As an industry, digital news media is already out of COVID-19, according to Sir Martin Sorrell.
The advertising legend shared his viewpoint that for a digital-only business, COVID is already in the rearview mirror, he said in a live Webinar interview with INMA members on Wednesday.
“It’s a rash thing for me to say in the context of what’s happening,” Sorrell said. “But from a business point of view ... the models we created at Saatchi and WPP, which I call market share models based on traditional media, no longer fit the purpose and are past their sold-by date. What we are doing with S4 is creating a totally new model with four fundamental principles.”
Sorrell is executive chairman of S4 Capital PLC, which is building a purely digital advertising and marketing services business. Prior to this, he was CEO of WPP for 33 years, building it from a more than US$1 million “shell” company into the world’s largest advertising and marketing services company.
In his exclusive interview with INMA Executive Producer Mark Challinor, Sorrell discussed what a post-pandemic advertising world will look like and his statement that “we are already out of COVID.” The future looks like this:
- Purely digital, because that’s where the growth is.
- Holy Trinity model, where first-party data is used to create digital advertising content and then distributed programmatically in a continuous feedback loop.
- A mantra of “faster, better, cheaper.” This means operating with agility, quality infrastructure and technology, and cost efficiency.
- A unified approach that will disrupt the market share approach.
“My surmise is that Google and Facebook and Amazon’s numbers will be better than people are anticipating,” Sorrell said. “Certainly looking at our own numbers, which have been very strong in Q3, we’re back to where we were before.”
The world is 24/7, always on in real time, he added: “Gone are the days where you could spend three months creating the perfect ad.”
Instead, advertising must now operate on what he called the Netflix model, using data and personalisation at scale to target the audience. Those results are then measured, alterations are made as necessary, and the whole thing is repeated.
Challinor and INMA members had plenty of questions for Sorrell.
Were you surprised by the scale of the coronavirus?
“I wouldn’t say shocked is the right word,” Sorrell replied. “The last two weeks of March we started to see some impact to our business.”
From 33% growth in January 2020, S4 went down to 3% growth by April due to COVID-19.
“That was the bottom,” he said. “In May we went up to 5%, 12% in June, 18% in July, 24% in August, and even better in September. We’re back to where we were before in January and February. I think if I’m shocked by anything, it’s the speed of the V recovery that we’re seeing.”
When it comes to the overall economy, he admitted it will take longer to recover.
“It won’t be 2021. It’ll probably be 2022 for the overall economy to get back to where it was pre-COVID. Having said that, there are V-shapes in tech and healthcare, home entertainment, online education, and financial.”
There are also many industries in a U-shaped recovery such as automotive and some consumer goods, he added. Sectors such as travel and hospitality, in the L-shape, will take much longer to recover.
Sorrell also mentioned one aspect that did shock him, which was linear television imposing penalties on advertisers that cancelled.
“It’s a very good example of the inflexibility of traditional media,” he said. “If you’ve got a traditional set of media platforms, you have to make it as flexible as possible, not as rigid as possible.”
Sorrell added: “COVID isn’t going to create new trends. It’s just going to accelerate things we already knew were happening to a degree that we haven’t seen before.”
What do you see the long-term effects of COVID having on traditional advertising and legacy print media?
“I would like to be a harbinger of sweetness and light, but I’m sorry, that’s not the way of the world. It’s changing,” Sorrell said.
Non-digital business models will have a tough time surviving, compared to digital models such as digital news publishers and his company, S4, which is doing very well now with increasing revenues and staff positions.
“Why is that?” he asked. “We happen to be in the sweet spot. This is a world where there’s been huge pressure. Traditional media is down this year probably 15%, and digital flat.”
The message is, purely traditional media companies are in the wrong place. They must alter their models to survive.
“I think what you’re seeing as a result of COVID is a marked acceleration of the impact on traditional media of the trends we saw before.”
Free-to-air television is under more pressure from streaming services like Netflix, newspapers and magazines have been experiencing advertising losses for years, and digital outdoor advertising is replacing traditional outdoor.
Do you believe the traditional publisher/agency/advertiser model is broken?
In general, yes, Sorrell said.
“But having said that, I think if I were a publisher, I would be very keen on building direct relationships with clients and working as closely as possible with clients,” Sorrell said.
He doesn’t view the new model as being a threat, he added: “Google and Facebook and Amazon are not a threat to the agencies. They are partners to the agencies. In the case of S4, the platforms are very much a part of our business. So I would say you have to build direct relationships — not necessarily cutting the agencies out, but building relationships to understand what clients want. And build a relationship with the platforms.”
Media companies must acknowledge this is the way the consumer is moving, and they must respond to that or be left behind by their audience.
What are your thoughts on branded content?
“It’s a very difficult area because people on the editorial side intuitively don’t like branded content,” Sorrell answered. “They think it’s church and state, and you should keep them separate. But I think it’s unrealistic to believe that you can separate them that much.”
ublishers must be transparent in letting consumers know clearly what is advertorial or branded content, he said. Also, he believes publishers must balance subscription and advertising revenue.
How important do you think regional and local print titles are with their digital offerings?
They are essential, Sorrell said.
“One of the things we’re seeing is the squeeze, not just on national newspaper and magazine advertising, but on local, too. Obviously COVID has wreaked havoc with that too.”
Nevertheless, he believes that there will be significant opportunities for local and regional advertising once they’ve gotten further into the recovery period.
What are your thoughts on the third-party cookie demise?
Companies will be driven back to their first-party data sources, and alternatives will also be developed.
“First-party data will be the new oil,” Sorrell said. “It will be the most valuable resource that marketers have.”
The platforms have become the new e-tailers, and they control the data. Publishers will be driven back to using the data they already have, that talks to each other, and is integrated effectively.
“First-party data is becoming the driver for content development and digital media services.”
If news publishers got together, wouldn’t they form a great platform themselves and benefit from selling programmatic ads together?
“I think so,” Sorrell said. “But why is it that the sky has to be falling before people act? They should do it, but the practical reality is you have to have a real crisis. Maybe COVID will do it.”
Between the competitive nature amongst news publishers and the culture or personality clashes, Sorrell said he fears those barriers will come down too late.
How do we strengthen advertising sales teams post-COVID?
“The sales structures are unnecessarily complex, so keeping them as simple as possible and as strong a relationship as possible — both with client and with agency” is the way to go, Sorrell said.
“Simplification of the advertising sales model is absolutely critical.”
What opportunities do you see in voice technology and podcasting?
“Like I see influencers being a subset of content, I see podcasters as being a subset of content, too,” Sorrell said. “I don’t think it has unlimited applications, but I think voice is a very interesting development in relation to podcast.”
Voice technology as a whole is a key component of S4’s business, just like AI and VR are.
“All these new technological developments will become increasingly important. Think of them as being a subset of content.”
What are your thoughts on the shift to mobile?
Simply put, it’s key.
“We’ve just seen the launch of the new Apple 5G phones,” Sorrell said. When the 5G technology catches up with the hardware, it will have a huge impact. News media publishers must constantly think about how they are positioned on mobile.
When COVID-19 hit hard in March, S4 didn’t miss much of a beat. The reason? It was already a mobile-first and digital-first company.
“We are digital natives. It’s not even second nature, it’s first nature to us,” he said. “And mobile is a vital part of it. We’ve created revenue streams that didn’t exist pre-COVID — or if they did exist, they were in a very limited form.”
Some examples he cited were animation and robotics, as well as virtual events.
“Out of all these adversities come a real opportunity to show what you can do. And mobile is absolutely key.”
What type of silver lining do you see going forward, and where should news media publishers shift their priorities?
“If you don’t make it in 2021, you never will,” Sorrell stated.
The GDP growth being predicted for 2021 of 5-6.5% is huge, he added. “That’s huge because we had a bad year this year, from a GDP point of view. So I think 2021 is like 2010.”
Looking back at the financial crisis of 2008-2009, the growth that happened in 2010 was much stronger than expected.
“I think that will happen next year,” Sorrell said. “2021 will be a very good year, so if the people [on the Webinar] can’t make money then, you never will.”
What happens after 2021 also presents an interesting question, he added: “I would say short-term prospects are pretty good. I think these smaller, more agile, digitally-focused organisations are well positioned.”