Artificial intelligence is revolutionizing the advertising landscape, and S4 Capital is adjusting its pricing model to keep pace.
According to CEO Sir Martin Sorrell, the rise of automation is prompting a reevaluation of how the company charges its clients, especially as marketers feel the heat to reduce production costs while increasing their media investments without raising overall budgets.
It’s important to note that this shift isn’t entirely new. Marketers have been striving for efficiency for years amid rising inflation, increasing interest rates, and global uncertainties. While AI promised to alleviate some of these challenges, it hadn’t quite caught up until recently. Sorrell believes this transformation is finally underway.
“We’re beginning to see the emergence of new commercial models,” he shared during the company’s earnings call on Thursday (May 8).
And the push for change is coming from Chief Marketing Officers (CMOs).
“If AI cuts 20% off the time needed to manage our media,” they’re asking, “shouldn’t fees decrease by the same amount?” While the answer is complex, the expectation is clear, and agencies must adapt or risk falling behind. The traditional billable hours model is gradually being replaced by output-based pricing — focusing more on results rather than the time invested.
“There’ll be a reduction in time due to AI, which means we now need to develop models centered around outputs,” Sorrell explained.
However, it’s still early days. Most marketing teams are taking a cautious approach, easing into AI rather than making sweeping changes. Take S4 Capital’s journey as an example; they’re starting with workshops, audits, and pilot programs instead of major overhauls. While tech-focused advertisers may be progressing more rapidly, the overall transition remains gradual — unfolding mainly through discussions rather than actions. The current shape of S4’s business reflects this cautious evolution.
“We’re now working on retainers and compensating for full-time employees, but we’re also shifting towards compensation based on assets or outputs delivered,” Sorrell noted.
Ultimately, this model could completely flip. There’s a prevailing belief in the industry that agencies may earn less in the future as AI reduces the labor-intensive tasks they typically charged a premium for — streamlining production, cutting jobs, and limiting the scope of billable tasks.
Sorrell, not surprisingly, is hesitant to accept this notion. He argues that if AI makes advertising cheaper and more effective, clients won’t spend less; they’ll spend more. He elaborated: “While the price per asset might decline, the number of assets is likely to increase dramatically, leading to a rise in total revenues for us as a disruptor.”
Advertising rarely evolves in such a straightforward manner, especially when the forecasts seem to favor the person making them. Nonetheless, any skepticism regarding agencies like S4 being affected by AI must be measured against a more grounded reality: the very tools disrupting the traditional model could also help to adapt it.
“Some of the results we’re witnessing are remarkable in terms of time and cost reduction, while quality remains exceptionally high,” Sorrell said. “If we showcased the Puma work we’re doing, or another currently confidential project, you’d see significant improvements in quality within just two to three months.”
Despite these advancements, AI is not yet a primary driver of growth or profit for S4 — or for any other agency group, for that matter. Most CMOs are still in the early stages of adoption. They’re using it selectively to stretch their budgets further or expedite certain tasks, rather than as a comprehensive reinvention. At least, not just yet.
When that transition does occur, it will come with increased pressure for topline growth and fresh opportunities for those ready to seize them. As Sorrell pointed out, one of S4’s clients invests $4 billion annually in media, with over $400 million allocated for creative endeavors. That 10% ratio of media spend to reactive spending is starting to seem outdated.
“The time is now,” emphasized Marcy Quinn Samet, co-founder and CMO of growth consultancy LBRB Collective. “Agencies have been discussing compensation model reinvention for years, and AI is now propelling this conversation forward. We’re just starting to see how this shift could revolutionize strategies and redefine client expectations regarding what they’re actually paying for — focusing on value and outcomes instead of hours.”
AI is forcing a new deal between agencies and CMOs
As CMOs rethink their compensation strategies for agencies, they’re also reconsidering how they structure their partnerships. This doesn’t bode well for traditional agency-of-record models, as Sorrell cautioned. Instead, we can expect a surge of more agile, smaller agencies designed to be fast and driven by AI.
“Once the fog surrounding tariff situations clears, I think more firms will begin implementing these new models,” Sorrell stated.
He feels confident because he has witnessed it firsthand. Before President Trump’s economic policies hindered more ambitious strategies from CMOs, companies were already exploring ways to cut creative costs while maintaining their media expenditures. As those initiatives resume, there will be new opportunities for S4 Capital.
As Sorrell summarized, “Efficiency will become even more crucial after the implementation of tariffs compared to before. This presents a substantial chance for us as a disruptor in the creative field, expanding our model and market share while posing challenges to established firms.”
This familiar critique of the holding companies that he once helped build reflects a deeper understanding: legacy ad networks are often too intertwined with conventional media — sectors where expenditure is stagnating or declining. In contrast, S4 Capital is positioned strategically within the growing realms of digital media and content. AI will only accelerate this momentum.
“As AI eliminates time-consuming, low-value tasks, it becomes increasingly critical to acknowledge and reward high-value talent and senior-level contributions,” Quinn Samet remarked. “This means recalibrating our definitions of participation, assembling teams, and measuring success. It’s also time to challenge outdated models like non-compete agreements that impede progress instead of fostering it.”
