WPP CEO Martin Sorrell told a group of investors and analysts Wednesday that he believes the U.S. deficit crisis -- expected to come to a head after the 2012 presidential election -- is the single biggest concern for the global economy going forward.
The Euro-Zone crisis is worrisome as well, but Sorrell, speaking at the UBS Media Conference in New York, said he believes that European politicians will “muddle through” and eventually arrive at a solution.
While politicians in the U.S. have agreed to some $1.2 trillion in future budget cuts, Sorrell indicated that he did not think that would be enough to restore the full fiscal health of the U.S. That said, Sorrell also noted that there have been some positive economic indicators in recent weeks, including stronger retail data and some signs of improvement in the unemployment picture.
“But the issue is still what happens after the election,” he said.
While the macro picture is hard to control, or even plan for, he did note a client trend that has been what he termed a “positive double whammy” for the advertising-marketing services sector. While mature markets are seeing slower growth, clients are still investing in ads and other marketing forms to support brands. What they are not doing in slower growth markets, Sorrell said, is “investing in capacity for growth.”
But in faster-growing markets, he added, they are spending to support brands and boost capacity. “I believe that explains the surprising growth of the industry over the past couple of years." Meanwhile, Sorrell said that one of WPP’s priorities is to boost the amount of business it does in faster-growing markets, like Latin America and the Asia-Pacific region.
Currently, about 30% of WPP’s business is derived from such markets. “We want it be 35% to 40%, and it will be in four to five years,” he said. The same is true of new media, he said. So-called marketing services, which is everything outside of traditional creative advertising, now accounts for two-thirds of the WPP’s business, which is about the right proportion, Sorrell said.
Google still remains a “frenemy” -- and an incredibly strong one, said Sorrell. WPP spent $1.6 billion of clients’ money on Google platforms this year, primarily on search, up 35% from a year ago. (By contrast, he noted that about $2.5 billion was allocated to News Corp. properties.) Google would get another big bump in spending commitments from WPP clients in 2012.
Google is a force to be reckoned with in five key areas, Sorrell said -- including search, display, video, social, and with its purchase of Motorola Mobility, mobile. Contrary to one recent report in a major business publication that Google was losing its way under new CEO Larry Page, Sorrell said, “it’s just the reverse -- they’re extremely strong. The only thing that will get in its way," he added, is its size, or potentially, regulation.
WPP is assuming that it can achieve 4% organic revenue growth for 2012, which Sorrell said is higher than what he thought was achievable just a few months ago. “We feel more comfortable about 2012 now, although we’re not relaxed about it,” he said. He then reiterated his view that “the issue is not 2012. The thing that worries us is what is going to happen after the middle of November next year.”