Fake news, verification and transparency issues have not pegged growth of FB and Google: Sir Martin Sorrell

 

Advertising giant WPP released its half-year results recently in which it said: "In the last year or so, growth has become even more difficult to find, perhaps due to increasing social, political and economic volatility, for example with the rise of populism typified by surprise election results in the United Kingdom and the United States and bumpy growth in three of the bigger BRIC countries of Brazil, Russia and China, although India continues to develop rapidly, despite introductions of demonetisation and a General Sales Tax.”

 

This assessment came as WPP, founded and run by Sir Martin Sorrell, reported billings down 4.7% on a constant currency basis to £26.9 billion. The advertising giant blamed "technological disruption, cheap money, activist investors and zero-based budgeting models, which focus incumbents on short-term profitability and cost control," for putting companies off advertising and marketing. WPP said this is particularly an issue in the consumer goods sector, which accounts for a third of its revenues. As a result, 2017 has so far been "much tougher" than 2016, which was a record year for the business.

 

Also, the digital ad industry has had its work cut out this year following a wider brand safety scandal and concerns around fake news, viewability, verification, transparency and measurement. However, that has not stopped advertisers upping their spend on the two main players.

 

While WPP says it’s seen a “marked pause” in advertising on YouTube over the first half of the year, it is still “pureplay internet” that is providing nearly all the growth in the UK market. While the TV ad market is holding its market share, other traditional channels are losing out. And Sorrell said WPP will continue to up media investment in Google and Facebook.

 

According to media reports, Sorrell said, “There is increasing scrutiny from clients around the effectiveness of digital. But YouTube’s travails over brand safety, fake news, value, viewability, verification, transparency and the Google and Facebook measurement questions, these issues have not stopped or pegged growth of Google and Facebook in our media investment. Despite the uncertainties, this hasn’t checked the growth or importance of the duopoly in digital media.”

 

Google remains WPP’s biggest single media investment, with Sorrell saying he expects the company to spend more than $6bn on the platform this year. And he predicts Facebook will move up from third to second position, with WPP’s spend rising to more than $2bn.

 

"Even the growth of the digital marketplace has been dogged by issues such as measurability, viewability, fraud, and fake news, let alone the duopoly of Google and Facebook and the growing dominance of Amazon in so many spheres, including, but not exclusively, ecommerce, retail, cloud computing and content,” read the WPP result.

 

Sorrell also brought up the increasing dominance of Amazon, which is having an impact on most clients’ businesses and therefore on WPP. Sorrell estimates Amazon’s ad revenues are around $2.5bn annually, making it a growing player but still well behind Facebook and Google, which he estimates account for 75% of digital and 30% of total ad spend. But he expects Amazon to grow this figure significantly over the coming years, according to media reports.

 

FMCG slashes ad spends:

 

"In a slower growth world, both more recently and post-Lehman, inflation has been negligible, perhaps also suppressed by digital deflation. As a result, clients have markedly less pricing power and finance and procurement departments are very focused on cost. In this world, it is, perhaps, not surprising that clients have reduced spending," said WPP.

 

WPP saw revenues rise to £7.4bn for the six months to June, up from £6.5bn a year ago. As mentioned earlier in this report, WPP admitted the industry has been “much tougher” in the first half of the year, fuelled by the rise of populism in the UK and US and difficult conditions in Brazil, China and Russia. WPP now expects sales growth of between 0% and 1% this year, compared to a previous forecast of 2%.

 

WPP in particular has struggled due to its reliance on FMCG clients. It is no secret that Procter and Gamble and Unilever plan to cut agency fees and reduce media investments in order to improve efficiency and effectiveness.

 

Across WPP’s top 30 clients, which contribute 30% of revenues, 14 cut spend while 16 increased it. But overall, those 30 clients’ spend was down. Across the top 50, half were up and half down, which Sorrell said pointed to the “volatility” in the ad market.

 

While FMCG and autos are cutting spend, technology and healthcare in particular are increasing it.

 

“Uncertainty and short-termism is reducing investment among clients,” Sorrell explained in media reports. “The overwhelming thing that hits you in the eye when you look at our top 30 clients is the preponderance of FMCG reducing spend quite significantly at this time.”

 

Ad industry in danger of losing the plot?:

 

WPP also said that competitors are turning to discounts and inducements to try and win business, saying: "These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. Our industry may be in danger of losing the plot."

 

"For the short-term, therefore, we have to weather the storm," WPP said. The media conglomorate says it will focus on efficiency, new high-growth markets, digital marketing, and "technology, data, and content."

 

However, WPP told investors that "2018 is unlikely to be much different."

 

Even as these developments happened, on Wednesday, WPP announced the acquisition of design agency Design Bridge for an undisclosed sum. Clients include AkzoNobel, Diageo, Mondelez, and Unilever.