Over on Madison Avenue, a Brutal Lesson Is Handed Out
(Bloomberg Opinion) -- In rugby and soccer, they call it a hospital pass. When someone gives you the ball just as you’re about to be clobbered by an opposing player. It’s an apt description for the challenge facing Mark Read, WPP Plc’s new CEO. Less than two months into the job, he said on Thursday that sales and profitability would drop this year. Shares in the advertising giant fell by 19 percent. The market value is less than half what it was just two years ago.
Predecessor Martin Sorrell left him with a business that’s been far slower than competitors to adapt to the new realities of the ad world, where most new dollars are spent with Facebook Inc. and Google. But there’s a suspicion that Sorrell, a maverick financier who built WPP over 30 years, was a major reason why big clients stuck around. Not a huge surprise in this most schmooze-ridden business. Now he’s gone, the likes of Ford Motor Co. have taken their ad money elsewhere.
Clients also want a business that’s better suited to their needs. WPP, with its sprawl of ad agencies, media-buying companies, marketers and public relations firms doesn’t yet seem as able as its peers to offer something coherent.
All of the ad industry is struggling with how to respond to the digital stranglehold and deep pockets of Facebook and Google. But WPP’s travails are extreme. Omnicom Group Inc., a big U.S. rival, said this month that the American ad market was starting to recover. But WPP reported that revenue fell 3.5 percent in North America in the three months through September. Third-quarter results from the other big ad groups Omnicom, Publicis Groupe SA and Interpublic Group Inc. have all gone down pretty well with investors.
Read is open about the problems that he’s inherited (as people often are). He told analysts that the company is perhaps 18 months behind its rivals. That acknowledgment is healthy, and he’s taking some needed steps. He’s exited many of the ancillary investments made by Sorrell, who had a penchant for puzzling purchases such as a stake in publisher Vice Media. Some 16 disposals have brought in 704 million pounds ($908 million) so far. The board has approved a plan to sell a stake in Kantar, the company’s data arm. That’s the right move. The cash would help reduce net debt, 4.6 billion pounds at the half year, and perhaps fund some more appropriate deals.
It seems as though WPP has the right man for the job. Read is trying his best to fix the situation, and doing the things that should have been done two years ago. But it will take time. As he admitted himself, 2019 probably won’t be much easier. He’s asking bruised investors for patience. They’ll need it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
©2018 Bloomberg L.P.