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Financial and Legal Troubles for WPP

2 Sep, 2009 Response This Week

NEW YORK – WPP, the world’s largest advertising agency, reported that profit was down 47 percent in the second quarter and the company’s chief executive, Martin Sorrell, thinks it will be a while before profits begin to bounce back, reports The news come in the wake of a lawsuit filed against the agency’s JWT group.

Announcing second-quarter results, Sorrell said that marketing executives in the United States would not immediately begin spending as they have in the past. Instead, WPP is going to focus on growing markets, referred to as the “Next 11,” which include markets in Asia and Africa.

“Given the fact that we started into the abyss six or nine months ago, people are going to take a long time to go back to where they were,” says Sorrell. “It’s going to be a long time before this generation of managers, who were managing businesses that are faced with the extinction of credit lines, severe sales compression and inventory being eradicated, begin to take risks. They won’t until they are 100-percent sure things are on the uptrend.”

The national cutbacks in traditional advertising have led to a shift toward nontraditional services. More than 61 percent of WPP’s revenue in the quarter came from direct marketing, digital, PR and research. The company reported a profit of $290 million in Q2, down from $548 million the same period the previous year. Revenue was down 8.3 percent, more than doubling the 4-percent drop the group was anticipating.

Just after the quarterly earnings announcement last week, WPP was named in a lawsuit, claiming that JWT stole its patented product-placement concept to use in a campaign for Bing, Microsoft’s new search engine. Denizen is alleging that JWT stole its technique of blending a TV show’s content and characters into advertising for NBC’s “The Philanthropist.” Denizen was in talks with WPP in 2002 about its platform and when talks fell through in 2006, WPP had signed a confidentiality agreement.

Denizen did not state a dollar figure but said it will seek compensatory damages and punitive damages because of WPP’s “malicious and willful” acts. Denizen also wants restitution for legal fees, investigative costs and any profits JWT gained from the campaign.

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