Why ad agency goliath WPP invests in TV shows, not just the commercials

ADVERTISING/TV: UK-based advertising behemoth WPP has seen the portal that opens into the industry’s future. And, CEO Sir Martin Sorrell says, the key unlocking that gateway is investment in TV and related intellectual properties (IP).

Sorrell (pictured above) disclosed that WPP, the world’s largest advertising conglomerate by revenue, has spent more than US$300m on stakes in companies that produce, distribute and fund entertainment for TV and online video networks.

Speaking during a media briefing to members of London’s Broadcasting Press Guild, he said: “We started to invest in content many years ago and we are going to increase our investment in content globally.”

Its investments in TV IP and related content are made mostly via GroupM Entertainment, a division of WPP’s global media-buying network GroupM.

But Sorrell emphasised that the strategy is not about native advertising or branded content for marketing clients at WPP, which is listed on the London Stock Exchange and the US’ NASDAQ. He still owns a reported 1.43% stake said to be worth £290m (US$431m).

Instead, he argued, understanding how to access the right content is essential in a rapidly fragmenting global media sector where social-networks operator Facebook and search-engine behemoth Google are “media owners”, and where young digital natives known as Millennials are being joined by Centennials, an even younger set of influential consumers.

The following are some of WPP’s current TV, film and entertainment investments:-

* In 2005, WPP invested in the Oscar-winning US independent production studio/distributor The Weinstein Company [The King’s Speech (2010); The Artist (2011); Silver Linings Playbook (2012); The Butler (2013); The Imitation Game (2014)].

* In 2007, the conglomerate acquired a 6.8% share in Media Rights Capital (MRC), an independent Hollywood studio and investment company based in Beverly Hills [Emmy Award-winning House of Cards; and movies like Bruno (2009)22 Jump Street (2014)Fast & Furious 7 (2015)]. MRC’s value grew last year when a consortium including Guggenheim Partners acquired a minority stake for US$240m.

* In 2013, WPP invested in YouTube multi-channel network Fullscreen. The Chernin Group and US telecoms giant AT&T jointly bought Fullscreen in September last year, but WPP has retained a strategic stake.

* WPP holds 17.1% of Spanish media conglomerate Imagina (majority-owned by Mediapro and Globomedia Group), which controls the rights to Spain’s La Liga football league and owns a production division that has worked on Woody Allen movies like Midnight in Paris (2011) and Vicky Cristina Barcelona (2008).

* WPP was an early investor in VICE Media, currently the darling of the YouTube multi-channel network universe. When A+E Networks, a joint venture of The Walt Disney Company and Hearst Corporation, paid US$250m for 10% of VICE last year, the value of WPP’s stake rose to about US$300m.

* In May last year, WPP contributed to the US$350m raised for a US dollar-denominated fund called China Media Capital (CMC), a state-backed private equity venture.

* Shanghai Media Group (the state-owned media and entertainment conglomerate and China’s second largest after CCTV), CMC Capital Partners, Warner Bros, RatPac-Dune Entertainment and WPP recently formed the CMC Creative Fund to focus on film, TV and live entertainment for the Chinese market.

WPP’s strategy is not limited to financing but also to forming strategic partnerships with international content owners and creators. The company has about 300 such partners, which include TV production groups Shine Entertainment and FremantleMedia, as well as the NASDAQ-listed electronic dance music operation SFX Entertainment.

Sorrell’s approach to IP investment has not hurt WPP’s core business of placing ads and marketing in the most relevant media environment for clients.

Earnings have grown steadily since 2011 with the corporation reporting £937m in 2013, a 14% jump from the previous year. Earnings also grew 23% at constant currency exchange rates to £1.15bn in 2014. In 2014, net debt amounted to £2.275bn, £21m less compared to 2013.

Meanwhile, WPP’s market capitalisation has grown to US$31.25bn in March 2015 from US$11.18 in 2010.

WPP’s agencies, such as Ogilvy & Mather, Y&R and JWT, have access to US$75bn to spend on media. Via another subsidiary Xaxis, the group is also hiking its expertise in online media buying.

“We manage that on behalf of clients,” Sorrell explained. “We try to maximise the ROI (return on investment) for them. We decide what media to use and see which is the most effective and whether we are spending the right amount on it.”

However, since the spectacular collapse of investment bank Lehman Brothers in 2008 (the largest bankruptcy filed in US history), marketers have been cautious. The pressure to justify what ad agencies do with their money is increasing.

You can see why ad agency companies like WPP would seek to diversify by investing in video media IP. Accountancy giant PricewaterhouseCoopers (PwC) predicts TV will remain the most powerful advertising medium in the next five years.

Global TV advertising (via terrestrial networks, cable-and-satellite services, online and mobile platforms) will grow at an average annual rate of 5.5%, PwC says. And there is an industry consensus that TV will account for 40% of total global ads.

Sorrell is going with the flow: “If you look at all the screens, that proportion will still be the same in 2020 because online-only media is still highly fragmented and therefore difficult to assess.”

Sir Martin was speaking at a Broadcasting Press Guild media briefing in London on 25 March 2015.