Behind the business: Sir Martin Sorrell

If the weather was like the advertising market, the advice would be to put on your wellies and open up a strong umbrella. We are in the midst of a veritable hailstorm.

And the UK company that will be worst hit? That'll be ITV, according to Sir Martin Sorrell, head of WPP, the world's biggest advertising and marketing services conglomerate.

WPP is home to brands including Ogilvy and JWT and most recently TNS, the market research group that WPP bought last month after a bitter battle.

According to Sorrell, ITV looks the most vulnerable of the UK broadcasters because it is a “one-trick pony” without a bigger parent company (Five has RTL and BSkyB has News Corp) or a guaranteed income (as does the BBC and to some extent Channel 4): “If you are a one-country, one-media company you are in trouble,” he says.

Speaking to an Royal Television Society audience last week, Sorrell said the current downturn was particularly bad if your media business is limited to western industrialised countries such as the UK.

The growth there is at the moment is coming from emerging economic giants like China and India, he says.

“China has got the manufacturing T-shirt and it is already preparing for the next phase, which is to encourage service-based businesses.”

WPP is already well established in emerging economies, with some 25% of its business being generated there.

The other growth driver that Sorrell sees as a mitigating force to the current economic downturn is digital advertising, particularly in a country like the UK, where it is set to overtake total TV advertising next year.

But getting the digital equation right is tough for companies like ITV. “Very few of the traditional media companies have been able to do digital effectively,” particularly when it comes to making money, he says.

The problem is that the web, mobile and other digital communications platforms have undermined the traditional business models faster than the digital models can be ramped up.

“Traditional media businesses will not reproduce the profitability they had in the traditional media in digital,” says Sorrell, and that is hard for traditional media companies to get their heads around.

And as for calling Google a “parasite” - as both ITV and Channel 4 have been doing lately - Sorrell says that is missing the point. “Google has market share and everyone else is envious.”

The good news for traditional media is that pricing pressure across the board in the coming months may make new media more expensive than free-to-air and print advertising, and that could throw up opportunities.

So what is Sorrell's recipe for media companies looking to ride out the recession? In a word, it's diversification, both geographically and by business segment.

This is an approach that Rupert Murdoch seems to understand, says Sorrell. For example, BSkyB has moved beyond pay TV into broadband. For ITV this means continuing to invest in content even in these difficult times.

Sorrell predicts that the sunshine at the end of current hailstorm is closer than many think. The financial downturn in the stock market will probably recover by mid-2009, he says, when “greed overcomes fear” and the real economy, including advertising spend, will be in the recovery room by 2010.

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