S4 Capital executive chairman is bullish on a V-shaped recovery
By Ronan Shields on May 6, 2020

Credit: Sasha Maslov for Adweek

The Covid-19 pandemic is shaping up to be the black swan that will trigger a reset in the global economy, the scale of which has not been seen for close to a century.

Its impact on the media and advertising industries has been (and will continue to be) profound, with an ominous amount of furloughs, layoffs and pay cuts across job levels. And the mood of agency holding group CEOs, arguably the best bellwether for the flow of industry spending, suggests the current quarter will “not be pretty.”

Although away from “the big six,” S4 Capital’s Martin Sorrell, arguably the man with the single biggest influence on the industry, suggests there is opportunity for some, particularly those with digital already in their DNA.

Recently, in a conversation with Michael Seidler, CEO of Madison Alley Global Ventures, Sorrell drew on his decades of experience, including several comparable economic downturns, to dispense advice. Below are edited excerpts of this conversation.

‘Cash is king,’ but people also valuable

In such straitened economic times, and with advertisers largely pressing pause on ad spend, finance and liquidity are key areas for any company to make it through the lean quarters ahead, according to Sorrell. “Cash is king, and liquidity is important, so we’re very focused on that.”

When asked for leadership advice during such an unprecedented process of adjustment, Sorrell noted how his outfit’s actions included cutting compensation for its top executives by 50%, and in certain cases even more. “From April 1, we’ve done that for six months, and at the end of the six months we’ll review the situation,” he added.

For Sorrell, trimming from the top will help to alleviate the need to cut headcount in the lower tiers of the organization, a move many holding groups have made in recent weeks. This poises S4 Capital to be ready when the ongoing contraction eventually produces opportunities in terms of new business wins, an outlook embodied by his “faster, better, cheaper” mantra of recent years.

In addition, S4 is attempting to weather the storm by focusing on its people, primarily through an eight-person Corona Crisis Group. “We get together every day and have a call about what’s happened to our people and happening to our people, what’s happening to our clients,” he explained.

Q2 will be harsh, but a V-shaped recovery is possible

Sorrell helped navigate his former outfit WPP through some severe economic downturns, including the financial crash of the late 2000s, with the current “bloodbath” likely to spur an unprecedented wave of digital transformation.

Sorrell also took the time to challenge the notion that it’s possible to spend your way to recovery. “This view in the ad industry that clients should spend, spend, spend during recessions is nonsense,” he said.

Ad agencies that counsel clients—many of whom are starved of revenue amid global lockdown orders—to spend their way through such uncertain economic times are likely to fall out of favor. “You can say, ‘Let’s move money to into purpose programs of various sorts,’” he added. “But you cannot say you should flagrantly spend, because you may spend yourself out of existence. … Companies will be quite rightly judged by what they do in this recession.”

Asked for comparisons between now and the economic downturn after the 2008 financial crisis, he said a full recovery in the wider advertising business may not happen until 2022, similar to a decade ago.

“A bounce-back maybe like we saw in 2010, not 2009,” he said, noting that 2009 was a “brutal” year for the ad industry. “This is not like the financial crisis, so one doesn’t know, but I would be in the slightly more bullish school—and maybe that’s because S4 is purely digital.”

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Sorrell forecast a tiered end to “harsh lockdowns” by the end of June, and said he anticipates digital ad spend will see a “mild recovery from low levels” in Q3 with gradual improvements in spend into early 2021.