During fourth-quarter earnings calls for several of the major players in the marketing and advertising space, companies addressed the need to get their houses in order by fully embracing and using artificial intelligence (AI). Firms are striving to become more operationally efficient and enhance their value to their customers.
These earnings calls, transcripts of which were provided by Bloomberg, addressed a wide variety of topics. Three major themes emerged.
The impact of AI
As expected, all the calls discussed their respective firms’ investment plans for AI.
Mark Read, CEO of WPP PLC (WPP), said AI can drive improvements in the firm’s offerings. Read said AI “can augment, not replace roles, to make people more productive.” He also said AI-augmented work will create a better return on investment for the firm’s clients. Read said AI “will also offer the ability to develop new business and financial models and to accelerate the shift away from hours-based compensation to renumeration more linked to results.”
Arthur Sadoun, chairman and CEO of Publicis Groupe (Publicis), said his firm will invest in AI as part of a three-year plan to train and upskill its employees. Sadoun said this will “shift the group organization to an intelligent system.” Sadoun believes internal efficiency gains will offset the cost of this investment.
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Philippe Krakowsky, CEO of Interpublic Group (IPG), said AI is not new, as machine learning has been an ongoing part of the firm’s media and data business for many years. Krakowsky said, “Combined with the latest advances in generative AI, we’re now adding the same level of intelligence to the creation of personalized content across the marketing spectrum.” Krakowsky referred to IPG’s plans to make the firm more efficient and valuable. He said IPG has launched two new AI chat assistants to “optimize internal workplace productivity and enhance employee work styles through the use of gen AI.”
Hiroshi Igarashi, president and CEO of Dentsu, Inc. (Dentsu), said his firm will “actively utilize cutting-edge technologies such as generative AI to improve the sophistication and efficiency of operations.” Igarashi said Dentsu will focus on training, retaining and acquiring talent with various specialties who can provide advanced services. He said Dentsu plans on “accelerating investments in the areas of data and technology to support the delivery of data-driven solutions across all practices.”
Strategic mergers and acquisitions
After a relatively quiet year in 2023, M&A seems to be working its way back into the conversation, but in a more strategic sense. Rather than using M&A just as a means for growth, which has been done in the past, firms are now using M&A to accelerate specific capabilities—primarily in the digital innovation space, including AI.
On the calls, most firms discussed acquiring or planning to acquire companies that leverage their ability to scale specific services, enhance digital transformation or strengthen existing capabilities.
Joanne Wilson, CFO of WPP, said her firm plans on “buying businesses that accelerate our capability.”
Krakowsky of IPG said, “Our plans also include a disciplined approach to M&A, which will focus on opportunities that are consistent with strategic growth areas—notably, increasing our scale and capabilities in digital transformation and our total commerce offerings.”
Sadoun said M&A will help accelerate Publicis’ shift to an intelligent system.
The outlier to this strategy appeared to be Dentsu. Igarashi said his firm had expanded its capabilities through active M&A in the past but is shifting its focus to internal investments.
Labor and productivity
All four firms saw margins remain relatively stable. WPP, IPG and Publicis made a point of discussing labor costs, which is a recurring theme for marketing and advertising firms.
Labor costs have remained stable, and with the implementation of digital tools, employees are becoming more productive. We can see this in the data. The chart below shows labor costs stabilized while productivity increased at the end of 2023, closing the gap between labor costs and labor productivity.
Source: Bloomberg
The takeaway
A challenging economic environment in 2023 affected the major players in the marketing and advertising space. However, firms that invested in AI, embraced M&A as a strategic move, and limited their labor costs appear to be performing well.
