To be fair, this shift isn’t new. Marketers have spent years trying to stay efficient amid sticky inflation, higher interest rates and geopolitical volatility. AI promised relief in the face of all of this, but until now, the technology hadn’t caught up. That, said Sorrell, is finally changing.

“We’re starting to see the development of new commercial models,” he told analysts on the company’s earnings call earlier on Thursday (May 8).

And the pressure is coming from CMOs.

“If AI cuts 20% of the time it takes to manage our media,” they’re asking, “does that mean fees drop 20% too?” The answer, of course, isn’t that simple but the expectation is there, and agencies have no choice but to adapt. Agencies either adapt or get left behind. The old billable hours model is slowly being swapped out for output-based pricing — less about time spent, more about results delivered.

“There’ll be a reduction in time [due to AI], and therefore you have to now start to develop models that are based on outputs,” Sorrell continued.

Still, it’s early days. Most marketing teams are easing in, not diving deep. AI adoption at S4 Capital is a case in point, starting with workshops, audits and pilot programs rather than sweeping changes. Tech advertisers may be further ahead, but across the board, the transition remains cautious — still unfolding mostly through conversation than execution. Look no further than the shape of S4’s business today for proof.

“We’re now working, obviously, on retainers and on compensation for FTEs employed but in addition, we’re working on the basis of assets or outputs delivered,” said Sorrell.

Eventually, that model could flip entirely. And when it does, there’s a widely held belief across the industry that agencies may end up making less money because AI reduces the labor-intensive work they’ve historically charged a premium for — streamlining production, cutting headcount and shrinking the billable scope. 

Sorrell, unsurprisingly, isn’t so quick to buy into that. If AI makes advertising cheaper and more effective, he argued, clients won’t do less — they’ll do more. He expanded on the point: “While the price per asset might fall, the number of assets grows at an exponential rate and therefore total revenues will rise for us as a disruptor.”

Rarely, do things in advertising unfold that neatly, especially when the prediction benefits the person making it. But any skepticism about how exposed agencies like S4 are to AI’s impact has to be weighed against a more grounded truth: the same tools disrupting the model might also be the ones to evolve it.

“Some of the results we’re seeing are quite extraordinary in terms of a reduction in time and cost, while the quality is extremely high,” said Sorrell. “If we showed you the Puma work that we’re doing, or another one which is confidential at the minute, where the quality dimension has been improved considerably literally in two to three months.”

Even with those gains, AI isn’t yet a major driver of growth or margin for S4 — or any other agency group for that matter. Most CMOs haven’t fully embraced it. They’re using it surgically, to stretch budgets further or speed up execution here and there, not as a wholesale reinvention. At least, not yet.

But when that shift happens, it will come with greater pressure on topline growth and new opportunities to eke out margin for those who are ready. As Sorrell pointed out, one of S4’s clients spends $4 billion annually on media and over $400 million on creative. That ratio — 10% of media spend on reactive — is starting to look outdated.

“The time is now,” said Marcy Quinn Samet, co-founder and cmo of growth consultancyLBRB Collective. “Agencies have been talking about reinventing compensation models for years and AI is now forcing the conversation. We’re only beginning to see how this shift could reshape strategies and redefine what clients are actually paying for. Value and outcomes, not hours, should ultimately drive pricing.”

AI is forcing a new deal between agencies and CMOs

As CMOs rethink how they pay agencies, they’re also rethinking how they structure them. That doesn’t bode well for agency-of-record models, Sorrell warned. In their place will be a wave of smaller agencies — smaller by design, built for speed and powered by AI. 

“Once the fog of the tariff situation has cleared then I think more people will start to deploy those models,” said Sorrell.

He’s confident because he’s seen it already. Before President Trump’s economic policies stalled more ambitious CMO strategies, businesses were already exploring ways to cut creative costs while holding media spend steady. Once those efforts start back up again, the more opportunities there will be for S4 Capital.  

Or as Sorrell put it: “Efficiency is going to become paramount post-implementation of tariffs even more so than it was before. That’s a big opportunity for us as a disrupter on the creative side, to expand our share and model and it’s a challenge, obviously, to the established companies.“ 

That familiar dig at the holding companies he once helped build reflects a deeper view: that legacy ad networks are too entangled in traditional media — segments where spend is stagnating or declining. S4 Capital, by contrast, is structurally aligned with the parts of the market still growing: digital media and content. AI will only compound that effect.

“As AI removes time-consuming, low-value tasks, it becomes even more critical to recognize and reward high-value talent and senior-level contributions,” said Quinn Samet. “That means recalibrating how we define participation, build teams, and measure success. It’s also time to challenge legacy models like non-competes that hold progress back instead of moving it forward.”

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