Agencies have to shift to output-based pricing: Sir Martin Sorrell

At the India Brand Conclave 2026, Sir Martin Sorrell, Executive Chairman of S4 Capital, in a fireside chat with Dr Annurag Batra, Chairman and Editor-in-Chief of BW Businessworld and exchange4media, spoke about the structural shifts reshaping global advertising, pointing to artificial intelligence, automation, consolidation and evolving pricing models as key forces impacting the traditional agency model.

Sorrell, who founded WPP in 1985 and built it into the world’s largest communications group before launching S4 Capital eight years ago, said investor hesitation around agency stocks reflects uncertainty about AI’s long-term implications.

“It’s the cloud of AI hanging over the sector. What the analysts and investors can’t sort out in their minds is whether AI is a good thing or a bad thing for agencies,” he said.

AI and the Compression of the Creative Model

Sorrell said the most immediate pressure point is creative production. Generative AI, he noted, is significantly reducing the time required for visualisation and copywriting, challenging the traditional time-based billing model.

He added, “We charge on the basis of time. Currently, we have to shift to output-based pricing, charging clients on the number of assets produced, not the number of hours it took to produce it. The cost has gone down, so that whole area is coming under cost pressure.”

Reflecting on historical agency economics, Sorrell noted that agencies once operated on a 15% commission model, with 15% on billings and 17.65% on production costs. Of that, roughly 10% was allocated to creative and 5% to media. Procurement-led changes reduced overall commissions closer to 10%, altering the allocation structure. He added that, in his view, no client should be spending more than 10% of their media budget on creative.

He further stated that media planning and buying is likely to become “totally algorithmic” over time. Digital, he said, already accounts for approximately 75% of budgets on average globally. He also referred to the rise of large-scale personalisation, describing it as “Netflix on steroids,” driven by platform signals and first-party data.

On organisational implications, Sorrell said AI would reshape workflows and internal structures.

“AI is not about technology. It’s about workflow. It’s about simplifying your workflow, automating it, and change management. People build silos inside organisations by controlling data and information, and that is going to go,” he noted.

Consolidation and Structural Realignment

Addressing consolidation, Sorrell was critical of the merger between Omnicom and the Interpublic Group. He noted that at the time of announcement the combined entity had approximately 127,500 employees, which later reduced in projections to around 104,000 before deal completion. He described the transaction as a contraction of capacity.

“I do not see the benefit of that deal for clients. What I see it as being is a capacity contraction,” he said, adding that he believed the move did not create additional value from a client perspective.

He also questioned capability-led structures within holding companies, arguing that organising budgets by discipline, which is creative, media or production, can create internal division. Instead, he advocated a geography-first model where country leadership integrates functions, while acknowledging that no matrix structure is without friction.

In-Housing, Short-Termism and Sectoral Adoption

Sorrell said the industry has seen movement toward embedded and in-house models, noting examples where clients have brought media planning in-house. He added that the pendulum is moving toward embedded structures between full outsourcing and complete in-housing.

On broader economic conditions, he said listed companies are influenced by short-term pressures, including quarterly reporting, which in turn affects marketing allocations. Clients, he observed, are increasingly shifting budgets down the funnel toward activation and performance.

He also stated that wholesale AI adoption at scale has been most visible in sectors such as automotive, due to electric vehicles and autonomous vehicles, and financial services, where fintech platforms are disrupting traditional banking models. Broader industry-wide adoption, he suggested, may take more time.

Referring to the industry’s progression in AI adoption, Sorrell said the conversation moved from “wow” in 2024 to “how” in 2025, and that the focus now is on “now” and implementation at scale.

On India, Sorrell cited World Bank projections indicating that India was the fastest-growing major economy last year and is projected to remain so in the coming years. He said leadership continuity has contributed to that growth trajectory.

“When I was in Davos a few weeks ago, the World Bank issued their forecasts for GDP growth and India was the fastest growing country last year, is projected to be the fastest growing country this year and is projected by the World Bank to be the fastest growing country next year. So India is on a roll,” Sorrel said. 

For S4 Capital and its operating brand Monks, he reiterated that the focus remains on a digital-only, data-driven, faster and more efficient model under a single brand structure, aligned with ongoing technological and operational changes in the industry.