Traditional media better watch out!

When Martin Sorrell landed in India this time, he was smiling. Sorrell says it had to do with the immense opportunities for WPP in India. Well, that’s only partly true. What he hinted later could have been more likely reason: the drubbing handed out by the English cricket team to Dhoni’s side. Sorrell, who owns 2% of WPP, says it is still fun to work. He spoke with Satish John and Lison Joseph on the dramatic shifts witnessed in the advertising industry. Excerpts:

In the recent past, we have seen Rupert Murdoch’s tabloid shutting shop, violent riots in London and a series of corruption scandals in India. Do events like these affect the brand image of a country? Do they make investors wary?
You have captured an awful lot in that question, implying all those events are symptomatic of the same issue. I think that’s a dangerous assumption. But to answer your question, the willingness to invest is linked to growth prospects. It doesn’t matter if corruption or riots don’t affect growth. Growth rate is the primary factor that determines investment.

For example, Russia is one of the toughest countries to do business in, if not the toughest. It had very high growth and corruption. It did have an impact on foreign direct investment, although not to the extent that you would imagine because of the high growth rates. So for people who run large businesses, it is the delta (incremental growth) that matters, not so much the absolute.

As far as corruption in India is concerned, I think in most economies there is corruption. In faster-growing economies there is significantly greater opportunities for corruption. As economies grow bigger and mature, there will be greater policing of it using regulations such as the UK’s Bribery Act or US Foreign Corrupt Practices Act.

You make half-a-billion dollars from India annually, and even did a small acquisition. Today there is a fear that corruption scandals are bringing governance to a standstill. Does that worry you?
Well, if it (corruption scandals) wasn’t happening, it would have been helpful and that it is happening is not helpful. But have that changed my attitude, or have I noticed any of that changing the attitude of my clients? Or our attitude to towards India and clients in India? The answer is no. If I am looking for delta, where else do I get that?

There is this pathetic sort of discussion that takes place on Bloomberg and CNBC among the so-called experts about the Chinese and Indian slowdown. In China, it is about growth rate of 11% going down to a 7.5% growth over the 12th Five-Year Plan, and in India they are arguing about an 8.5% growth coming down to 7%. In the US and the UK, you are struggling to get a 1% growth. So India is refreshing. I look forward to coming to India. I come here with a smile on my face, not with a shadow of the cloud of depression.

There will be challenges. Even as there is a secular growth trend, there will be cyclical challenges. There may be more serious challenges around the impact of inflation. But no, my attitude has not changed. Probably I shouldn’t be, but I am very bullish on India and more so because the US and Western Europe face a long slog.

Last year you revised your growth forecast upwards. Do you see any loss of momentum now as the global economic turmoil intensifies?
Ironically, no. Last year, we grew our topline by 5.3% and this year so far the growth has been over 6%. You have got this disconnect between the macro and the micro, where even as the macro is bad, at the individual company level, they are still exceeding analyst expectations. We have seen nothing so far, that would indicate a loss of momentum but we have to wait and see.

Most of our clients are on calendar-year budget, so I doubt if we would see anything in the last quarter. But people are nervous. Having seen what you have seen on television over the last 4-5 weeks, would you go out and buy a car, would you go on a holiday, the answer is probably no. You would be cautious and wait. But I doubt if we would see much impact before the next calendar year.

You said India brings a smile on your face. But your India business is at around $500 million while China is at around $1 billion. When do you see India catching up?
The problem with India is it is under-advertised and under-branded. Advertising as a proportion of gross national product (GNP) is lower here than some of our other larger markets. China has challenges too. The high speed rail crash wasn’t helpful for its image either externally or internally. Having said that, I am very bullish on China too. I don’t think we should worry about when India will catch up. India is doing extremely well for us. We are growing at twice the GDP growth rate here.

Why is India under-advertised and under branded? Is it because the companies and promoters here are tight-fisted?
No, I think the media here is quite sophisticated. A large number of people are mobile here, even larger than China. You have three networks here that have over 100 million subscribers. I think it has to do with the earlier stage of growth. It is only a question of time before it grows bigger. India will over take Brazil at some point, but there is this massive growth of middle class in Brazil.

Richard Pinder, the former COO of Publicis, had remarked once that Sorrell is taking WPP away from advertising…
He’s the guy whose brain is not connected to his mouth — and you can quote me on that. He no longer has a job. I’ve nothing to do with him (Laughs). He doesn’t know what he’s talking about. Very clearly, he didn’t see things the way we see it. What he doesn’t understand is we are not an advertising business. And the company that Pinder worked for was also not an advertising business.

If I look at our $16 billion business, except for the $3.5 billion revenue that comes from traditional advertising business, the other $12.5 billion is what we call outside advertising. He (Pinder) must have woken up to this fact late. We have talked about mobiles in India. Look at the way new businesses such as Facebook, Linked In and Groupon have emerged. The non-traditional business is growing. About 60% of our business is outside advertising.

Consumer insight is critical. What Pinder didn’t realise was his clients were worried on how consumer buying habits, social habits and media consumption habits are changing. For that, you have to understand data analytics and technology. So the business has changed. What Google did yesterday by buying

Motorola Mobility is a major change. We have an alternative platform to a Google platform or a Microsoft platform.

Is Google more a friend or an enemy?
It is still a frenemy. It is probably a lot friendlier frenemy than it was. It has moved into display advertising. After its move to acquire Motorola Mobility yesterday, it became a frenemy for Samsung. Samsung uses its Android platform and yesterday after Google acquired Motorola Mobility, it has become a rival. This world is full of frenemies. Sony and Samsung competes even as Samsung supplies Sony with chips.

Online penetration in India is very low. Do you see mobile phones acting as a trigger to set the balance right?
It is early days. What we saw in the west was a steady progression from traditional media to the PC to the mobile phones. What you see in India — if the 850 million subscriber number is true - is it will be leapfrogging as the cheaper form of access to the web. It may not be particularly effective. Somebody said yesterday that mobile advertising would be bigger than TV advertising. It might be true at some point.

Mobile phones will become a more and more powerful way of engaging with consumers. I am used to watching football match on my TV. But I watched cricket and the Murdoch episode on my iPad. Even for an old fogey like me, my habits have changed. It is relatively early stage and media consumption is changing.

The penetration of new media will be greater in small-growth economies in the west. Denmark is the first country where internet had surpassed TV. In India, traditional media tends to be relaxed, but my view is they had better watch out.

Most of the Indian advertising agencies have been taken, or a joint venture has been stitched? Where do you see opportunities?
Mudra is independent! (Laughs aloud) And may be Sam Balsara’s Madison. There is nothing here that I can’t look at. With Sam Balsara, we have a joint venture. Sam is very independent, in my opinion. He has his family in the business as well. But there are a lot of good smaller agencies and there is a healthy Darwinian process that takes place here. People want to start their own business.

There is a continuous supply. When the economy is growing at a certain rate and the industry is growing at double the rate it gives you a lot of scope. We (WPP) will cross the half a billion mark (in India), and if you grow at 10% that is $50 million (added to the topline). You won’t find a company of that $50 m size. So it is easier to grow organically.

Can you name three leading brands…
I’ll get into terrible trouble if I answer that. The answer is no. (Laughs)

What keeps you awake?
This is fun. I started the company 26 years ago. Now I own only 2% of it. My attitude is very much of a founder, it is personal. When we win or lose business, or lose people, it affects me. What worries me ... pauses … I think the answer is, everything. 

Strategically, I feel very good in new markets, new media and analytics. I would like to do more. This year, we won the holding company award at Cannes.