The Bubbles are Already Bursting with Sir Martin Sorrell

Richard Kramer: Welcome to Bubble Trouble, conversations between the independent analyst Richard Kramer, that's me, and the economist and author Will Page, where we lay out some inconvenient truths about how financial markets really work. This week, we keep pace with the phrase du jour, the bait of all clickbaits, the bandwagon that's traveling across the internet that is the Metaverse. And we're gonna move our dialogue up a gear, with our very special legendary guest, Sir Martin Sorrell, the founder of the WPP group, and since 2018, the chairman of S4 Capital. He's described our current foray into the Metaverse as being in the foothills, so let's get climbing over the next half an hour with our restless visionary and biggest guest to date. More in a moment.

Will Page: So we'd like to welcome to the stage Sir Martin Sorrell to the Bubble Trouble podcast, and we'd like to give you the microphone to quickly introduce yourself. What's currently in your inbox, and then, more importantly, how our audience can follow your work.

Sir Martin Sorrell: You can follow me corresponding with me by email, by boring old email. Martin@s4capital.com, it's fine.

Will Page: Which sounds boring, but the exciting part is, you always reply. [laughs]

Sir Martin Sorrell: Well, I've got nothing else to do but do podcasts like this.

Will Page: Martin, one thing I wanna say to yourself, economist to economist here, is I've long admired your concise and precise economic commentary. It's something I wish was [inaudible 00:01:22]-

Sir Martin Sorrell: I got a 2:2 in economics, what did you get?

Will Page: A 2:1, which means you partied more than me.

Sir Martin Sorrell: Nah, you were much better than me, you should be much more concise than me.

Will Page: [laughs] But I think other economists, especially the governor of the Bank of England, it has to be said, could learn from you there. But-

Sir Martin Sorrell: Well, I don't know about that.

Will Page: ... let's start with the recent events, and what's clearly-

Sir Martin Sorrell: Yeah.

Will Page: ... there's just a lot of belt-tightening going on in the economy. 20% headcount reductions left, right, and center-

Sir Martin Sorrell: But government's not be- belt-tightening. Government's going the other way. The government is loosening its belts.

Will Page: [laughs]

Sir Martin Sorrell: That's the problem, without a plan. So that might force other people to tighten their belts even further. It is having that effect.

Will Page: I know.

Sir Martin Sorrell: But no, I wish there was more belt-tightening by the government, then we wouldn't be in the position we were in.

Will Page: Exactly. But let's, wi- with regards to the Metaverse, you think this belt-tightening, potentially ad budget belt tightening as well is just gonna put the metaverse to bed, or do you think it can weather the storm?

Sir Martin Sorrell: Well, y- you know, the Metaverse is part of what I would classify as digital advertising. The trouble is the analysts, independent or dependent, I'm not quite sure what it is, a dependent analyst, but anyway, analysts and indeed economists tend to lump analog and digital together, and I think that's a mistake. It's really two different industries, it's a tale of two cities. One is, uh, a growing environment, and one is a flat or declining one. And digital as a proportion of global media is about 60% at the moment, forecast to go to 70% by 2025. Advertising industry as a proportion to GDP, certainly in the US, is forecast to rise. It used to be 2%, fell to 1% as traditional media came under pressure. As digital started to grow, uh, I think it fell, actually, below 1%. It started now to move up. And as digital is growing, i- it'll probably hit about 1.4%, 1.5% by 2025.

So whilst it would be very difficult to say, given what's going on at the moment, that live is gonna be rosy, it is, there, there is a recession or there will be a recession, and I think it will be a lengthy one. I don't know how deep it will be, because central banks, as we saw yesterday, start to panic whe- when panic set in, uh, so we may see a reversal of direction. So it might be a little bit shallower than people think, but I think we'll have a long recession, into '23 and '24, and things won't change until the US general election in 2024. And we'll, we'll have a UK election, or the latest, I suppose, time for a UK election as well. So '24'll be the year I think where things start to improve, a long way off.

Will Page: So do you think maybe the benefits of the shift to digital, and potentially the shift to the Metaverse, from an ad spend perspective, can offset the costs of the belt-tightening that's gonna be unavoi-

Sir Martin Sorrell: Well, you said the cost of the belt-tightening, I mean, you're going to go into a position, situation ... I mean if we were having this conversation six or seven months ago, GDP growth, we would be talking about, you know, three or 4% for this year, now we're talking about two or three.

Will Page: Mm-hmm.

Sir Martin Sorrell: And next year, maybe it was gonna be two or three, and now we'd be talking about one or two. In that environment, companies are gonna be looking to growth. They'll be moving down the funnel, as we say, to more-

Will Page: Mm, interesting.

Sir Martin Sorrell: ... activation and more performance, more media mix modeling, more justification for ROI. And a lot of the dig- not all of it. You know, Snap, maybe, some parts of Meta, uh, upper funnel stuff, but Amazon and Google are certainly lower funnel. And what's interesting is that if you look at the analyst forecasts for advertising revenues even now for the eight biggest platforms next year, they sum on sim- on a simple basis, not on a weighted basis, to about 13 and a half percent against 10% this year. So I think ad revenues next year wi- might surprise to the upside as far as digital's concerned.

I think the pressure will come on the analog side. There's a lotta concern amongst our clients about TV frequency capping, which is capping the frequency with which TV ads are shown on one ... and that's for two reasons. One, because it's wasteful, and consumers get annoyed by it, by repetition, needless repetition, and secondly, because reach of traditional TV is under pressure, and young people are not watching TV like they used to, they're watching digital TV, connected TV over the ... and connected television, they're, they're, they're, they're watching it in a different way. And that annoys consumers, clients as well, as being wasteful. So I would see analog continuing to be under pressure next year and the year after, but digital operating with a little bit more freedom. Whether it's sufficient to give, uh, the growth that we're talking about, we'll see. But I think there is gonna be, there are gonna be opportunities in the digital area, and Metaverse is a subset of digital expansion.

Richard Kramer: I wanna pick up on a couple of things that I think are kind of more broader or more interesting than the Metaverse per se. And Sir Martin, you mentioned the 13 and a half percent growth figure. As an independent analyst, which I would say is different from being a conflicted analyst, we don't have to curry favor with the companies perpetuating the fiction that things are all gonna be fine. And I think the, when you mentioned a company like Snap, they, even whilst they're still growing, have cut 20% of their costs. Is that something that [inaudible 00:06:43]-

Sir Martin Sorrell: Yeah, but, but, you see, but Richard, that is what ... Let me ask you. What were Snap's [inaudible 00:06:49] revenues this year?

Richard Kramer: Uh, coming up on five billion.

Sir Martin Sorrell: Five and a half billion.

Richard Kramer: Yeah.

Sir Martin Sorrell: What is, what is Google's projected ad revenues this year?

Richard Kramer: Well, they did 148 billion of [inaudible 00:07:01]-

Sir Martin Sorrell: No, they did 215 last year-

Richard Kramer: Yes, and then-

Sir Martin Sorrell: ... forecaste- forecast-

Richard Kramer: ... [inaudible 00:07:05] business, then YouTube. I was getting the three parts of it.

Sir Martin Sorrell: No, no, no, no, no, no, no-

Richard Kramer: And there's a different outlook for all three of them.

Sir Martin Sorrell: ... but, no, no, but don't complicate things. Let's simplify it, all right?

Richard Kramer: [laughs]

Sir Martin Sorrell: Like Will says, let's simplify it. Google did 215, probably will do 235 this year, including YouTube, which will do-

Richard Kramer: Mm-hmm.

Sir Martin Sorrell: ... more than 30 billion-

Richard Kramer: Yep.

Sir Martin Sorrell: ... which is the same for Netflix. Meta will do about a h- despite all the challenges, do about 130 versus 115 last year. Amazon will [inaudible 00:07:32] to about 41 versus 31. Alibaba and Tencent, I haven't got good data on that.

Richard Kramer: Uh, we do, but yeah-

Sir Martin Sorrell: And TikTok, TikTok ... Well, you tell me. TikTok, uh, TikTok looks as though it may be doing really v- extremely well. I mean, I saw a figure for TikTok for 2019 at 20 billion, and I've seen figures as high as 60 billion for TikTok. Apple TV, 10 billion this year, maybe? We'll see.

Richard Kramer: No, not nearly.

Sir Martin Sorrell: [inaudible 00:08:03].

Richard Kramer: Not nearly.

Sir Martin Sorrell: So what is Apple?

Richard Kramer: Well, Apple's advertising business, the search and other advertising business is about six, $7 billion.

Sir Martin Sorrell: [inaudible 00:08:12]-

Richard Kramer: Apple TV itself has almost nothing. I guess the question, thinking about going into the, you laid out a picture of, of quite a tough recession in '23 and '24, and one of the topics we like to get into on Bubble Trouble is are some of those bubbles gonna burst in that recession. Now-

Sir Martin Sorrell: The bubbles have already burst. So-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... I mean, so we had the post-COVID bubble, which bursted '22, probably people thought it was gonna last a little bit longer. People are now saying that growth that would've occurred in '22 and '23 was dragged forward into '20 and '21-

Richard Kramer: Mm-hmm.

Sir Martin Sorrell: ... with the COVID stimulus. No, I think, no, the bubbles have already burst. You know, they may have further to go, but we'll see how it all shakes out further. But no, I think the bubbles have burst. What I'm saying is that the relative growth rates of digital versus analog will be very different-

Richard Kramer: [inaudible 00:09:03]-

Sir Martin Sorrell: ... again, looking at the [inaudible 00:09:05], you say they're conflicted. I'm not sure. You know, I noticed one analyst was downgrading Apple today. I think analysts, you know, th- they're not, you say they're conflicted because they have relationships, I'm talking about analysts who don't have relationships, and looking at, as I say, the simple, unweighted average. And when you look at the weighted average, probably it would go even stronger because it's going to be Google i- in particular that will weight the average and will take it up even further. But anyway, I think the bubble is either bursting or have burst.

Richard Kramer: Wow.

Will Page: Well, from the grim economic outlook, and I wanna dig deeper into the Metaverse, but to cheer things up I wanna start with a joke, so this is what an economist in the music industry does for jokes. Martin, have you heard that amazing rapper on Spotify by the name of Pound?

Sir Martin Sorrell: No.

Will Page: He used to be called 50 Cent. Do you get it?

Sir Martin Sorrell: [laughs]

Will Page: Okay. So on to the Metaverse, on, on to brighter topics. I was amazed by watching Travis Scott perform on Fortnite, Meg Thee Stallion on AmazeVR. Of what you've seen in the foothills of the Metaverse to date, what jumps out at you as sort of noteworthy? What are the events in the Metaverse which have caught your eye?

Sir Martin Sorrell: Well, it's generally the work around healthcare, around training, around working-

Will Page: Interesting.

Sir Martin Sorrell: ... from home, around education, around sports, around entertainment, around music. I mean, our own company, just to get it in perspective, if our revenues last year were about $900 billion, and if our revenues [inaudible 00:10:35] this year to be about 1.2 billion, of the delta, of the 300 million delta, about 10%, we'll call it 30, 30 to 40 million, would've come from, or will come from Metaverse projects. So there's-

Will Page: Wow.

Sir Martin Sorrell: ... the work that we've done around the NBA and streaming their games, the Post Malone concerts that we've done, these sorts of things, you know, I think they of course work for f- what we call fashion and luxury brands, flux brands, such as Gucci, or work we've done for Roblox. These are the things that s- stand out in my mind, so the gaming, entertainment, music, fashion, luxury. But, you know, when I talk about the foothills, certainly in relation to the numbers that consultants put together, I don't think they're conflicted either, but they put together some, as you said in your briefing notes for this podcast, they put together some fairly heavy numbers in terms of potential market size.

I don't really look at that and say right or wrong or indifferent, but directionally, I think there are so many areas where the Metaverse, or virtual reality, will impact what we're doing, and I've named some of them, that I think it will have a very significant impact. What it means for us in terms of revenues ... You know, obviously at the moment, this year, probably 10% of our incremental revenues, you look at the overall, it's only three or 4%, so it's relatively small.

Will Page: Mm-hmm.

Sir Martin Sorrell: But I think it will gain traction, and people will be using it in a multiplicity of ways. Probably the training area is, the medical areas, the healthcare areas, probably two of the ones where we will see the greatest value and the greatest usage, and the greatest places where, you know, we've all wor- make the world a better place as a result.

Will Page: I kind of agree with that as well. I think the value to training, to medical care, to emergency services, to getting somebody's undivided attention is what the Metaverse can bring, and there's a price there.

Sir Martin Sorrell: Mm.

Will Page: But let's turn to the trillion dollar with, Richard.

Richard Kramer: Well, look, I guess one of the questions I've got in the recessionary framework you've laid out is will a lot of this experimental work fall by the wayside as companies are forced to go through the belt-tightening exercise that surely all of them are contemplating in their budgeting cycle for next year, or is this somehow a cost savings opportunity? Can they say, "You know what, instead of that, that company-wide event we're going to do in Croatia or Majorca or wherever, we're instead going to do this all in the Metaverse," and that will be seen as a way to not only experiment with new technologies but save costs, substantially? Is that, whi- which side do you fall on for that in terms of how this, all these new technologies are gonna develop?

Sir Martin Sorrell: When you see what happens in terms of digital transformation, when lives gets tougher, and we saw it in COVID, we saw it in 2020, the urge to or the focus on digital transformation, in our case marketing trans- digital marketing transformation, the urge to do it grows. So there's pressure inside companies for top-line growth and profitability, and people, the agents of change are given more oxygen during times of a recession, or times of economic pressure, and the resistance to change, uh, diminishes. I mean, the, the irony of our human nature is that, or the paradox is that when times are good, people don't want to change. That's precisely when it's easier to do it. It's gets more and more difficult when times get tough.

But I think next year, when there will be further pressure of the sort that you're talking about, probably digital transformation will accelerate. Certainly the evidence is such. The other thing is I make a distinction between those companies that are owner-managed, where there isn't the separation of ownership and control, and those which are manager-managed. And I think the former-

Richard Kramer: Mm-hmm.

Sir Martin Sorrell: ... and a number of tech companies, you know, they draw criticism for being controlled by, by management, but I think you can place longer-term bets.

Richard Kramer: Yeah. An- and-

Sir Martin Sorrell: You can take the longer-term view if you're owner-managed and there's no separation.

Richard Kramer: You know, it's a brilliant setup for the next question I wanted to go, to sort of switching lanes a bit, but thinking about the markets as a whole, and an area you know all too well, which is M&A or consolidation. And companies never seem to wanna buy assets, however cheap they are, when times are uncertain or tough. But, you know, what we saw in the past couple of years is they were all falling over themselves to acquire assets at spectacular prices when they thought everything was going up and to the right. I mean, you've been behind acquisition-led growth stories-

Sir Martin Sorrell: Well-

Richard Kramer: ... for a number of decades-

Sir Martin Sorrell: [inaudible 00:15:10]-

Richard Kramer: ... is M&A something that's a giant bubble, or is, is it, is it kind of-

Sir Martin Sorrell: Yeah, no, it's a, I think it's a, no it's a, it depends on who you are, and what you are, and what you're trying to do. And we've started, when I was at Saatchi's, it was a pretty small company when it started. Had big ambitions, so M&A played a, a part i- in addition to organic growth ambitions. Same for WPP when we started, I think when we started, I think on S4 too. So all of these companies, my experience started from small beginnings, have, have very great ambitions, which probably could not be served completely by organic growth rates, whenever the organic growth rate was, within their particular market. So I, I think it's a little bit [inaudible 00:15:48], you know, I mean, Adobe has made a deal recently, at eye-watering, on the p- surface, eye-watering revenue multiples, despite the fact that valuations have come back quite sharply. So I think you're being a little bit unfair, and a little bit cynical.

I mean, I think it's true that when money is easy, or where costs of capital are low, and interest rates are low, the urge to merge or the urge to acquire is probably greater, and the animal spirits are probably greater, and it takes-

Richard Kramer: Mm-hmm.

Sir Martin Sorrell: ... again, I'd draw a distinction between owner-managed and, and manager-managed. I think probably when times get tougher, owner-managed companies are probably more aggressive, because they feel they can take more risk, they feel that if they do make a mistake, they won't necessarily get kicked out or criticized over-heavily. So I think there's something in th- in what you say, but I don't think it's quite as extreme as you suggest, and I would, y- you know, private equity obviously has great advantages, being out of the public eye. But what's interesting about what's happening currently, you know, I, I noticed yesterday, Goldman launched 10 billion or close to 10 billion buyout fund.

Richard Kramer: Hm.

Sir Martin Sorrell: So in the teeth of the gale, yesterday-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... they're launching a 10 billion fund. They're not one of the biggest, we'll term assets managers, but I think they're in the top six or seven. And obviously they see this as a, you know, I saw a fund manager this morning who had been at, um, a conference yesterday, I said, "What was the mood?" The mood was, you know, things are cheap. So I think, you know-

Richard Kramer: Wow.

Sir Martin Sorrell: ... that, you know, th- it's a little bit unfair to paint everybody with that brush, but I, you know, I do think that when money is easy, people do ... You know, they are more active.

Richard Kramer: Yeah, and it's very clear from looking at the numbers, you had this incredible surge of IPOs and, we'll come on to some of the other areas of the bubbles, whether it's SPACs or, or these sor-

Sir Martin Sorrell: Well, P- Por- Porsche was IPO'd today and I think went to a-

Richard Kramer: Yep.

Sir Martin Sorrell: ... premium, so-

Richard Kramer: Yes, yes.

Sir Martin Sorrell: ... this was in the teeth of a- another gale, so, so, you know, there are exceptions that prove the rule. Maybe-

Richard Kramer: There are.

Sir Martin Sorrell: ... Porsche is a particularly unique one.

Richard Kramer: I mean, just as we head to the break, wh- when I've looked back, certainly in the last 20, 30 years of being an analyst, some of the bubbles have clearly been justified, and I think we can agree that mobile and ecommerce together were just enormous value creators, and you've obviously got [inaudible 00:18:13]-

Sir Martin Sorrell: Yeah, yeah, SPACs, SPACs or memes, you know-

Richard Kramer: [laughs]

Sir Martin Sorrell: ... was listening to a program today-

Richard Kramer: [inaudible 00:18:17]-

Sir Martin Sorrell: ... SPACs or memes [inaudible 00:18:19]. So, so-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... or have been. So, you know, those were probably the signals that ... I remember watching CNBC once, and one SPAC backer, I think it was his seventh or ninth SPAC. And I sat there looking at it thinking, "What the hell is going on here?"

Richard Kramer: Well, it's simple. Our definition on Bubble Trouble of SPACs was give me an i- give me money for an idea I haven't had yet.

Will Page: [laughs]

Sir Martin Sorrell: And which people may not be interested in.

Richard Kramer: Which, which may or may not work, but just give me the money for it and I'll see if I can find one.

Sir Martin Sorrell: They weren't actually giving you the money, you had a call on that money, but [inaudible 00:18:52]-

Richard Kramer: Placing it at your disposal.

Sir Martin Sorrell: Yeah. Pla- but it was- placing at disposal. I mean, you know, you saw the one that, it w- was it Gary Cohn had, which was a nine billion-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... SPAC, and he had his deal with the lottery company, and they, th- the, the investors said no. So despite connection, despite scale, despite what looked like an interesting company, if, from many respects, they said no.

Will Page: Let me just take it to the break. I'd say when we do these podcasts about the Metaverse, the pendulum swings from optimist to cynic, and I would conclude the first half of this one being a bit of an optimist. I think initially, Martin, your description of how the benefits of the shit to digital and the shift to the Metaverse offset the costs of the belt-tightening, but also something else you touched on as well, which is just, a dollar created in the Metaverse is a really profitable dollar. Zara Larsson, a Swedish artist that I've worked with, she made 1.4 million on Roblox. She's not the biggest artist in the world, and 1.4 million is not the biggest touring revenues in the world-

Sir Martin Sorrell: Right.

Will Page: ... but she saw all of that 1.4 million. There was no trucks, no roadies-

Sir Martin Sorrell: Yeah.

Will Page: ... no white vans with tee shirts. That was-

Sir Martin Sorrell: Yep.

Will Page: ... 1.4 million top line, and 1.4 million bottom line.

Sir Martin Sorrell: Yeah, yeah.

Will Page: So I think you've got these two forces which work in the Metaverse's favor. So we'll get back into more Metaverse troubles in part two, but thank you so much Sir Martin Sorrell for the contributions so far. Back in a moment.

Richard Kramer: Welcome back to part two of Bubble Trouble, our session with Martin Sorrell, the legendary ad man talking about everything from the Metaverse to a whole range of other bubbles. Will, do you wanna pick up a few other issues on music streaming and some of the topics you wanted to quiz Sir Martin on?

Will Page: Yeah, I wanna go down the rabbit hole in part two on something, and it's going to get a little bit technical, but what has interested me about music is for the transformation that Spotify brought to the market, for the billions of revenues, the millions and millions of catalog sales that were going on, it all gravitates towards the simple unit called a per stream. Why is a stream only worth half a cent or half a penny? Then I look at your world of advertising, you think about the transformation advertising, click per action, click per search, and all these other different metrics, all these other different mediums of getting adverts in front of people's eyes and ears, yet your world seems to gravitate towards the CPM. So-

Sir Martin Sorrell: Mm-hmm.

Will Page: ... we seem to have history, not necessarily repeating itself, but rhyming again here. But in a Metaverse, what do you think will be the units that matter as this market sort of builds itself out.

Sir Martin Sorrell: Well, y- you know, you know, we sort of touched on it at the end of the first section. I think revenue, and generating revenues, and generating sales. So it's gonna be unit volumes, and margin, I think, is gonna be more and more important. I, I mean, in the early stages, and we saw that, we've seen that with a lot of the projects that we've had. I told you the scale of it, it's relatively limited for us at the minute, although it will grow. Yeah, even the early stages, I mean, we're measuring it in those terms. And we're looking maybe in the early stages in the foothills, clients are looking for noise and PR impact. I mean, it's like [inaudible 00:22:09] NFTs. I mean, I think NFTs, expensive NFTs to me don't compute. Cheap NFTs like baseball cards do. So high volume, low unit price, I could see. But I can't see low volume, high unit price really working over, over the long term. But I think where you can get a volume opportunity, there's some interesting opportunity there.

So I think if you're saying what's the unit of measurement? I think it will be revenues and renem- revenue generated, or volumes and volumes generated. Cost per thousand may c- may become a metric that people focus on. But I think it's gonna be on revenue generation and volume generation. You know, you sa- y- the sort of work that you d- you see happening in the clothing space, you know, where you use an avatar with ecommerce to buy clothing, shoes, [inaudible 00:22:59] fashion wear, whatever. You know, I think people will look to it as revenue producing opportunity.

Will Page: Wow. Tha- if I can extend that, do you think that ... I'm fascinated by attention economics. And you talked about why TV was in trouble, because nobody knows if they're watching TV. You think about the old analogy of, did they put the kettle on during the commercial break-

Sir Martin Sorrell: Well, it's not no- nobody knows, i- it's that, you know, TV by appointment is just not-

Will Page: Yeah.

Sir Martin Sorrell: ... doesn't work anymore. So, you know, you choose, the consumer is in control, and you choose when it is your, you're gonna watch things. You know, e- even ol- an old fart like me, I know I was looking at the new series featuring Kenneth Branagh as, as Johnson, as Boris Johnson, and, you know, during COVID. And, you know, how am I gonna watch that? Well, I saw the ad on, I think it was on, actually on CNBC, if I'm right.

Will Page: Mm-hmm.

Sir Martin Sorrell: And I dow- late last night, before I went to bed, I downloaded the six episodes, and I'll see it when I want to see it. Just to give you another example, which I think is relevant to the Metaverse, actually. If you said to me, "What are our clients most worried about at the moment?" They're worried about, uh, TV frequency capping, and TV's reach. I mean, that's the biggest area. You know, they're worried about the money they waste by repeating a commercial on the same channel, to the annoyance of consumers, and to, uh, excessive cost, and at the same time, they know that the reach of that linear TV is diminishing, because younger people are watching alternative forms. It might be connected TV, over the top, whatever it happened to be. That's the biggest, that's th- I think, the biggest issue. And that is driving budgets, going back to the start of our conversation, that's driving budgets away from linear and analog to digital. And that's gonna happen with increasing frequency.

Richard Kramer: It's fascinating that the last bastion of TV by appointment, and somewhere where you've seen tremendous bubbles and inflation in rights is sports.

Sir Martin Sorrell: Correct.

Richard Kramer: Because you simply can't time shift [inaudible 00:25:07] that's at 4:00 on a Sunday.

Sir Martin Sorrell: [inaudible 00:25:08] the results. What's also interesting about it is one of the reasons for that increase in rights prices is because the new economy is prepared to engage with that content. You know, I was on the F1 board for many years, and the big debate, point of debate was, you know, should you give BBC access, where you knew-

Richard Kramer: [laughs]

Sir Martin Sorrell: ... you have millions of people watching, or should you go to Sky, who paid you more for the rights, but you had a smaller viewing-

Richard Kramer: Audience.

Sir Martin Sorrell: ... population, yeah, yeah. Now, you see what ha- has happened under Malone, or under Liberty's expansion, is really interesting now, up to, you know, when I was on the board, I think we kept the number of races at 20, and it's now up to 24 races, yet every race, obviously, adds at least 5% to your bottom line. And [inaudible 00:26:00] you know, if you could pick out cities like Las Vegas or Miami-

Richard Kramer: Hm.

Sir Martin Sorrell: ... and start to build a fanbase in the US, as they're starting to do, you know, it can become extremely lucrative.

Will Page: If I can wheel back quickly to those two issues facing linear TV-

Sir Martin Sorrell: Yeah.

Will Page: ... frequency and reach, I think there's a third-

Sir Martin Sorrell: Yep.

Will Page: ... which is distraction. That is, find me somebody under the age of 20, 25 who watches or listens to any content without a distraction.

Sir Martin Sorrell: Mm-hmm.

Will Page: And I've been developing this a lot, which is-

Sir Martin Sorrell: Well, well, yeah, no, well, y- [inaudible 00:26:32] your phobia with inten- with attention, I guess.

Will Page: So I always think in economics of a standard class carriage and a first class carriage. Do you think it's possible you'll have a standard class ad market, which hits people where there's a known distraction at present, and then there's a first class market called the Metaverse, where you can't be distracted, 'cause it's won your undivided attention?

Sir Martin Sorrell: Maybe. I mean, where we've got different classes, and it's Netflix had to make that decision, isn't it? Which is, they had to make the spot- the Spotify decision. They said, "We're not gonna be pure, we're not gonna have advertising," and then they buckled, because they saw, you know, what happened was YouTube went to 30 billion. I mean, YouTube's ad revenues hit 30 billion, which is what Netflix subscription revenues were, and I think Netflix finally realized that they could have both kingdoms if they put their mind to it, and that's what they're trying to do now.

Will Page: But they are coming from different angles. YouTube subscription numbers are also flying off the scale as well, because people are just-

Sir Martin Sorrell: Yeah.

Will Page: ... fed up skipping trials and ... So they've actually-

Sir Martin Sorrell: Yep.

Will Page: ... they've come at it from a different lens, but I would, if I had to put money on a horse, I'd put it on the horse called YouTube.

Sir Martin Sorrell: Well, uh, I, I, we can debate that, but, you know, I would put money on both horses, both the subscription model and the ad model.

Richard Kramer: Now, I wanna, I'd love to switch again to something that came up in a conversation yesterday in New York with, where I was talking to a number of premium publishers, and, you know, one of the things that we got used to in the old world was being able to find that premium content, because we knew the brands it was associated with. And, you know, these premium publishers now are worried that in a world of TikTok, in a world of algorithmic curation of what content you see, there is nothing that's premium, it's just whatever the algorithm chooses to put in front of users.

Sir Martin Sorrell: [laughs]

Richard Kramer: How do you preserve that premium for the content that is so carefully nurtured and curated and developed, in a world where the distribution might be entirely in the hands of algorithms?

Sir Martin Sorrell: Well, it- it's typical. I mean, I've always, uh, always felt that paywalls, I mean, in the orig- e- originally the paywalls were the way to go, because if you had content that consumers really valued, consumers would pay for it. They'd be willing to pay a significant premia to do it. But the answer to your question is, if it's all gonna be determined by alg- algorithms, it can be extremely difficult to maintain that premium.

Richard Kramer: Yeah, and, and it certainly would seem to have a lotta implications for the brands that you work with, how do they preserve that brand preference in a world where-

Sir Martin Sorrell: Well-

Richard Kramer: ... an algorithm-

Sir Martin Sorrell: Well, you c-

Richard Kramer: ... can shift attention towards other brands?

Sir Martin Sorrell: Well, increasingly, that's being done, y- ever since Google first announced that they were gonna deprecate third-party cookies.

Richard Kramer: Hm.

Sir Martin Sorrell: Ever since Apple made their changes around IDFA, the way the world is going, and I don't think ... The clients understand that. I mean, we've seen that heavy, heavy loading up on [inaudible 00:29:27] analytics and digital media as a result. I mean, if you're trying to develop a relationship with a consumer i- in a world where privacy is of i- of great importance, brand security's of great importance, worry about interference, political interference or whatever, first-party data and the signals from the platforms become the two sources that you have to leverage.

Richard Kramer: Hm.

Sir Martin Sorrell: So y- what you're seeing now, you a- you know, we talked about the dominance of the Big Six, as I call them, which would be Alphabet, Meta, Amazon, Tencent, Alibaba, and ByteDance or TikTok, which are the s- the six big players. If you look at what's happening with them, everything is really feeding back to them, because, uh, clients [inaudible 00:30:18] have to develop their first [inaudible 00:30:20] data sources, they have to make sure they all talk to one another, because they've grown organically or by acquisition, they've had different CTOs or CIOs who've had, employed different systems, or they bought companies, going back to your M&A binge comment, they bought companies and they haven't managed to integrate them sufficiently.

Now they have to do that. Create one, in an ideal world, one database, consented, so you, you jump the hurdle of privacy and you've got over that, that consumer concern, and you use that data, plus the signals from the platforms, to build that relationship. Now you see the retailers, you know, who are all terrified about Amazon, you see Walmart and everybody else-

Richard Kramer: Doing retail media.

Sir Martin Sorrell: ... [inaudible 00:31:01] retail media, building platforms, you know, Walmart are doing it with Microsoft, and-

Richard Kramer: [inaudible 00:31:06], yeah.

Sir Martin Sorrell: ... Walgreen Boots are doing it with Microsoft. They're building their technological capabilities to build that direct relationship. So Google was really astute in, in doing what it did on [inaudible 00:31:17]. I think a lot of people at the beginning thought it was a strange move, it was really very, a very smart move.

Richard Kramer: Yeah. I mean, wa- the way we've likened it in the case of both Google and Apple is that they have been slowly tightening their grip on signal. My analogy that I've used with investors the last days in New York, is that it's, when an anaconda catches a deer in the Amazon, it bites it and then it spends a day squeezing the breath out of it, and another day swallowing it. And that's where the slowly creeping [inaudible 00:31:45]-

Sir Martin Sorrell: Why do you have to have these analogies-

Richard Kramer: [laughs]

Sir Martin Sorrell: ... which conjure up in people's minds all sorts of dark thoughts?

Richard Kramer: Because, because-

Sir Martin Sorrell: Why can't you just, why can't you just, Richard, say it was a smart move?

Will Page: [laughs]

Richard Kramer: It was a super smart move. But because-

Sir Martin Sorrell: Why is it lethal, deadly, [inaudible 00:32:01]-

Richard Kramer: I'll tell you, Sir Martin. Because when we look at a whole coterie of stocks that we follow that are becoming the roadkill from these policy changes of Google and Apple, that they're being left by the wayside, they're being strangled by the increased control that some of these firms are able to exert over signal.

Sir Martin Sorrell: A- and you're inherently b- suggesting they're evil by doing so.

Richard Kramer: Not at all, no, they're absolutely brilliant business strategies, and the-

Sir Martin Sorrell: If what you're advising your clients is to buy Google, to buy-

Richard Kramer: Absolutely.

Sir Martin Sorrell: ... Meta, to buy-

Richard Kramer: Yep.

Sir Martin Sorrell: ... Amazon, I'm 150% in agreement.

Richard Kramer: There you go. And the two names that I would add to that list, because both of them have substantial aims in this digital advertising space, are both Apple and Microsoft, who have-

Sir Martin Sorrell: I agree with that. [inaudible 00:32:44] totally-

Richard Kramer: ... tremendous assets to bring to bear, and are putting them-

Sir Martin Sorrell: ... totally agree.

Richard Kramer: ... cleverly arranging them in place right now.

Sir Martin Sorrell: [inaudible 00:32:52] for Apple in the Metaverse, [inaudible 00:32:53] for Microsoft in the Metaverse, and all sorts of [inaudible 00:32:54]-

Richard Kramer: Absolutely.

Sir Martin Sorrell: ... I mean, Microsoft bought Activision, becomes a, a force. No, totally agree with that.

Will Page: And Sir Martin, I don't know if this little bit of trivia will help or hinder your ability to figure out what to do with TikTok, but I did a piece of work for them in February this year, about that guy who was hanging off the back of a truck, drinking a bottle of soda and singing Dreams, a Fleetwood Mac song from 1981. Now, what was interesting, there was 97.4 million views of this guy hanging out of the back of a truck, drinking a bottle of soda, and singing th- a Fleetwood Mac song. That's interesting. It's not a jaw-dropping figure by YouTube standards, but it's a big number.

What stunned me was there was 876,000 people who had gone onto TikTok to impersonate this guy hanging off the back of a truck-

Sir Martin Sorrell: [laughs]

Will Page: ... drinking a bottle of soda, and singing a Fleetwood Mac song from 1981. That was incredible. It's [laughs] there's a signal to noise ratio there for [inaudible 00:33:46] to work out.

Richard Kramer: Why don't we move to our famous section on Bubble Trouble where we ask our guests to help us do a little smoking, and ask for the smoke signals, the signs of hysteria or bubbles or problems lurking that, where you overhear terminology or metaphors that make you think twice, where you get a s- strange sense of deja vu, as we might be getting now, looking back at the dotcom boom and bust-

Sir Martin Sorrell: Yeah.

Richard Kramer: ... with some of the companies that came to the market in the last three or four years-

Sir Martin Sorrell: Yeah.

Richard Kramer: ... and are now falling, what are a couple smoke signals you've got to share with listeners of things that make you, really give you pause?

Sir Martin Sorrell: I'd be very generic about it. I, it's when you can't understand ... You know, Buffett always said, you remember when Buffett was chairman of Salomon Brothers?

Richard Kramer: Mm.

Sir Martin Sorrell: And he went through all that tr- you know, he, I think he went before Congress, and, you know, he had to apologize and everything, and he handled it brilliantly, handled it absolutely brilliantly. He'd said that when he was asking traders, you know, what their hedging strategies were, or straddle strategies, or whatever it was, he couldn't understand what they were talking about. That, he said, "If people can't explain to you in words of one syllable in a couple of sentences what they're doing, walk away from it."

Richard Kramer: [laughs]

Sir Martin Sorrell: And I guess that's what drives Charlie Munger and Warren Buffett around crypto, is that they can't, they c- ... So, you know, that's a good example. I mean, the language, you know, when you see, I won't name names, but there were a coupl- there were a couple recently who were on CNBC, who were doing a big crypto deal. And I couldn't understand a frigging word-

Richard Kramer: Right.

Sir Martin Sorrell: ... of what they were talking about. I, I don't know whether they did. I only hope for their sakes that they did, but I couldn't understand it. So I think the answer to your question is, though, is that when the language becomes so convoluted or so difficult to follow, I think that's when the warning signs go up.

Richard Kramer: I take it you didn't take a video of that CNBC appearance and create an NFT out of it.

Sir Martin Sorrell: No I did not.

Will Page: [laughs]

Sir Martin Sorrell: I did not, I did not. I did not. We're, we're, it'll be very interesting to see how that shakes out, that the only ... Maybe these people do understand what they're talking about. But I think when you can't explain simply what it is you're trying to do, I think it's a problem. That's when the BS indicator starts to flash.

Richard Kramer: And do you have another one heading into, into what is clearly gonna be a very difficult period from the economy, from, we've all watched the pound collapse, as well as the Euro, relative to the dollar.

Sir Martin Sorrell: Well, you know, ou- our pri- our, our, our prime minister is now using the phrase, "I'm decisive, I make hard decisions." Decisive, hard decisions. That is the cover for unplanned, uninformed decision making. Now, I, you, which you cover off ill-thought through thinking by saying, "I'm making hard decisions and I'm decisive." I mean, sometimes, i- it may well be better to delay a decision. I would say that's, you know, less, less so than, you know, it's better, I think, to make quick decisions, but there are circumstances where making decisions, you know, postponing them. I mean, for example, last Friday's decision would, I think, by the chancellor would've been better delayed. Not on the energy front, not, not helping people with their energy bills, but the longer-term thing, you know, cutting taxes, reducing regulation, with which I philosophically agree, would've been better-postponed until they'd worked through the numbers, and had an OBR, you know, the Office of Budget Responsibility, which is our independent analyst, like you, who's meant to opine on the, the fiscal implications of the government's strategy.

So, you know, I think what, you know, making decision for the sake of making a decision, and saying, "I'm being hard and decisive," is not a justification. These things impact [inaudible 00:37:52] people's lives so deeply that they've really gotta be thought through. And, you know, not, again, saying, you know, philosophically, you're committed to reducing taxes, fine, reducing regulation is fine, but the implications are so huge, particularly when, you know, we've been spending so much money post-COVID, with the energy crisis, with the Ukraine War, with everything else that's had to be dealt with, I mean, it, it needs careful, modulated thinking.

Will Page: Yeah, that's [inaudible 00:38:19]-

Richard Kramer: Indeed, it almost seems like the sort of TikTok, the meme stockization of political decision making.

Sir Martin Sorrell: We're going into our own planning season ...

Richard Kramer: Yeah.

Sir Martin Sorrell: Our three-year planning season at S4. We're, we'll then develop our budgets from that. But, you know, we've got to do it in a planned and ordered way. So I think that's the, as we go into a difficult economic period, pa- planning is gonna be r- and I think th- this is an important point, I think given what the world faces, which is different to what we've faced for the last 50 years, as we try and expand our company and e- or anybody else's, you, we're gonna have to be highly selective about where we do I guess geographically. Because the geographical growth rates are gonna vary very significantly from one region or country-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... to another. 'Cause we will see different systems. And then the second thing is, you have to choose where you fight your battles. You know, where we started. Digital rather than-

Richard Kramer: Yeah.

Sir Martin Sorrell: ... manual. You know, within digital, there are gonna be some areas, maybe down the funnel, in the next couple of years, which are gonna be more potent than the upper funnel stuff. So I think, you know, where we talked about the data and analytics and the need for first-party data, and, and the use of the signals, all these things mean that ... You know, in the ol- i- in the last 50 years, it didn't matter where you went, wherever you planted your flag, as, as long as the demographics were reasonably good, you won. Because of, you know, it's [inaudible 00:39:43], it's globalization. I'm not saying that globalization is gone completely, but it's gonna be much more nuanced, you know, with Taiwan, with Ukraine, with Iran. You know, [inaudible 00:39:55] from climate change, and inflation, and interest rates, and everything else that we have to deal with, it's gonna have to be much more selective, and it's not going to be as global, I think, as it was before.

I mean, you look at Apple building, making phones in India. You look at Foxconn changing its supply chain to Vietnam. I mean, all these things are straws in that wind.

Will Page: As we close this one off, well, firstly Sir Martin, thank you so much for your precious time. But what I-

Sir Martin Sorrell: Pleasure.

Will Page: ... am definitely feeling from this podcast is the adaptability of digital versus the inadaptable of linear broadcast, and that [inaudible 00:40:35]-

Sir Martin Sorrell: The agility. Well, well, well, no, that's really important point, because-

Will Page: Yeah.

Sir Martin Sorrell: ... clients have had, in a 24/7 always on world, they have to take back control.

Will Page: Yeah.

Sir Martin Sorrell: I mean, it may sound strange for an a- advertising agent to say that, but, you know, we have three models. The in-house model, the embedded model, where we put people into a client, and the outsource model. A- the irony about a recession is it probably forces more people to the outsource model, but in-housing and embedded models are far more important in a 24/7 always on environment. They have to have the control.

Will Page: Yeah.

Sir Martin Sorrell: You know, so like a political campaign, right? In the old days, you'd use TV and press and whatever. You don't do that anymore. You'd use highly targeted, analytical, you pump out messages, you see what the response is, you see the change in attitude, and I think that's what we're doing. Or trying to do.

Will Page: Yeah. A- a- an old advertising industry, which is throw everything at the wall and see what sticks, that was-

Sir Martin Sorrell: Yeah.

Will Page: ... not recession-proof, and that would not get us-

Sir Martin Sorrell: That's right, that's right.

Will Page: ... to the, off the foothills of the Metaverse-

Sir Martin Sorrell: That's right.

Will Page: ... in this new world-

Sir Martin Sorrell: That's right.

Will Page: ... we know what we're throwing, and we know that it's gonna stick. And I think that is recession-proof, and will get us towards the Metaverse.

Sir Martin Sorrell: Yeah, yeah.

Will Page: So Martin, you're the biggest guest to date, this has been the best podcast to date, and I'm not just saying that. This has been fantastic, we are are very, [inaudible 00:41:47]-

Sir Martin Sorrell: Oh, you're full o- you should be in advertising. [laughs]

Will Page: [laughs] Well, this has been brilliant, and learnt so much about economics as well as advertising, too. So my thanks to Richard Kramer-

Richard Kramer: [inaudible 00:41:57]-

Will Page: ... my cohost, and Sir Martin for being such a wonderful guest. Thank you so much.

Sir Martin Sorrell: Thanks Richard, thanks Will.

Richard Kramer: Thanks, thanks.

Sir Martin Sorrell: Thank you.

Richard Kramer: If you're new to Bubble Trouble, we hope you'll follow the show wherever you listen to podcasts. Bubble Trouble is produced by Eric Nuzzam, Jesse Baker, and Julia Gnat at Magnificent Noise. You can learn more at bubbletroublepodcast.com. Will Page and I will see you next time.