MARTIN Sorrell tends to paint the big picture when he talks...

MARTIN Sorrell tends to paint the big picture when he talks about the future of media, advertising and the broader economy, and right now he quite likes the way Australia fits into that picture.

The world's most famous and most successful advertising man sees western Europe declining, China regaining the relative economic power it enjoyed two centuries ago and the US being too flexible and resourceful to write off.

A global economic recovery is some time off and when it does come it is likely to be anaemic, he warns, and in the meantime there will be plenty of pain and dislocation for the media and communications industries.

But in an interview in London with Media, the 64-year-old Englishman who has built WPP into one of the world's most powerful advertising and communication businesses, said he bracketed Australia with the fast-rising "emerging" economies rather than the hidebound industrial and political systems typified by western Europe.

Doing business in Australia in 2009 is tough, he says, "but Australia is increasingly looking northwards, and New Zealand too -- which I think is the right way to think about things -- rather than to western Europe.

"In the future I think Australia and New Zealand will benefit significantly."

Sir Martin took over Wire Plastic Products, a British manufacturer of wire shopping baskets, in 1985 and turned it into a $12billion communications services giant with major brands such as JWT, Ogilvy&Mather Worldwide, Burson-Marsteller and Hill&Knowlton across advertising, public relations, media investment management, and specialist communications services.

Clients include about 350 of the Fortune Global 500, most of the NASDAQ 100 and more than 30 of the Fortune e-50.

Asked to sketch his vision of the future, Sir Martin says he wants the firm to shift its focus further into digital media and to prepare for what he sees as an inevitable consolidation of ownership in an increasingly fragmented media landscape.

But he insists that all of those goals must be seen in the right geopolitical context.

So when he plots the future of WPP's $US15bn-a-year ($18.4bn) operations, which employ 115,000 people in 106 countries, Sir Martin divides the world into three sectors: the US and western Europe, which each account for about 37 per cent of WPP's turnover, and the rest of the world, which makes up 26 per cent of the business.

His grand plan is to see WPP's operations in that third sector, which he calls "Asia, Latin America, Africa and the Middle East and central and eastern European regions", grow in the next few years to be a full third of the firm's operations alongside the US and western Europe, and he sees Australia as part of that dynamic third sector.

"We are very focused on Australia and New Zealand as a growth market," he said.

"There seem to be two economies in Australia. One, the commodity-driven economy which does well when commodity prices are strong and the reverse when commodity prices are weak, and the other, the 'real economy' -- if I can put it like that -- which is under pressure, like many western markets and parts of Asia at the moment."

But, crucially, he thinks the industry and policy settings in Australia are on the right side of a long-term shift in global economic power.

The fast emerging economies led by China, India, Brazil and Russia made up 40-50 per cent of world economic power in the early 19th century and Sir Martin believes they will regain that clout in the next few decades.

"This is an unstoppable, irreversible trend in political, economic and social power," he says, and the best that any nation or business can do is to position itself to take advantage of that process.

WPP has recently ploughed another $16m into its Australian operations by taking part in a rights issue by Sydney-based STW Communications Group to protect its position as the largest shareholder in Australia's biggest publicly listed marketing and communications group, and he is positive about his firm's medium- to long-term prospects in Australia.

"We're very comfortable with our long-term minority stake in STW and we're focused on how the management will improve the prospects and results of the business," he said.

"We're happy with our position in Australia and New Zealand. It's a strong one and it continues to grow overall, although we're concerned obviously about the current economic issues and concerned to explore the opportunity of the impact of digital on traditional media. As a result we are expanding our digital offer considerably, not only in Australia but throughout the world.

"Digital now accounts for about 25 per cent of our business and the objective is for it to be about a third."

And Australia and Britain were among many countries where governments would have to allow further concentration of media ownership to help traditional media operators survive, he said.

"Magazine titles and newspapers are dropping like flies in various parts of the world and this is as a direct result of the perfect storm -- a structural change and cyclical change at the same time," Sir Martin said.

"I think that in the UK, for example, in regional press, the pressure on companies like Johnston Press and Northcliffe means that consolidation is inevitable. If consolidation isn't allowed by the Competition Commission or others, we will see further failure of companies.

"There will be more concentration because there is more fragmentation" of markets by new forms of media "and on the online side there is tremendous volatility, so what is here today may be gone tomorrow."

Rupert Murdoch, whose media empire includes The Australian, had already warned that newspapers would eventually be delivered primarily in a digital form, Sir Martin said.

"I don't think newspapers will disappear; I think there will surely be newspapers around in 10 years. But I do think Rupert is right. Just like it is dangerous to argue with the Americans (about economic flexibility), it is dangerous to argue with Rupert.

"He does get it right. He has a tremendous abiding passion for particularly the printed media but he does see the industry, in my view, in the right way. He sees it as being a communications industry; he doesn't see it as being a newspaper industry."

That is why Murdoch was active in so many different forms of media and could move to wherever there were the strongest growth prospects, Sir Martin said. "I do believe that the online media model will only be successful if it's a mixture of advertising revenues and subscription revenues. We said this from the very beginning, going back many, many years," he said.

"And it's just interesting that far-sighted people like Rupert Murdoch are continuing to charge subscriptions where they can and increasing cover prices, and looking for content that consumers are willing to pay for. That's the critical issue."

Sir Martin said he believed sites such as MySpace and YouTube had significant earning potential because, rather than being social networking sites, "in a sense they are more video-driven sites which allow greater opportunity for developing advertising revenues".

"I think sites like Facebook and Twitter are more social networking sites, where the advertising revenue potential is more limited and more restricted. We've seen cases, even in the case of Facebook, where (founder) Mark Zuckerberg -- who must be the person on the planet who knows most about social networking -- has made one or two mistakes by trying to commercialise too much."

Twitter had generated "a lot of noise (but) where is the cashflow?"Sir Martin asked.

"It is all very sexy stuff but there is a lot of sorting out to be done and a lot of volatility and a lot will not be here in the future."

Sir Martin said he was determined to see new media rise from being a quarter to about a third of WPP's turnover, and he particularly wanted to see it grow in new forms of video communications, which he described as "probably the most revolutionary and most significant of the new media developments.

"It will probably dwarf what we saw from the personal computer and what we saw from mobile (devices) in terms of its impact on the media," he said.

Warning that there were no signs of a broad economic recovery any time soon, he said, "I think there will be a recovery of sorts next year.

"I think the initial signs of recovery will not come from the West, they will come from the East -- they will come from China.

"The interesting thing about March and April -- and I haven't seen the country breakdowns for May -- was that China did flip up quite considerably in April. We saw a 25 per cent increase in our media business in China. I think the stimulus (of government spending) will work first in China and the positive signs will be from China."

While the US remained a remarkably flexible and resilient economy, "I am very bearish on western Europe".

"The problem in the west is we spent too much, borrowed too much and ironically we are being asked to spend and borrow our way out of it again, which is not the best way," Sir Martin said.


http://www.theaustralian.news.com.au/story/0,24897,25668048-7582,00.html