Sir Martin Sorrell: Full of Eastern promise

Britain's most powerful adman earned a cool £52m last year - and believes the Beijing Olympics will bring him even more riches.
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Sir Martin Sorrell is impatient for the Olympic Games in Beijing in the summer of 2008 to start. "I'm planning to go - if I'm invited," says the most powerful Briton in global advertising.

The chances are quite high that Sir Martin, the chief executive of WPP (the world's second-largest marketing services group) will be invited, even though he is more interested in cricket and skiing than athletics.

The Beijing Olympics are at the forefront of his thinking because they mark the coming together of two of his favourite media verities - the importance of the great quadrennial events (such as the Olympics and the World Cup) in driving marketing demand, and the towering growth of the Chinese economy.

"The Olympic Games in Beijing is not just a sporting occasion; it's a political, social and economic occasion and will mark, in our view, the year the Chinese economy becomes the second-largest advertising market in the world," Sir Martin says. In fact, if you take into account the purchasing power of the Chinese people, the country probably already is the second-largest advertising market.

When you stir in not just the European football championships that year but also the US presidential elections, Sir Martin is betting on 2008 being a bumper year. "Mrs Clinton will run and there will probably be a lot of political spending. The president, even though he is not up for re-election, will still want the economy to be in good shape," he argues. He is noted for the breadth and the certainty of his forecasting, not to mention his Delphic utterances.

The WPP chief executive, who studied economics at Oxford, is convinced that economies, and therefore the marketing services and the media they help to fund, are dominated by the political cycle - with help from the major sporting events. But if 2008 is going to be a bumper year, what about the years in between - in particular, 2006? Do we have to endure another two fallow years to get a good year?

Sir Martin's crystal ball has the answer. Under his theory, last year should have been the weakest in the four-year cycle. In fact, overall, he believes that 2005 has been a very good year, although this will come as a bit of a surprise to a number of struggling newspaper executives in the UK.

This year should, however, be noticeably better than last, with little boosts coming from the Winter Olympics in Turin and the mid-term congressional elections in the US. "Then, 2007 should also be a good year because of the run-up to Beijing, and then we will start to see political spending picking up in the US in the latter part of the year," Sir Martin says.

"So, all in all, a pretty good environment," insists the WPP chief executive, who is better known for his pessimism, or as he would have it, realism.

"It's not in my DNA to be too optimistic. It's a genetic defect," Sir Martin says, quickly adding that there is always the threat from terrorism and the danger of high oil prices. But he is still optimistic enough to drop all his talk of the past few years about advertising revenue falling down the side of steep-sided bathtubs.

Certainly it has been a good time for WPP, which brings together four major international advertising agencies, JWT, Ogilvy & Mather, Young & Rubicam and Grey Global - and a pretty lucrative time for Sir Martin himself.

In October, WPP announced that revenues for the third quarter, including acquisitions, had risen by 24 per cent to £1.3bn, although the growth of 9.7 per cent in the UK was well below the WPP average. Despite the relative weakness in the UK, the company is still on track to meet its 14.8 per cent profit margin target for 2005 under UK rules.

No such small percentages apply to Sir Martin's personal remuneration. He generated the usual headlines when his record-breaking £52m payout for last year was revealed.

Sir Martin claims not to recognise the number, and insists that there must be an element of double counting involved. He is certainly not paid such sums as salary, but rolled-up incentive schemes linked to the performance of the company matured and could no longer be rolled over.

"I think there were two plans over a 10-year period, which I had rolled forward: my racing accumulator. I actually put my money where my mouth is. I couldn't take them any further, the rules didn't allow that," says Sir Martin, who founded WPP 20 years ago after being finance director at Saatchi & Saatchi.

He has always taken the advice of his father and invested in the company he knows best - the one he created. Not only have the incentive schemes rolled away, but Sir Martin also no longer has a long-term contract with WPP, and can be sacked by the WPP board at any time without compensation.

But what does a man do when forced by unfortunate rules to accept a jackpot that would put most national lotteries to shame? "Very little," is the disappointing but unsurprising answer.

"There is no yacht, no gold-plated Rolls-Royce. My interests are very focused on the business. I don't have a massive wine collection or art collection. I have one or two nice houses or apartments, but that's it. Sorry to disappoint," he says.

Just before Christmas, his wealth did receive a significant dent when he had to sell WPP shares worth £12m to help fund a UK record £29m divorce settlement. One of the reasons cited by his wife Sandra for the breakdown of their 33-year marriage was Sir Martin's obsession with work. He is indeed totally focused on the business - some would say virtually wedded to it - and he likes nothing better than viewing the daily returns from his far-flung businesses around the world.

And there is certainly no sign of expensive art in the modest London headquarters of WPP, down a cobbled alley off Farm Street in Mayfair. There is plenty of decoration on the walls of the WPP boardroom, but it is of a very particular nature - blow-ups of the quirky illustrations from the prize-winning WPP annual report. The cover of last year's report features a hare leaping prodigiously high in the direction of a distant star. The image doesn't require a great deal of deconstruction. Another depicts the scale of WPP's never-ending spate of acquisitions, with an apple sliced open to show the names of WPP's many corporate manifestations - from advertising and marketing to public relations, design and market research.

Sir Martin is very proud of his annual report. The League of American Communications Professionals placed it ninth out of 1,435 annual reports, and gave it the Platinum Award for being the "most engaging".

Not all of Sir Martin's activities would have qualified for platinum awards last year. JWT, which famously won HSBC's global business account, did the same at the Korean electronics group Samsung - only to see it move to rivals Leo Burnett in less than a year. How could such an embarrassing thing have happened? "You'll have to ask Samsung. Obviously we are disappointed by what happened, but we haven't given up," Sir Martin says. "You never know what is going to happen in life. Unfortunately you lose business as well as win business."

There was, however, another significant loss during the year. The resignation of WPP's creative director, Neil French, was accepted after he apparently described women working in the advertising industry as "crap", and "wimps" who want, after a while, to go "and suckle something".

On the business front, Sir Martin insists that he is not giving up on his previously unsuccessful attempts to take over Aegis, the company that owns Carat, the international media planning and buying agency. He vehemently denies industry rumours that he was more interested in mischief than a deal after Aegis was put into play as the French corporate raider Vincent Bollore gradually amassed a 25 per cent stake. "We had a look-see, but some of the information we received was not credible," he says. WPP and the US private-equity house, Hellman and Friedman, did put forward two propositions for the future of Aegis, one of which included Bollore.

Sir Martin feels that the proposals were not taken sufficiently seriously. "The whole situation is causing them [Aegis], I know, a lot of internal concerns. You have got this 25 per cent parrot on your shoulder and it's very difficult for a business to function with that sort of situation," he says. Naturally, he is watching events carefully and regards the future of Aegis as "work in progress".

As he looks out from his privileged global perch at the state of the world communications business, Sir Martin emphasises a plethora of reasons beyond the political and sporting cycles why the advertising and marketing businesses will continue to do well in future.

The industry is being driven by the rise of Japanese, South Korean, Chinese and Indian multinational companies. "This is true globalisation. Before, you had Americanisation," says Sir Martin, who also points to over-capacity in most industries and to a shortage of human capital.

There are also the problems of getting staff in companies such as WPP, which have grown by acquisition, all pointing in the same direction. It all increases the pressure to advertise, and to communicate.

"You have to innovate and you have to differentiate," says Sir Martin. And that means that companies all round the world will have to continue to spend more rather than less on advertising, marketing and communications. "If you brand, you get a price premium. If you sell commodities on the basis of price, you get nothing," the WPP chief executive insists, citing heavy discounting in the American automobile industry.

For Sir Martin, one of the big issues is where you place your investments if you run a media company, or any other sort of company, currently based mainly in Europe. "You expand in Asia. You expand into Latin America and you expand into Eastern Europe. Is India better than China? It's irrelevant. They are both important," Sir Martin emphasises.

Is it really wise, he asks, to make your investments in Germany or France - or indeed the UK - when there are much higher growth rates not just in China or India, but also in the rapidly growing markets of Vietnam, Indonesia, Bangladesh and Pakistan? If forced to sum up where the current growth is now, in two words, Sir Martin's words are "China and the internet".

For the media, investing in Asian countries such as China and India can, he believes, help to balance some of the loss of revenue that traditional Western media companies are suffering from the internet.

The issues faced in traditional media markets such as the UK are not issues in countries such as China. "China network television, CCTV, is going up by 20 to 30 per cent a year, and Indian newspapers are doing very well although it is becoming more competitive," says Sir Martin, who believes that we are now in a two-speed world.

Back in the old slow-speed and already-developed world, he is all too aware of how the internet and rapidly expanding institutions such as Google can destroy value in traditional media companies. He points to NetRatings, a company that measures the effectiveness of online ratings. Google has recently announced its plans to provide such analytical information for free - which is a considerable potential threat to NetRatings, he believes. "We had a piece [of NetRatings] many years ago, which we sold, thank God. That's a permanent shift in profitability," he says.

Sir Martin thinks that media organisations which give information away for free are close to insane "when you have a strong brand, and particularly when you have strong content".

He believes that Si Newhouse of Condé Nast is one of the cleverest publishers around, yet they don't charge for content. "I don't understand that. I think that consumers will be prepared to pay for content that they trust and content that they like," says the WPP chief executive.

Has Sir Martin any advice - apart from geographical diversification - for traditional media companies on how they can confront the threat of the internet? "I think what they are doing is probably the right thing, which is they are trying to embrace the new technology and trying to invest in the new technology as rapidly as they can," he says.

The WPP chief executive has, however, warned that traditional media companies were tending to panic and invest "willy nilly" in the internet. His remarks were interpreted as a shot at Rupert Murdoch's purchase of MySpace, and at deals such as ITV's acquisition of the Friends Reunited website.

Sir Martin insists that he was talking about traditional-media-owners generally. He believes there is an argument for ITV buying Friends Reunited because of the importance of the internet in relation to local advertising and local communications. "But in all of these things, I haven't seen yet a traditional media owner who has put together a model, or bought a company, which has reproduced the revenue that they have lost," he notes.

He remains relatively optimistic about traditional media. Television, newspapers and magazines will not disappear, although they will probably have to accept lower rates of growth in future. "It's not all gloom. Certain types of television - satellite, cable and pay-TV - will expand," he says. And, although both China and online advertising are growing rapidly, in advertising terms they are still relatively small, with each accounting for only four per cent of the global market.

He reaches yet again for the example of China to provide historical perspective. In the early decades of the 19th century, China shipped high-quality porcelain to the UK, Sir Martin says. Then the Chinese industry was killed off by lower-priced and equally high-quality porcelain from Wedgwood and Meissen. "All things are cyclical. There is nothing new, and we've all been here before," says Sir Martin, adding that, in 1825, India and China accounted for the same proportion of the world economy as they will do in 2025.

Sir Martin intends to continue at work, even though he said recently that the trouble with media companies was that they were all run by "50-to-60-year-old farts like me". Last year, he celebrated his 60th birthday - and is not happy about that. "It marks the beginning of the end, I think. Certainly not the end of the beginning," he suggests.

Despite his advancing years, Sir Martin plans to continue running WPP as long as his services are required - at least beyond the bumper year of 2008 and the Beijing Olympics. "I'm not the retiring type - in any sense of the term whatsoever," the WPP chief says.