell’s group. By exceeding the 20% threshold, WPP is now entitled to increase its board representation at Chime from one to two nominees. Share buying activity by WPP was first reported by the industry research publication Marketing Services Financial Intelligence last December, noting that WPP’s holding had risen above the historic level of 15%. According to Marketing Services Financial Intelligence, the buying was attributed by Chime insiders to an attempt to restore WPP’s stake after it had been diluted by various share issues to vendors of companies Chime had acquired. “However, that explanation began to lack credibility as the share buying has continued”, commented editor Bob Willott. WPP is not under any obligation to make an outright bid for Chime unless its shareholding passes the 30% mark. Willott thinks that WPP’s share buying may have been influenced by the attempt being made by the two senior Chime board members Lord Bell and Piers Pottinger to buy out some of the group’s public relations business.

No kidding. As is well known, WPP is by far the largest stakeholder in Chime – and its boss, Sir Martin Sorrell, has been an outspoken critic of the Bell buyout.

I addressed this very issue of motive to WPP. Why was it stealthily upping its stake? “Good investment” came the cryptic reply. What, even if Tim Bell, Piers Pottinger and the best bits of the PR business were to leave? “Either way.”

Question: Does the inception of the Bell/Pottinger buyout plan predate or postdate knowledge of WPP’s share-buying activity?

Record WPP financial results fuel confidence in sustainable recovery

Chief executive Sir Martin Sorrell was in feisty form as he reported the best set of financial performance figures in years at the world’s largest marketing services company by revenue.

The WPP growth engine is, apparently, firing on all six cylinders: billings, revenue, earnings per share, pre-tax profit, organic growth (or like-for-like as it is often known) and operating margins all showed evidence of substantial improvement. Perhaps the key highlights were pre-tax profit, up 19%, at over £1bn for the first time; and strong evidence of Quarter 4 growth, indicating the spurt is not some first-half fluke that will fade in the current year.

Doubtless WPP euphoria will subside once media focus moves on to the inevitable corollary of record financial performance – an equally record performance bonus handed to its chief executive. But, hey, that’s for then.

For now WPP’s results form a welcome bookend to a series of exceptionally good annual numbers from all the global marketing services giants – Interpublic’s particularly so – suggesting an ad recovery is on the way.

But is it sustainable? Sorrell  – revered as something of an economic sage these days – has indicated that WPP January figures are strong – even in the UK, on which he has been bearish for some time. And he has wheeled out his favourite prop on these occasions, the so-called Quadrennial Effect, to underline his contention that growth will be sustained throughout the year. Put into simple English, that means macro-events which occur every four years – such as the Olympics, the UEFA football championship and the US presidential elections – will stimulate global growth by at least 1%.

Nor was he pessimistic about what, to most of us, might seem a blot on the economic landscape. A number of the world’s biggest brand owners, among them Procter & Gamble, Coca-Cola and PepsiCo, have recently announced cuts to their workforce. Sorrell chooses to take comfort from the fact that all of these companies have guaranteed existing or even increased levels of marketing expenditure.

The Sage of Farm Street is less optimistic about 2013, though – foreseeing gridlock on Capitol Hill, with a re-elected Obama beleaguered by hostile Republicans in Congress. We’ll see.

WPP hurls BRICbats at Publicis Groupe’s performance figures

An arcane row has broken out between agency behemoths WPP and Publicis Groupe over the latter’s claimed financial performance.

First, some necessary background to the dispute.

These days, only two things really matter for global agency holding companies presenting themselves in the annual financial beauty parade. Two things, that is, beyond a clean set of figures showing decent organic growth, enhanced operating margins and a handsome improvement in earnings per share (EPS).

They are: how much revenue is digital (as opposed to derived from ‘traditional’ advertising). And: how much comes from emerging economies.

The annual figures merely tell us how well the company has been stewarded in the recent past. But the other two criteria are much more exciting because they are predictive. Get them right and you tantalise shareholders with the thought of future gain, garner positive headlines in the financial media, boost the share price and – if you are one of the company’s most senior executives – make yourself still richer in the process.

By these standards, Publicis Groupe has just produced a corker. Never mind revenue growth of 5.7% to €5.8bn in near economic-blizzard conditions, or operating margins of 16%, or EPS up 14%. What really mattered to The Financial Times was a sound-bite: Publicis’ US digital revenues are set to overtake those of traditional media.

And to be fair, it is a pretty singular statistic considering that, as recently as 2006, digital was only 7% of PG’s revenue globally; now by comparison that global figure is nearly 31%.

“Digital” is of course shorthand for: our share of the pie in the only bit of the advertising economy still growing in developed economies, such as the USA and Europe.

Of no less importance as a corporate virility symbol is “emerging markets”, the geographical counterpart of “digital’s” sectoral dominance. Maximum bragging rights are accorded to those who can establish leadership in the most significant of these markets, the BRICs (Brazil, Russia, India and China).

PG chief Maurice Lévy’s claim that 75% of group revenues will in the “pretty near future” be derived from a combination of digital and emerging markets such as “Brazil and China” is therefore music to the investment community’s ears.

Better still for investor returns, Lévy claims he will reach this milestone ahead of his rivals Omnicom and WPP.

Not surprisingly, these rivals are livid at the suggestion. So incensed in fact that WPP, for one, is challenging the factual evidence on which Lévy has built his ambitious projections.

It has dissected PG’s webcast financial presentation and done a slide-by-slide demolition of PG’s BRIC performance. I won’t bore you with all the details. But here’s the gist:

Slide 32, Brazil. Lévy mentioned last year that Brazil was PG’s 4th largest market. Now he’s saying it’s the 6th. What happened?

Slide 33, China. WPP takes issue with PG’s assertion that it will double its size in this all-important market by 2013, from a $200m 2010 revenue baseline. It says the ‘3 creative network leaders’ claim is a myth. R3 sourced figures actually put WPP and Omnicom agencies ahead of PG’s. Cannes performance also suggests WPP outguns Publicis. PG claims to be top in media buying: this is flatly disputed by WPP, which says RECMA figures prove it is overall leader in Greater China. The key argument, avers WPP, is over organic growth. Here, PG is achieving about 8.5% while WPP appears to be nearing 16% a year.

Slide 36, Russia. PG claims leadership in this market both in media (Vivaki) and creative (Leo Burnett and Publicis Worldwide). WPP asserts that there are no reliable creative rankings in Russia and where media is concerned it is emphatically on top with 28% share versus PG’s 23.2%, according to RECMA figures.

Slide 37, India. PG claims to be number one in new media business (Vivaki) and no 2 in creative (Leo Burnett), quoting R3 as the source. But R3 does not do a new business table for India, says WPP. PG claims strong positions in digital, healthcare and PR, but with no source attached. PG’s digital presence is “tiny” (says WPP), and it has made no recent acquisitions. As for media, according to RECMA, WPP’s GroupM has 42.7% share while Vivaki is 3rd with 9.4% share. Creatively, the latest Economic Times 2011 Brand Equity rankings for agencies (the only authoritative source on this subject) puts two WPP agencies Ogilvy and JWT first and second, while Burnett is 6th and Saatchi & Saatchi 17th.

It’s no surprise, of course, to find these two deadly rivals engaged in another slanging match, albeit disguised in high-falutin’ finance speak. What will be interesting is if Publicis has a riposte.

POSTSCRIPT. I note that, despite a strong set of figures and robust balance sheet, PG has maintained rather than increased its dividend. As Lévy explained, that’s because PG needs to hold on to all the cash it can in case it has to buy back up to €900m of Dentsu shares later this year. In view of recent developments, this seems highly likely.