Sorrell and MediaMonks lift lid on S4 Capital's ambitions

Sir Martin Sorrell and Victor Knaap offered lots of clues about S4 Capital’s future when they spoke at Campaign’s exclusive Breakfast Briefing event in London Tuesday.

Sorrell, the S4 Capital executive chairman, and Knaap, chief executive of content production company MediaMonks, said moving into digital media planning and buying, particularly performance marketing, was a priority.

Sorrell said S4 Capital, which he founded in May, will help clients if they want to bring some services "in-house" and it is essential that all parts of the group function as a "unitary" company, rather than being separate units—in contrast to how he ran WPP from 1985 until April 2018.

Knaap said clients need to start by thinking about creating always-on, personalised content and a better customer experience, rather than a "big idea" and 30-second TV spots.

He showed a video that featured some of MediaMonks' work:

Sorrell also spoke about his time as chief executive of WPP, how he nearly sold the business to Warren Buffett in 2012 but couldn’t agree a price and how "the best form of revenge would be building a significant and successful new-era, new-format, new-approach agency" at S4 Capital.

These were the highlights of the discussion about S4 Capital at Campaign’s Breakfast Briefing, "Back to the Future: When Sorrell Met MediaMonks", in association with Results International at Curzon Soho in London.

Brands need to focus on 'always-on layer'

Knaap said: "If you look at creative spend and media spend, our true belief is you have to fix the personalised, always-on layer first."

He maintained that too many "big agency RFIs are around the big idea", although he insisted: "It’s not that I don’t respect the big idea."

MediaMonks works closely with leading agencies such as Wieden & Kennedy and Bartle Bogle Hegarty on big brand campaigns, Knaap pointed out.

However, he said: "The reality is, to run a brand machine and to do brand-building and do [sales] conversion in one go and to run ecommerce, you have to fix that [always-on] layer.

"You can’t start with [traditional] 60-second or 30-second ads. One of the things that you aren’t allowed to say in our company is ‘cut down’," explaining that six- or 10-second ads should be created in their own right, not cut down from a longer film as an afterthought. "Who said you should ‘cut it down’?"

Knaap summed up MediaMonks’ approach as: "How can you tell the best creative story across all platforms?"

Sorrell added that brands want fewer "big set pieces" and "in-between there is a lot of work" creating always-on content.

"It has to better faster and—I won’t use the word cheaper—it has to be efficient," Sorrell said. "Agencies probably haven’t responded fast enough."

Newer agency organisations such as MediaMonks are "very different" with "different structures", according to Sorrell, who explained they are "much slimmer and leaner" for an "always-on environment".

He said: "The nearest equivalent to my mind is a political campaign. They [brands] must be much quicker and much more proactive and reactive."

Knaap, whose company talked to a number of consulting giants during the sale process, said: "I do believe that in the end what a lot of the consultancies and agencies forget is it’s about user interaction, it’s about customer experience.

"What we try to do is build a company up from there. We know and make interactions that people actually do. We understand how you need to create content across all these different screens that people interact with."

He contrasted MediaMonks’ investment in production talent in major cities around the world with how some IT and consulting giants employ "10,000 people in India" to execute it.

"Our heroes are designers, UX, front-end developers, AI specialists," Knaap said. "It’s not that we built a production company because we saw money flowing out of our [traditional ad] agency."

Digital media planning and buying is key area of focus

Sorrell said "our first move" in media buying is likely to be an acquisition in the digital and programmatic space—"that’s where the biggest opportunity is".

Knaap said the acquisition will "probably" be a more "performance-based" agency, although "our true belief is there is no difference between brand-building and performance".

He said MediaMonks has learned from "modern" clients such as Netflix, for which it has been creating one campaign a week for the past five years, and Amazon and Google.

"They don’t have a siloed approach that [traditional] big brands have," Knaap said, referring to divisions such as brand versus performance and digital versus offline. "Brands need to change, especially FMCGs."

Sorrell played down the importance of scale in media buying, even though he noted how it has been a benefit for WPP’s Group M, the world’s biggest media buyer.

"Scale is important," he conceded, but he suggested "you can make entries at reasonable cost" in the digital and programmatic world, adding: "It won’t get you the scale of Publicis or WPP, but it will get you in."

Taking 'royalty' on growth of tech platforms

Sorrell recalled how Buffett invested in listed companies such as Interpublic and Ogilvy in the 1980s because he regarded them as "royalties on the growth of US companies".

For example, when Procter & Gamble was building Pampers, it needed to invest in advertising and "blasted away" until it hit its sales targets, Sorrell said.

"What S4 Capital is is a royalty on the growth of the major platforms" such as Google, Facebook, Amazon, Apple, Microsoft, Tencent and Alibaba, which are all increasing revenues at a rapid rate, Sorrell explained.

He pointed out MediaMonks’ recent revenue growth compares favourably with Facebook’s latest quarterly growth of 33%.

"At MediaMonks, we are achieving that—from a smaller base, obviously," he said. "I wish we had that when I was at WPP."

A 'unitary' company

Sorrell said that during M&A talks with potential target companies, "it’s been really critically important that they are prepared to accept complete unity".

If S4 Capital acquires a media agency, its leaders will likely join the board alongside Sorrell, Knaap, MediaMonks co-founder Wesley ter Haar and a couple of non-executive directors.

S4 Capital will not run its companies "as separate units" and it will be "very different" from WPP, according to Sorrell. Each company at WPP has "its own budgets" and "its own incentive systems", he pointed out.

Sorrell believes the direction of travel for all agencies is towards a unitary model. "All six holding companies are moving to be one firm," he said, referring to WPP, Publicis Groupe, Omnicom, Interpublic, Dentsu and Havas.

"Clients want the best people only" and "they don’t give a cuss" about individual agency brands, according to Sorrell. It’s better for a client to have access to 130,000 people at WPP than, say, 20,000 at Ogilvy, he suggested.

"We care about agency brands," Sorrell said, referring to people working inside the ad industry, but he suggested that they needed to look forward, rather than "in the rearview mirror".

His only caveat was that he felt Publicis has been "moving too fast" and "destroying brands".

Omnicom stands at the other end of spectrum, while Dentsu is "probably best positioned" with its mix of media, data and digital, according to Sorrell.

He conceded that he has changed his tune since his days running WPP, when the group had many individual units and P&Ls, but he noted: "Consistency is the hobgoblin of small-mindedness."

S4 Capital will help if clients want to 'in-house' marketing services

"If a client believes in-housing is the right thing to do, we will work to facilitate it and implement it," Sorrell said. "We won’t have a religious principle against [helping brands to take services] in-house."

That said, he warned: "Philosophically, it’s very different for clients [to organise themselves in-house] to keep up to date and maintain talent.

"The big question is: what’s the proportion of what’s in-house [and what’s left to the external agency]?"

Knaap does not expect MediaMonks to embed a lot of staff in clients’ offices, saying: "I don’t believe in the model that you have to shift all your model inside the client premises."

He added that MediaMonks staff like working together—for example, junior designers learning from a senior designer—and on a range of different brands.

"You need to create an atmosphere where talented people want to work," Knaap said, warning against too much "co-location" with clients.

From peanut to coconut to coco de mer

Sorrell has previously said S4 Capital began as a "peanut" and became a "coconut". Now he describes the group as like a coco de mer—an immense nut that grows on a palm tree.

He admitted some of S4 Capital’s prospects could depend on scale. "The good news is we have a clean sheet of paper," he said. "The bad news is we have a clean sheet of paper."

While he admitted "I miss the scale" of WPP, he said of S4 Capital: "I think we can get sufficient scale."

Sorrell hopes the business can more than double from its current size in the near future. "I’d like to see the company at around $300m of revenue and $40-50m of Ebitda in fairly quick time," he said.

The senior management of S4 Capital will receive 15% of the growth in value of the company if it grows at a 6% compound rate over the next five years.

However, Sorrell, who grew WPP from virtually nothing to £24bn in 30 years, wouldn’t be drawn on how much S4 Capital might grow.

"It would be very dangerous to respond to that—other than to say the three areas we’re focused on are content, media planning and buying and data," Sorrell said.

James Thompson, the new chief beauty and brand officer of Avon and former chief marketing officer of Diageo North America, who also spoke later at the breakfast, said he felt "most clients have been experimenting for some time" with their marketing and agency models.

Thompson, who was talking in a personal capacity as he had only just started at Avon, felt the agency model has been suffering from the "disaggregation of creative services and marketing services" with too many specialisms and silos.

He said S4 Capital’s one P&L operating model is "encouraging" but he raised questions about an "always-on" strategy, which he has found as a CMO was "very effective" but only "got us so far".

Brands still need "big, creative ideas" and reach to recruit new customers, according to Thompson.

He agreed with "two-thirds" of what Knaap said about brands putting down an always-on layer first and warned: "I don’t think the big idea is given enough weight."

(This article first appeared on CampaignLive.co.uk)