Jessica Heygate
Jan 26, 2023

Martin Sorrell and Wesley ter Haar are ‘optimistic’ about a ‘tougher’ year ahead

The Media.Monks leaders outline their strategy to appease ‘anxious’ advertisers in a deteriorating economic environment that analysts say is ripe for innovation.

Martin Sorrell and Wesley ter Haar are ‘optimistic’ about a ‘tougher’ year ahead

In the first week of January, one of Media.Monks’ clients put its U.S. account into review. Martin Sorrell, the founder and executive chairman of Media.Monks’ parent company S4 Capital, views the move as a harbinger of what’s to come for 2023.

“Clients are very anxious because of that pressure on the top line, pressure on costs — particularly about the first half of this year,” he says. “They’re very cautious.”

It is a Saturday morning and I’m sitting in the bedroom of a Las Vegas hotel suite with Sorrell and MediaMonks cofounder Wesley ter Haar. We talk about the economy and how it will, in Sorrell’s words, be a “tougher” year for the advertising industry. 

It is the final day of the Consumer Electronics Show (CES), which both Sorrell and ter Haar agree has been “lighter” than previous years. Some of their clients have brought half the headcount they usually do. Sorrell remarks that agency holding company CEOs are notably absent.

“I think what it reflects is tremendous hesitancy about this year,” he says.

“I think it also hints at layoffs still to come*,” says ter Haar. “You don’t want to live it up at CES and then fire a bunch of people. The optics of that internally and externally are really bad. It feels like a batten down the hatches.” 

A distant pop of champagne can be heard from the next room, where more than a dozen “Monks,” are having brunch and swapping stories about the previous night’s antics. In this hotel suite, up on the 32nd floor of The Cosmopolitan, outside pressures and anxiety feel far away.

*Since this conversation took place, Alphabet, Microsoft and Spotify joined the list of Big Tech companies initiating layoffs.

Innovation from adversity

Like the weather in Nevada this morning, Sorrell’s outlook for Media.Monks is sunny. While growth will slow — analysts expect the company’s gross net profit to increase 10% to 15% this year, down from the 25% it expects to post for 2022 and the 44% it posted in 2021 — it is still forecast to outperform the advertising industry. 

GroupM expects the global ad industry to grow 5.9% in 2023, with digital forecasted to grow 8.4%.

“When we look at the content, digital media and tech services budgets, there is a variation, but all segments of the business I am pretty optimistic about this year,” Sorrell says.

In his view, harsh economic climates encourage experimentation, which “should, in theory, mean we have more opportunity.”

“We're a disrupter, so when there's pressure in the marketplace, disruptors do better,” he says.

In particular, Media.Monks is pitching itself as a digital-only business that can help marketers find the right balance between brand and performance media without increasing budgets.

Analysts that I spoke with agree that a deteriorating economy will encourage advertisers to shift more spend into emerging digital formats, which are generally more cost-efficient and measurable than analog counterparts. 

“It's not only macroeconomic headwinds, but we're dealing with a massively changing ecosystem in how marketers and agencies buy and measure media and the data available to do that. Where the dollars are going to go are channels that are measurable, in campaigns that can be targeted, and that allow some flexibility and fluidity with budget,” says Tina Moffett, principal analyst, Forrester. 

“We're expecting to see obvious investments shift towards search as well as some testing within new channels — particularly within social, connected TV and OTT,” she adds.

But economic dislocations can hamper advertisers’ appetite for experimentation, as brands — like consumers — look for stability and certainty, says J. Walker Smith, knowledge lead of Kantar’s consulting division. “Clients will prioritize safety first when times are hard and experimentation is not demonstrably better.”

Yet, harsh economic environments often lead to break through innovations.

“If you look back in history, the most interesting companies and disruptors were born out of tough economic times — companies like Airbnb, Tesla, even Amazon,” says Moffett. 

Agencies and service providers that are willing to innovate and identify areas where there's a need “could sustain and in some cases grow,” she adds. In Forrester’s Q4 2022 CMO Pulse Survey, 24% of B2C marketers said they're evaluating their agency, technology and services partnerships “to ensure they can support changing business and marketing objectives.”

“Leading brands and agencies stay fresh on where target audiences are, the best way to engage them, and do not abandon all experimentation due to cost pressure,” says CJ Bangah, a technology, media and telco consultant at PricewaterhouseCoopers.

In addition to its digital focus, Media.Monks’ simplified P&L structure could work in its favor this year as, according to Forrester’s 2023 planning guide, more dollars flow to integrated agency partners.

“I think our positioning tends to work well in these types of moments, because a lot of it is about consolidation and making it easier to support global clients with diverse services. It can be really difficult as a client to work with a network globally because of all of the internal P&L and power structures,” says ter Haar.

But the single P&L vision “is not easy,” Sorrell admits.

Sorrell’s S4 Capital has merged with 32 advertising and tech services firms over the past five years, making it a complicated company to standardize. The firm postponed the publication of its 2021 annual results twice due to gaps in its financial governance and documentation.

Analysts raised concerns last year that S4 Capital had “grown too quickly.” 

The next hype cycle

By this point in the conversation, Sorrell has, without a moment’s hesitation, reeled off a long list of clients and financials to paint a picture of Media.Monks’ health and stability. But I’m keen to understand the specific areas that the firm has identified as growth opportunities this year. This is where ter Haar, who cofounded digital production company MediaMonks in 2001 before it was acquired by Sorrell in 2018, steps in.

Digital transformation is one area. But what does it mean? For ter Haar, the jargony term has evolved from installing technical plumbing and pipes to understanding how to show up meaningfully in digital environments. 

“That goes beyond getting Salesforce or Adobe or a data asset management system up and running. It’s no longer just about making an app. It is translating the technology stack to the actual user experience and products and services that make sticky sense, which is tough,” ter Haar says.

Media.Monks’ acquisition of tech consulting firm TheoremOne last year forms part of this focus.

Across the industry, clients are always “looking for the next hype cycle,” ter Haar says. For example, as e-commerce becomes more competitive, the focus has moved to social commerce and live streaming, which drive opportunity for incremental sales.

Artificial intelligence is having a “massive upswing,” he adds, as AI-driven tools have a “meaningful impact” on how organizations work and evolve the skill sets they need to operate. Media.Monks is using image generation AI in pitches and production, making it a “more efficient” business.

AI has diverted attention from Web3 and metaverse technologies, which brands have poured eye-watering budgets into over the last two years. 

“Web3 was a bit of a hype cycle moment which hasn't stuck,” says ter Haar. “It's a reflection of some change in consumer behavior — as people spend more time in digital channels, it makes sense that some time will be spent in a tactile 3D space. I think the underpinnings of that are super fundamental in helping clients understand what that means for their business. But it's not that easy to activate against.”

Sorrell’s companies to watch this year

Apple: “With IDFA and what they are doing with their own ad platform.”

Microsoft: “An investor in Open AI, doing Netflix’s advertising and with Activision — that makes them potentially a huge player.”

Netflix: “An analyst report said they’ll get to $2 billion in ad revenues. My view is they will get to a decent number, not necessarily at the price they are currently at.”

Disney: “Disney has a massive opportunity — especially with Iger back” and “probably has more firepower creatively [than Netflix].”

Most impressed at CES by… 

The MSG Sphere. Currently in construction, the sphere-shaped music and entertainment structure is set to be the largest and highest-resolution LED screen in the world.

Ter Haar: “It’s like the metaverse, only in real life.”

Sorrell: “It was mind blowing.”

 

Source:
Campaign US

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