Even in tough times, far sighted Cos continue long term investments in tech: Mark Read
“I’m in the office for the second time since March and we’re 10 of us in a building meant for 10,000 people,” WPP CEO Mark Read’s words reflect the reality of offices reopening and operating in the new normal. In his conversation with Sudhanshu Vats, Managing Director & Chief Executive Officer, Essel Propack Ltd, on Day 1 of FICCI Frames 2020, Read spoke about how ‘Technology can help Media and Entertainment take the Next Leap’.
Read shared global economy forecasts from JP Morgan that projected a 4.0 per cent decline the global economy in 2020, which was projected to grow to 5.1 per cent in 2021, which at a macro level was encouraging. There is a similar pattern in developed markets like the US and China continues to grow at 2 per cent despite the pandemic. “UK, where I am, is one of the worst affected economies at a 9 per cent decline this year, and only 7 per cent pick-up next year. So, in 2021, we’re still at a decline compared to last year (2019),” he observed.
According to Read, Q2 of 2020 appears to be the worst impacted quarter by COVID-19. He, however, expected the market to bounce back in Q3, saying, “Some people think Q3 might show the strongest economic acceleration on record. However, I believe that this will be a more gradual recovery.”
Media and Consumer behaviour
Talking about the performance of various sectors, Read said, “Consumer goods, Healthcare and Technology, which form about 54 per cent of WPP’s revenues, have been relatively resilient. On the other end you have Luxury, Travel & Tourism and Automotive sectors, which have been significantly impacted. As we bounce back, we may see a differential in terms of growth by sectors.”
Speaking about the impact on media, he observed, “Traditional media like broadcast and print have clearly been impacted. Cinema and OOH, for obvious reasons, have been the worst affected. TV viewing is up by 40-80 per cent and local news viewing, even in India, has doubled over the last few months.”
COVID-19 has led to the acceleration in the adoption of technology and digital media. He recalled, “The 2008-09 financial crisis had led to a massive decline in newspaper advertising and a big decline in readership and subscription, and that spend never came back. As our clients get used to driving demand via digital channels, they are not going to go back to traditional media.”
Technology stocks in the US have gone up during the pandemic as investors predict long term growth trends in this sector. Sudhanshu Vats here asked whether there is a divergence in the markets and economy, where markets are doing relatively well compared to the economy which has tanked.
The valuations of most companies are usually 10 times their earnings, explained Reads, as analysts forecast a company's earnings 10 years down the line. Even if a company takes a hit in revenues because of the pandemic, it is still 1 out of 10. Financial experts see this crisis merely as a blip and expect most companies to power through this tough time. This might explain some of the positivity around market sentiment, surmised Read.
He added, “There is a feeling that support from Central Banks, particularly in the US, and Governments has been so substantial that businesses will come out even stronger on the other side.”
Read observed that the level of corporate failure during the pandemic has not been substantial because of Government funding and liquidity. The real question he believes is – how to get off the drip of economic relief?
The discussion then moved to the subject of live sports. Read opined, “I don’t think passion for sports will diminish in one year of absence. I have seen merit in the trend that e-sports will grow, but then again that was an acceleration of a trend that was already taking place.”
Speaking about Indian Premier League and other big sporting events, he further said, “I have no doubt that the IPL will return. Here in the UK, we’ve seen the return of football matches without spectators and it's perfectly possible. While it is not the same experience for regular fans, we’ve seen people do fun things to make it interesting, such as ‘remote cheering’ and putting their photos in the stadium. We have to see how the Tokyo Olympics gets back next year; it is not clear whether the games can take place without a vaccine.”
View on India
According to Read, India was one of the countries that has seen the most severe reaction to COVID-19 in terms of ad spends. AdEx saw a decline of 82 per cent in April 2020, which recovered to 65 per cent in May and further to 50 per cent in June 2020. “If you compare it to the UK, TV ad spends were down by 40-50 per cent at the height of the pandemic,” he remarked.
The Indian consumer has followed the global trends, with increase in time spent online on activities like online shopping, food delivery. There has been increased spending on consumer staples and less spending on large discretionary items and alcoholic drinks. He opined, “India will follow, what I’d like to call, a ‘React, Recover and Renew model’ and it is already in the recover/ renew phase.”
Amused, he observed that globally and in India 36 per cent of the consumers wanted to get their hair cut once the lockdown ended. “They will be ready to hail a taxi in three months and buy a computer in six months – these are some of the things that people want to do. What they don’t expect to do is go to a restaurant, go to the movies and undertake domestic or international air travel anytime soon,” he added.
Read further said, “We saw tremendous anxiety at the beginning of the pandemic. 96 per cent of Indians were concerned that they would be worse off. However, that anxiety has been declining.”
“This has been the period of greatest reflection in human history, so people want to lead healthier lifestyles, exercise more and spend more time with their families,” he noted.
Another big shift in consumer behaviour has been the preference for “trusted” or “Indian” brands. “There will be an immediate recovery in personal cleaning, health, personal grooming and beverages sectors, while recovery of aspects like holidays, luxury goods and vehicle purchases will be quite delayed,” he added.
New Growth Opportunities
The biggest shift during the pandemic has been that all business sectors have shifted some part of their business online, whether it is online education, work, shopping, etc. Read said, “The fact that we are running WPP out of our offices and at home speaks about the potential growth opportunities that can be unlocked via online.”
He believed that companies and Governments will have to focus on revival by unlocking new growth opportunities as lockdown restrictions are lifted.
He observed, “When we all open our offices, most of us will be utilising office space at 70-80 per cent capacity. In the short term, the 30 per cent will be taken up by social distancing, but in the long term there is a big implication for office space, especially in developed markets like the UK and the US. When unlock happens, 1 out of 5 retailers are not expected to reopen, so the question is how do you repurpose high streets and shopping malls? Do you convert them into accommodation or different types of space?”
“With the merger of JWT and Wunderman Thompson, we wanted to combine analog and digital and organise media around clients and ideas, and help them understand how they can put technology at the heart of their business” he said.
Clients will face complex problems in the new normal, like how to bring back airline travel with decreased demand for a 3-5 period. “There are implications for size and space in aeroplanes, yesterday, we heard Boeing announce that they will stop making 747s” highlights Read.
Further adding, “Luxury brands will have to ask themselves, do you really need a face to face experience to have a luxury experience. I would argue, the fact that they really haven’t been able to sell in the last 3-4 months will push them to contemplate what is an online luxury experience? What elements of physical and digital do they combine? Luxury retail in the new normal will probably not be a digital only experience.”
“Companies will have to think and invest more in technology. Interestingly, what we haven’t seen, is companies cut back on big technology transformation. In fact, even when times are difficult, far sighted companies are taking long term decisions to invest in technology, and rethink their footprint. These were tough decisions that they should have taken a while ago, but not something they can avoid today” he concludes.