“It’s not in-housing, it’s part of a much broader trend,” the former CEO of WPP says in this interview with Beet.TV at the Cannes Lions International Festival of Creativity.

Sorrell is now Executive Chairman of S4 Capital, which is described as building “a new era, digital platform for global, multi-national, regional, local and millennially-driven clients.” When he looks at the six biggest agency holding companies he sees an “adapt or die” scenario.

“They have no choice. The six of them are like sort of super tankers. They’re not agile enough, they’re not fast enough, they’re not flexible enough,” Sorrell says.

He traces client retrenchment to the days when Lehman Brothers was failing and the world financial system was on a precipice. One recent example Sorrell cites is the acquisition by McDonald’s of Dynamic Yield Ltd., which specializes in in personalization and decision logic technology, as a means of “trying to take back control.”

Other advertiser concerns include platforms controlling data, “proving to be a block to the direct consumer relationship.” Agencies, meanwhile, “are worried about incumbency instead of being totally transparent and willing to experiment.”

The net result among marketers is “the propensity to experiment has risen to a level that I’ve not seen in fifty or the so years that I’ve been in the industry,” says Sorrell. “In-housing is one of the means of experimenting. We’re not just seeing it on programmatic, we’re seeing it on content creation too.”

When agencies negotiate fee structures, “The level of directs for a new company with a clean sheet of paper is totally different than an established company, a legacy company. With indirects it’s light years difference. You don’t have indirects in a startup.

“They are strapped. It’s like a straight jacket. So when the procurement people from the agency go to negotiate with the procurement people at the client, they’re locked into a structure that the client’s not willing to accept. So that’s the fundamental problem. You have to have a totally new structure.”

He references his trip last year to the Burning Man festival, which is held in the desert in Nevada, as an allegory for what agencies are facing. “It’s creative reconstruction or destruction. Every year eighty thousand people build the burning man, they build the temple and they burn it down at the end of the week and they start again.”

You can find all of Beet.TV’s coverage of Cannes on this page

Now Sir Martin Sorrell, the man who used to run the world’s largest ad agency holding group, WPP, is reborn, as executive chairman of his S4 Capital Group, an investment-driven operating company that already acquired creative house MediaMonks for $350m to offer content and which in December merged it with MightyHive, a company with both programmatic and creative services in a $150m deal.

Asked if further investments are on the horizon, Sorrell tells Beet.TV, in this video interview: “We’ll make further acquisitions.”

But he’s not getting ahead of himself. “I think we have to demonstrate that the concept, or the idea, works,” he says.

Still, S4 and MediaMonks have already been taking contracts. “We’ve won some very significant global and multinational business,” Sorrell says. “Procter & Gamble, Braun has been talked about publicly. There are three other major assignments that we’ve received in the last month of similar nature to P&G and Braun – digital projects around content and programmatic.

“And what we’re seeing is, when we start to develop a content approach or a programmatic approach, we can combine the two. Not effortlessly, but clients want to explore how they can integrate the two into one.”

Sorrell’s S4 is already well capitalised for further deals. Having only been formed in summer 2018, after Sorrell’s exit from WPP, the company has a market cap of roughly £470 million (around $605 million) at time of writing.

That exit happened controversially for corporate reasons, but also seemed like the crescendo of a couple of years in which ad clients became frustrated with historic pricing and operating models of large ad agencies, some of whose many sub-agencies had become labyrinthine and unwieldy.

If Sorrell sees S4’s efforts as a response to that, he isn’t saying so overtly. But, in the new group’s companies, he says he will offer “no earn-outs”, ” a single brand” “with transparency in the full sense of the word”. No sprawl here, it seems.

“In a funny way, we’re reuniting creative and media,” he tells Beet.TV, acknowledging that brands want to “take back control”.

“We will want to see the holding company model survive and succeed. But the pressure is intense. That pressure’s likely to intensify, and give more opportunity to the disruptors in the business.”

Is S4 one of the disruptors which will challenge the likes of WPP?

“It doesn’t have the scale of what I’m used to,” Sorrell says. “But maybe we can remedy that in time.”

This segment is part of Beet.TV’s coverage of the IAB Annual Leadership Meeting 2019, Phoenix.   This series is sponsored by Telaria.  Please find additional videos from the series on this page. 

“If you define television as screen and screen hours, there’s a bigger opportunity than there’s ever been. If you narrowly define it as free to air TV, it’s a bit more difficult,” Sorrell says in this interview with Beet.TV.

So will there be a tipping point between ad-supported and subscription-based TV services? “People are discussing whether there’s a tipping point. Are they coming under more pressure? I think the answer is yes.”

This is where headlines come into play. “Is it to the degree that we’ve seen in newspapers, no. Will it be to the degree we’ve seen in newspapers, no, I don’t think it will be,” Sorrell adds. “At the end of the day, there are significant changes taking place in the way that consumers consume.”

Like other big, global holding companies, WPP has tried to keep pace with all of the change. This includes realigning long-established agencies while making investments in content creators like Vice and Refinery29.

“We’ve made some mistakes as well as had some successes. But it’s rapidly changing and I think you have to be extremely flexible in your approach and be willing to experiment,” says Sorrell. The core problem facing companies like WPP is “an infrastructure and a set of legacy companies that have been doing this for up to 150 years. We have to adapt as rapidly as we can in a rapidly changing world and that means we have to be very, very flexible and responsive and agile in what we do.”

This video was produced by Beet.TV in Las Vegas at CES 2018.   Please visit this page for more coverage. 

BACK TO VEGAS: CES 2018

“It’s unfortunate what has happened. What happened with the ANA last year, for reasons that I don’t really understand to this day…reports issued, full of innuendo but no fact,” Sorrell says in this interview with Beet.TV at the DMEXCO advertising and media trade show.

“What it’s done is create a different atmosphere which I don’t think has been helpful.”

Just over a year ag,o the Association of National Advertisers issued a report that roiled the waters of the advertising and media agency world. It concluded that some agencies had routinely padded their profits by using such non-transparent practices as taking rebates from media sellers.

To Sorrell, those accusations consisted of “aspersions which I think are totally unjustified, or certainly from what we’ve seen.”

He doesn’t cite specifics about the Middle East except to say that people are “examining the entrails.” For Japan he seems to be referencing the overcharging scandal that engulfed a major ad agency in September of 2016 after one of its biggest clients suspected something was amiss in its digital media buys.

Sorrell says a WPP client in China asked it to audit several state-owned enterprises (SOE’s) “on the media front because we didn’t use brokers in China, where there was let’s say a fog around the operations. We were asked to look at one of the areas of potential corruption advertising billings. In China there’s opacity in relation to the supply chain.”

Sorrell believes the transparency issue is of relatively minor importance in the U.S. market “where there are no rebates and relatively more important in markets like Japan, where I think it’s true to say there’s still total opacity on what the price of a TV spot is. It’s totally unknown as to what many of our clients are paying for their spots.”

Addressing the transformation that has swept the advertising and media industries—totally reshaping how clients and agencies interact—Sorrell lists three areas that stand out.

Media and data: GroupM and Kantar each represent 25% of WPP’s business.

The growing importance of digital agencies of record: “Digital agencies going into clients through the digital door and then expanding above the line.”

The “veritable explosion” of production platforms: Among them WPP’s Hogarth Worldwide that enable marketers to “pull down their marketing assets effectively without reproducing them and reinventing the wheel in every market.”

This video is part a series that examines programmatic from both the seller and the buyer perspective. It is presented by PubMatic. For more videos from the series, please visit this page.

In the aftermath of the television UpFront season, Sorrell thinks traditional networks have done pretty well price-wise. ““I think they’re quite bullish about the UpFronts in the U.S. They’re seeing reasonably significant prices increases in the mid single-digit area at a time when we’re seeing deflation elsewhere,” says Sorrell, who is Founder & CEO of WPP. “So I think owners of the inventory feel pretty good about it.”

He then cites “obviously broader and much more significant opportunities” for advertisers in the programmatic space. It’s an area where WPP has made significant investments in its Xaxis unit and [m]PLATFORM technology.

“We’re offering something a little bit more than programmatic as it overlays brings in data and technology inputs, which make it far more sophisticated in terms of targeting,” Sorrell says.

Clients that had been concerned about some aspects of programmatic buying are thinking differently, he adds.

“We are seeing I think the start of a groundswell of change in attitude toward programmatic,” Sorrell says, citing marketers’ in-house operations “perhaps becoming less attractive” for reasons that include the need to keep updating the technology.

Turning his attention to newer content providers like Amazon he notes, “The amount of money that these companies are willing to invest in content is quite considerable.”

He says it’s not uncommon for Amazon to spend $10 million on one, hour-long episode, “Netflix maybe $7 million and the more traditional producers spending about three.”

As for whether Netflix, which according to Sorrell loses money on a cash flow basis, can ever turn that around, the answer will lie in its subscription and advertising policies. “In a way Netflix is already advertising, it has product placement warnings in front of some of its series already. So we are starting to see advertising in one form or other start to invade the Netflix platform.”

Companies like WPP, which traditionally had concentrated their investments outside of the content creation sector, have changed their thinking and are ramping up on the sell-side. Sorrell points to investments in Vice Media, Refinery29, 88rising and Mic as examples of his company’s need to experiment “to see how we can learn more and how are clients can be involved in it.”

This video is from The New TV Ecosystem Forum at Cannes Lions 2017, presented by FreeWheel. For more from the series, please visit this page.

Sorrell’s comments in this interview with Beet.TV came as the organizers of Cannes announced the formation of an advisory committee to help them decide what the event should consist of going forward amid controversy generated by the pullout next year of Publicis Groupe, as The Drum reports.

“Cannes as ever was a frenetic week,” says Sorrell. “Probably has become too big. Probably has become too expensive.”

Some people are questioning “whether Cannes should be Cannes, or Cannes should be in Cannes, or whether Cannes should be canned as somebody put it to me,” he adds. “I think it’s a good question.”

The value of Cannes to WPP “is that it’s important to our people and it’s important to our clients.” WPP staffers see the awards confab “as a way of enriching their careers and celebrating their success with their peers judging their work.” The holding company’s clients “also enjoy it in the sense that they get a great kick out of winning awards and being judged by their peers has having been responsible for producing great work.”

Seen in this light, Sorrell doesn’t think a boycott or withdrawal is helpful “but where it’s directionally correct is it does raise the question about whether this is the right place to do this and whether this is the right format.

“Because I think in certain respects, certainly in terms of expense, and maybe some excesses, it’s too much.”

This video is part of Beet.TV’s Coverage of Cannes Lions 2017. For more from the series, please visit this page.

He sees CES as sort of metaphor for WPP:  a place where content, data and technology are integrated. If he were to form a new WPP, that is how it would look.

As part of the transformation, WPP has invested in content companies Fullscreen and Vice; data and analytics concerns comScore and Rentrak and many others, he explains.  (The comScore investment is to close this month.)

Through this vast transformation from the “Mad Men” days, the importance of media has ascended.   He says “the medium has become more important than the message.”

We spoke with him yesterday at CES.  Our coverage of CES is presented by Adobe.

We spoke with him last week about the the rankings at industry event hosted by Millward Brown and WPP.

Leading the list the most valuable brands are Apple, Google, Microsoft and IBM.   Over a dozen Chinese companies have made the rankings, but from just one company 10 years ago.