Dec. 4 (Bloomberg) -- WPP Group Plc’s Martin Sorrell and Maurice Levy of Publicis Groupe SA, the heads of Europe’s largest advertising firms, are relying on digital ads and emerging markets to weather the global recession -- and stay ahead of each other.

Sorrell, 63, built London-based WPP into the world’s largest advertising services company through relentless acquisitions, starting from scratch in the 1980s. Levy, one of his biggest antagonists, has drawn on reservoirs of charm to guide Paris-based Publicis to become fourth-largest in the world. As the ad slump deepens, the rivals have traded snipes, jockeying to be perceived as best able to ride out the crisis.

“Levy promises the earth and delivers the stars,” said Alexander Wisch, an analyst at Standard & Poor’s Equity Research in London. “Sorrell promises heaven and delivers the earth.”

Both are searching for bright spots in an otherwise bleak advertising market. ZenithOptimedia Group Ltd., a Publicis unit, cut its advertising forecast in October as the global economy entered recession. Spending is estimated to rise 4.3 percent to $506.4 billion this year, versus 6.6 percent projected before. The growth forecast for 2009 was cut by one-third to 4 percent.

“The outlook is very tough,” Sorrell said in a Nov. 20 phone interview. Emerging-market growth and digital media will decide whether 2009 is the worst year he’s experienced, Sorrell said. He doesn’t see the “real world” recovering until 2010.

Internet, Emerging Markets

Between 2007 and 2010, Internet advertising is set to climb an annual 23 percent, the fastest growth of any media segment, according to ZenithOptimedia. By 2010, Internet ads will account for 13.8 percent of global spending, compared with an estimated 10.2 percent this year, the researcher predicts.

ZenithOptimedia anticipates developing markets, or everywhere except North America, Western Europe and Japan, to contribute 65 percent of new ad spending between 2007 and 2010.

“Martin has his pulse on the market. He knows what’s going on, but Publicis cannot be counted out,” Wisch said. “If I were to pick a digital battle Publicis would win. Emerging markets and China would be Sorrell.”

Levy, 66, while also targeting new territories, is credited with adapting more quickly to the digital age, as marketers shift dollars seeking a cheaper, more effective alternative to television and print.

Google Partnership

Publicis paid $1.3 billion in 2006 for online consultant Digitas Inc., now part of the VivaKi media unit, which develops technology to plan and buy media.

Levy has also partnered with Google Inc., developing tools to monitor the effectiveness of online ads and identify users. The company gets about 19 percent of revenue from online and is targeting 25 percent by 2010.

The goal of advertising is to evoke emotion and seduce customers, Levy said in an interview last month in his office in the Publicis glass office building along the Champs Elysees, opposite the Arc de Triomphe monument. “From our European point of view we view the world as a mosaic of cultures.”

While confronting the current marketing slide, he and Sorrell have found time to nurse their two-decade rivalry.

Sorrell came out on top in the 2003 bidding for Cordiant Communications, taking advantage of WPP’s position as the target’s main creditor to win his prize. He also outmaneuvered Levy to win advertising agency Young & Rubicam in 2000 and Grey Global Group Inc. in 2005.

Verbal Jousting

The WPP chief executive criticized Publicis earlier this year for the Google partnership, implying that Levy, the board chairman and also a trained engineer, had “a bit of an Achilles’ heel” when it came to technical matters.

WPP forged its own partnership with Google in October, and Sorrell now calls Google a “friend-frenemy,” no longer just an “enemy.” Levy says Sorrell “recognized now that he’s been totally wrong” and is now “following us on all of our steps.”

The verbal sparring continued last month. At a conference in Barcelona, Sorrell suggested it would make sense for Publicis to merge with Interpublic Group of Cos., the second-largest U.S. owner of ad agencies, as the crisis forces consolidation.

Levy shot back that Sorrell ought to pay attention to his profit margins rather than Publicis, which generated 2007 earnings before interest, tax and amortization at 16.7 percent of sales, above WPP’s 15 percent.

“We are very different in terms of style from WPP and the result is that our margins are much higher,” Levy said. “If you look at the bottom line our cash flow and margins are the highest in the industry.”

Sell Both

Investors should sell both stocks, according to Wisch. Revenue growth will slow to 2.5 percent next year at Publicis, owner of the Leo Burnett and Saatchi & Saatchi ad agencies, from an estimated 4.5 percent in 2008, while WPP decelerates to a 3 percent advance in 2009 from 5.5 percent this year, Wisch said.

Among WPP’s biggest customers, Ford Motor Co. decreased ad spending by 22 percent this year through July, while Kraft Foods Inc. in the U.S. cut back by 10 percent in the first half, according to Nielsen Co. data. Procter & Gamble Co., the largest U.S. advertiser and a client of WPP and Publicis, decreased advertising by 4.3 percent in the first half from a year earlier.

As analysts cut sales forecasts this year, Publicis shares have lost 30 percent, while WPP dropped 47 percent. The French company rose 4.5 percent to 18.65 euros yesterday in Paris. WPP fell 0.7 percent to 341.5 pence in London.

Sorrell has made more than 30 acquisitions this year, including last month’s 1 billion-pound ($1.5 billion) hostile takeover of U.K. market researcher Taylor Nelson Sofres Plc. His aim is to create a competitor to London-based Nielsen Co. and reduce WPP’s reliance on advertising.

The company generated $2.8 billion in revenue from emerging markets last year of the 6.19 billion-pound ($9.3 billion) total. That compares with $1.2 billion for Publicis.

“Both companies are leaders in their own ways, with digital for Publicis and emerging markets for WPP,” said Charles Bedouelle, an analyst at Exane BNP Paribas in Paris. “Both companies are so big and strong and you will never see either going away.”

To contact the reporter on this story: Kristen Schweizerkschweizer1@bloomberg.net

Last Updated: December 3, 2008 19:26 EST