'The worst is behind us,' says CEO of WPP, the world's largest advertising company

Published Mon, Aug 24 202011:48 AM EDT

Alex Sherman @in/alex-sherman @sherman4949

Key Points

Mark Read, the CEO of WPP, the world's largest advertising company by revenue, says 'the worst is behind us' in terms of advertising budget cuts.
The Covid-19 pandemic has caused companies in almost all industries to slash advertising budgets in 2020.
The pandemic has caused 'decades of innovation packed into about four months,' Read said.
WPP will rethink travel spend post-pandemic after saving significant money this year, Read said.

A View from the Top is a Q & A series exclusively available on CNBC Pro . Alex Sherman will regularly speak with a business leader about decision-making, investing and industry news. The advertising industry has taken a major hit in 2020 as companies in nearly all industries have cut back on marketing budgets. Globally, media owners' advertising revenue will decrease this year by $42 billion, or 7.2 percent, to $540 billion, "as advertising spending shrinks due to the severe economic recession triggered by the COVID19 pandemic," according to a June report from Magna , the research arm of Interpublic Group. But "the worst is behind us," according to Mark Read, CEO of WPP, the world's largest advertising company by revenue. He's seeing the evidence of recovery not just with WPP's campaigns but also in the messaging of the advertising itself, which is now largely focused on getting back to business rather than promoting messages of safety. Still, the pandemic has opened Read's eyes when it comes to saving money on unnecessary travel and the value of shorter remote meetings. He explains how quarantines have accelerated "decades of innovation packed into about four months" and says WPP's role in navigating new technologies makes the company more essential than ever before to clients. Here's the full Q & A: (This interview has been lightly edited for length and clarity.) Alex Sherman, CNBC: What is the state of the advertising industry right now? Mark Read, WPP CEO: Clearly our industry, like every other, has been impacted by this pandemic. At the same time, I think our clients realize the need to communicate with their customers about what's going on, and increasingly they're starting to think about either being back in business or getting back to business. And then, how they can change and transform their business for the future. WPP's business is much broader than just advertising. We work increasingly with our clients in marketing technology and e-commerce. Actually, our teams are really busy helping clients get back -- airlines get back to flying. At the same time, it's clearly had an impact. Obviously this is an unknown given no one knows if the virus will hit hard in the winter or when vaccines will be available, but do you feel you have a sense of clarity where we are in the pandemic recovery cycle? Read: I think the worst is behind us. There's definitely a sense that the worst is behind us. I think, at the same time, individual countries, individual markets and increasingly individual cities are likely to be subject to lockdowns in the future or restrictions that will inevitably impact the economy until there is a vaccine. So the environment is very uncertain. We see, I'd say, a continuous and gradual opening up in Europe. But people have become much more nervous as the summer has progressed. We're starting to see local lockdowns in certain countries and markets. In Asia, although they've perhaps done a better job than we have in terms of controlling the virus, again, I talked with someone in Hong Kong, and they're in the second week of a new lockdown. And in the United States, the current situation is really unsettling to people. Consumer confidence will take some time to recover. I think confidence does take time to recover. That's what we need to give and what our clients need to give consumers, and what the government needs to give consumers. Are you fearful that some of the ad-related revenue that has been declining for years will never come back, or do you feel like you've transitioned WPP in the past two years to a point where even if that were to happen, WPP wouldn't be particularly affected by it? There will be irreversible effects in some traditional media. Life is going to be really tough for magazines and probably newspapers too, and to some extent traditional broadcast television. We've lost the benefit of sports and event programming. It's going to make life more challenging. All the growth we see is in digital media. Globally, this is the first year that digital media is bigger than traditional media. We're past the tipping point. In terms of WPP, we're a long way past that tipping point. Over the last few months, our relationships with our clients have actually gotten a lot stronger. What we do for our clients is in many ways more important than ever. They're looking to us both to communicate with their customers but also transform their own businesses. The investments we've made in marketing technology and particularly in e-commerce put us in a really good place to help clients navigate that. For one chain of liquor stores, we spun up a whole curbside delivery system for them over the last two weeks. We've been doing a lot of work on the marketing technology front. We're working with eight of our top 10 clients on pretty big e-commerce projects at the moment. I think there are growth opportunities for WPP in this. That said, it's also going to make life much more difficult for traditional media. From a broad marketing standpoint, are companies asking you to change the message in recent weeks or months from what they were asking of you several months ago? We heard a lot of "in these uncertain times, we'll help you stay safe" variants in the first few months of the pandemic. Has that changed? I remember the video that made fun of what you're talking about . I don't think too many of those pieces of work were from WPP. Look, we did work for P & G where David Taylor, the CEO, was approached by the governor of Ohio to help young people in Ohio socially distance. We did some work with P & G on TikTok using this influencer, Charli D'Amelio. It got more than 16 billion views on TikTok. So I think there were definitely some clients who wanted a creative way to message around the pandemic at the beginning. But I certainly think the messaging has shifted from 'we're by your side,' which is what it was a few months ago, to much more normal messaging around being open for business -- more positive type messaging. Since you just mentioned TikTok, if TikTok sells its American operations to Microsoft or Oracle, do you expect any changes from your end in terms of working with the company? I think it will be business as usual. Obviously it's a very political situation. It seems like Washington is finally paying attention to the digital advertising duopoly between Google and Facebook. How would you recommend governments regulate those companies to level the playing the field? There's a lot in that. If the platforms want to take advertising dollars, they need to take responsibility -- more responsibility -- for the content that sits on those platforms. WPP, we've been a founding member of this Global Alliance for Responsible Media , that's been building a coalition between advertising and the platforms to take clearer action about the types of content that are not allowed on the platforms. I think we've made some progress but we need to make considerably more progress. It's a particularly charged environment in the United States with the elections coming up. These things are much more difficult to manage. I don't think I'm in position to advise the government on the particular antitrust measures they can take, but I do think the reason the platforms are so dominant is because they have such a significant share of viewing. The more we have competitive platforms like Amazon and Snap and indeed TikTok, the more level the playing field will be. I also think traditional media can do a better job, like how Mark Thompson at the New York Times has mixed advertising and subscription models successfully. I look at the growth in AVOD -- advertising video on demand businesses -- in the launch of video services like Peacock . I think that's interesting. I think we'll end up with a media ecosystem that's funded in part by advertising and in part by subscription. That will be beneficial. Speaking of platforms taking responsibility, do you and your clients have confidence that Facebook will fix its issues that led to the advertiser boycotts we've seen? I think Facebook is taking it seriously, but there's a lot more work to be done. We will work with them to make sure that it happens. What specifically are you looking for from Facebook? We're looking for an environment where clients can advertise in a medium where they're confident that they're not going to end up promoting hate speech and divisive content. It's really up to Facebook to decide what are the right policies and steps they need to take to take down the content, and what are the right protections they can put in place in terms of the proximity of advertising to content to make sure that advertisers can advertise in that safe environment. I don't think it's for us to determine what specifics steps they need to do for them to make the platform safe. Are you seeing any tangible progress yet? I think we've seen some progress, yes. It strikes me that the pandemic has hit at a time where you're seeing this huge shift already in the way younger people consume media. This is particularly important to an advertising company, as younger people are often the target demographic. This must fundamentally alter the way you've done business for decades. Is there a particular focus on the creative side, company wide, that affects the type of campaigns you do? In other words, what lessons have you learned from how younger people engage with advertising? I think we're seeing people go back to ideas rather than formats, creatively. There's a much richer tapestry today using technology to express those ideas. Is it through a campaign on TikTok, or is it something on Instagram? Can we look at newer platforms like Fortnite? We've done some very creative work with Wendy's taking advantage of all these new platforms, video gaming platforms. But the creative process has always been more of an idea-driven process than format specific. I think that's quite good for the end result. Do companies like TikTok and Instagram present an existential crisis for ad agency networks? Do you fear getting boxed out by influencer culture where brands can find TikTok or YouTube stars on their own? How do you make the pitch to stay in the middle of it, especially now when companies are looking at ways to save money on their advertising budgets? Ultimately, social media platforms and companies like WPP are both in the business of building brands for the long term. To build a successful brand long term, it does require careful curation. It's not just a question of giving brands a bunch of influencers and throwing things up against the wall and seeing what sticks. I think what we need to do is work with those people. That's what we did with Charli D'Amelio with P & G. Increasingly, our clients ask us to find the right influencer for the right problem. So I'm not concerned about being disintermediated. But we need to know the right platforms. Are you familiar with Roblox ? Yes. We need to know about Roblox, and how we can use that from a marketing perspective. In the last few months, we've seen decades of innovation packed into about four months. It's a really exciting time to be in our business. There are new platforms that are suddenly growing, like Roblox or Houseparty or TikTok -- growing so quickly. If we're super engaged with those platforms, and we are, we can be the people who take those ideas and the people on them to our clients. Just so I understand, when you say you're working with influencers, what exactly is your role? Is it simply to connect a person with a brand? Are you treating an influencer like you'd treat an actor, having them learn a script? The creative and production process are coming much closer together than ever before. The thing about the creative process in the old days, you'd write a script that would appear on a piece of paper and you'd hand that script to a production company that would give you your film based on that script. That's not how the creative process works together. An influencer, especially right now, will probably be responsible for shooting the content. We're then the creative director, the artistic director that makes sure it stays on brand. So it's a much more collaborative process than it used to be. But yes, in addition to that, we're identifying the right influencers for a particular product or project and negotiating with them. We're seeing a clear shift among the largest traditional media companies that they're adding and eliminating jobs to put streaming or digital first. WarnerMedia and NBCUniversal are both literally reorganizing their companies now. Virtually every major media company has a streaming service in the market now. Many of these services are either ad-free or come with options to avoid ads. As you talk to clients about how to market themselves in a streaming world, how are you advising them that they do this? Twenty years ago, the job of the chief marketing officer was really the chief advertising officer. But I think we've all realized that marketing and advertising are not synonymous. There are lots of things you can do to market that don't involve paid media. At the same time, I think there will be a significant role for advertising in many of these streaming services because consumers will struggle to pay for lots of them. So I think there will be a growing role for advertising. The reality is the greatest canvas for our clients is much bigger than just 30-second television commercials. That makes this an especially exciting time to work in this industry. It makes what we do much more relevant and important to clients because we have to navigate a much more complicated environment where it's harder to get your message out in a fragmented universe. It makes our job more difficult but also more valuable. You've spent the past couple of years slimming down WPP, divesting business and eliminating some jobs and internal brands. Do you feel like you're at the right size and scale now? I think so. The main thing we've learned from the past three or four months is the decisions we made to bring our businesses together were the right ones, but we will continue to examine how we're organized. Our company needs to be easy for our clients to navigate. As a company, we're at the right size. There are areas in marketing technology where we'd like to invest more. We are looking at acquisitions there. But broadly speaking, the portfolio is around the right size. To be clear, when you say marketing technology, are you looking at software? More, kind of, systems integration capability. We're one of the largest partners to Adobe, Salesforce, Google and Microsoft in helping our clients implement their technology from a marketing perspective -- building Adobe Campaign or building websites in Adobe Experience Manager or building e-commerce platforms. That's a big growth opportunity and a big opportunity for us. We're looking to invest more in that area. We've seen some serious consolidation within the advertising industry in the last five years. Are there still too many ad agencies and ad tech companies? Our business will inevitably see more consolidation over the next couple of years. I think the ad tech business continues to be innovative, but I think clients are increasingly aligning around platforms. It's very hard for point-solution advertising technology companies to prosper. Where do you feel we are in terms of ad tech? In other words, programmatic advertising has clearly changed the industry over the past five or ten years. Where is ad tech succeeding and where is it failing? The task we need to do is integrate the platforms and the data in a way that protects the privacy of the consumer. That, I think, is a real challenge. How do we take a client and help them activate their first party data in media in a way that protects privacy? How do we help them reach their consumers not just from paid media but from their own platforms? How do we help them build communication plans using that data? The biggest challenge today is the integration of different best in class solution across very different platforms that clients have. Activating data in real time is still a fundamental challenge. I went to the big week-long Cannes Lions advertising conference last year for the first time. Obviously that's a huge event for the industry. It didn't happen this year . I'm curious, is that a material loss for you? Or it is just a big party? I think creativity is critical to the industry. While you can optimize a client's budget by improving its efficiency by 10% or 15%, a great idea can multiple the value of a client's budget by 5- or 10-times. We're firmly believers in the value of creativity and in the importance of recognizing and rewarding the best ideas in our industry. It just didn't feel like the right year to have a festival like Cannes. We'll see how it is in 2021. I'd say people have missed it and missed the connection. That said, I think we're all pleased to have saved the money. Along those lines, I would imagine the last five months have made a lot of company executives rethink the way they spend money. Do you feel like you have come to various realizations that WPP had been doing a lot of travel-related activities that maybe aren't necessary? Certainly. I looked at my own diary, and during the lockdown, I met 50% more clients than I did during the same time last year. Through Zoom or video conference, you mean? Yes. Zoom calls. 50% more clients. I had 100-times more video meetings than I did before, and each meeting lasted half as long. I saved a fortune in travel and timing getting to meetings. I think we've all learned that this technology can help us be much better connected. WPP is saving a tremendous amount of money on travel. I think we'll look to continue to save a lot of that money in the future. We are doing a lot of thought and analysis on what are the habits we've learned over the last three or four months that we want to keep, and what are the habits that we want to change? Obviously there is a lot of creative value in face-to-face communication. I think it's much easier to manage in a crisis in this mode than it is to inspire and lead an organization. I'm keen to get people, at least some of the time, in a safe way, back into offices and back working together and collaborating. At the same time, I do think more of our people will work from home in the future. I think we'll do video meetings remotely and save money on travel. Last question -- I'm sure you know this better than anyone, but if you look at WPP's stock, it's down pretty significantly from a year ago and certainly five years ago. What is the message you have for investors to think about your company differently or give them confidence the worst for WPP is over? We've been really focused on returning WPP to top line revenue growth. I think we've made a lot of progress on that, and you saw that in the first two months of the year before the pandemic. If I have a frustration, it's that just as we were starting to see the results of what we were doing strategically -- outside of greater China, which was impacted by coronavirus, our business grew in the first two months of the year. When we get the business growing, we'll be rewarded in our stock price. Outside of the technology companies, I think there are a lot of CEOs out there not that pleased with their stock prices at the moment. But we're really focused on the quality of the work, attracting the best people to WPP, doing the best work we can for clients, and if we do that, we'll grow. And there's been a lot of new business, despite all of the disruption. If we do that, and come out of this situation, then our stock price will follow. Hopefully I'll see you in Cannes next year. Hopefully, Alex. I'll buy you a glass of rosé. WATCH: What Google's earnings reveal about the advertising industry during coronavirus