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Sorrell on S4: ‘The train set we have is sufficient; we just have to run it better’


By Sam Bradley | Senior Reporter

November 10, 2023 | 7 min read

S4 Capital’s chief discusses Media.Monks’ results, tech spending, prospects for 2024 and potential of AI.

S4 executive

Sir Martin Sorrell, executive chairman of S4 Capital, the company behind Media.Monks

S4 Capital’s latest set of financial results, released yesterday, revealed lower-than-expected revenue growth and an ongoing efficiency drive intended to trim the company’s sails in key markets. But, speaking to The Drum in the wake of the results, Sir Martin Sorrell reasserted his confidence in S4’s business model and strategy.

“The train set that we have is sufficient; we just have to run it better,” he says. Though Sorrell says the company will take “further cost actions” in coming months, he notes that the “bulk” of the company’s efficiency drive has been completed and that fewer job cuts are expected in the fourth quarter of 2023.

S4’s previous growth (readers will recall how quickly it was able to scale both workforce and revenues prior to and during the pandemic) proves that a lower headcount won’t be an obstacle in the future. “The reverse would be true,” says Sorrell.

“During Covid, just like many other companies did as online and digital was heightened, we increased our headcount. A lot of tech companies in particular have since reduced their headcount because they over-hired and it was no different with us.”

With a huge chunk of S4’s income coming via the tech sector (some 43%), it has been more exposed to changes in that industry’s fortunes. Sorrell suggests that US tech will be slow in returning ad spend to previous levels. “Generally, I think the tech companies will be more careful on the advertising and marketing side,” he says. But Sorrell believes that caution among the tech sector to spend on marketing has been overstated.

“That tends to be a crutch for everybody. In Q3, Meta was up 24% in advertising revenue, but its marketing just went down by 25%. Now, it’s not true for every tech company. Google’s marketing budget has been stable or rising a little bit.”

In any case, he’s adamant that it is the right client set to be courting in the long run, especially given the travails faced by established media firms – ITV’s results, also released this week, revealed a fall in demand for TV advertising – and lower demand among the smaller clients it works with.

“There’s a digital industry that continues to expand. And there’s a linear one that continues to contract. We happen to be totally devoted to the one that’s expanding, which I think is the right way to be.”

While revenue from S4’s “clients at scale” has grown since the beginning of the year, project-based work and spending among smaller clients have fallen. S4 currently services 454 clients that bring in, on average, less than £1m each – down from 533 in 2022. Meanwhile, the number of clients that bring in over £5m each has increased.

“Traction has got less… with our smaller clients. I think what it tells you is that these excess projects at this time, that froth in the market, that extra level... has disappeared this year, driven by higher inflation and higher interest rates, which are likely to stay lower, higher for longer… and by the macroeconomics around US, China, Ukraine and Russia and now sadly what’s happening in the Middle East.”

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While S4 watches and waits for tech clients to begin spending more over the coming months, interest in AI is stoking demand “across the board.”

“AI intrigues everybody,” he says. “We’re getting enormous lift and interest in workshops. It is starting to yield real projects.”

It may be some time until serious spending in the area begins, though. “At the moment, it’s more talk and less action. I think in the next year and the year after, you will see stronger and stronger actual revenues coming through.”

He sees a variety of AI-borne advantages for S4 and Media.Monks. Economies of scale around production, added to the potential for “hyper-personalization at scale,” mean its content practice will be able to take on more work. Meanwhile, eased knowledge sharing on large accounts and the use of cloud software in lieu of key hardware can make the business more efficient and reduce costs.

The success Meta has had with its AI-enabled Advantage+ product – a campaign solution that uses machine learning to test and deploy a range of different creatives assets on behalf of marketers – is proof that spending will follow debate, Sorrell adds.

“Look at Advantage+. Look at what advantage small and medium-sized companies are making of algorithmically driven media planning and buying. It’s only a question of time before enterprises start to choose that and we will mostly be in the position of being a reseller for the platforms. We’ll benefit from that.”

On the whole, Sorrell says that AI is set to be “beneficial” for the company, while bringing it closer to his ideal proposition to clients. “We sell time and we should be selling outcomes.”

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