Lynn, Ravi, Sam, Shashi, Vikram on the economic downturn: Part 1

By Devina Joshi and Sapna Nair , afaqs!, Mumbai | In Media
Last updated : November 24, 2008
With the economic slowdown hitting Indian industry amidships, how exactly has the media and advertising business been affected? afaqs! got in touch with Lynn, Ravi, Sam, Shashi and Vikram to find out their views


it comes to media planning and buying in India, you won't find a more powerful group than one that comprises Lynn de Souza, Ravi Kiran, Sam Balsara, Shashi Sinha and Vikram Sakhuja. Between them, they control nearly 75 per cent of the organised media-space bought and sold every year, through their respective companies, Lintas Media Group (LMG), Starcom MediaVest, Madison, Lodestar Universal and GroupM.

With the economic slowdown hitting Indian industry amidships, how exactly has the media and advertising business been affected? afaqs! got in touch with Lynn, Ravi, Sam, Shashi and Vikram to find out their views. They came up with some interesting answers, agreeing on some issues while being entirely at odds on other matters.

The first obvious question that came up was: which categories would cut down on their advertising? Four of the five believe that the financial sector heads the list of businesses that will prune ad spends.

Realty and automobiles are two other sectors that could come under the knife. As far as the financial sector is concerned, Vikram believes that banks (but not insurance) will be affected the most. Shashi is sure that mutual funds, in particular, will see big drops in advertising. Lynn predicts that insurance will see big cuts. Sam's reason for identifying the financial sector as candidate No 1 for the axe is because financial companies were very aggressive when it came to advertising.

Vikram sounds the most optimistic, pointing out that the worst-affected categories account for only 25 per cent of the ad spends. "I see most sectors, especially fast-moving consumer goods, growing their advertising," he adds. While almost all of them are sure that ad rates will be arrested or crawl up, they are equally sure that ad rates (whether it is print, television, out-of-home, internet or radio) won't drop. Ravi feels that, "in the short run, many media owners will increase rates to make up for slackening demand." However, he warns that this could prove to be counter-productive.

Will advertisers prefer one media over another? Might they be more inclined to try below-the-line or promotions perhaps? Shashi believes that there won't be any drastic shift as such. Ravi and Sam think below-the-line and promotions will get more money, while Lynn is of the opinion that BTL and promotions are expensive media on a cost-per-contact basis. "I think money will flow back to TV, print, radio and internet next year," she says. Lynn is bullish about in-home media because consumers will have less money to go out and spend. Instead, they are more likely to spend more time indoors.

"Advertisers," says Sam, "should keep the faith in advertising and believe in increasing bang for the buck. They shouldn't make drastic and unrealistic cuts in ad spends as that will prove hazardous in the medium run." Shashi feels that it is a question of waiting and seeing how bad it can get. "In the long run," he explains, "some companies, particularly multinationals, will feel the pinch. Even in our media and advertising sector, large network companies that depend heavily on their foreign counterparts will suffer some setbacks due to lack of monies being pumped in." The main thing, believes Vikram, is: "This is the time for advertising to work harder."

What follows is a point-by-point examination by the five top honchos of the areas in which the effects will be felt most and what lies ahead for India's advertising and media business.

Q. Which businesses will see big drops, remain relatively steady, or up spends?

Lynn de Souza: Travel, automotive, finance and insurance sectors will see big drops. Telecom, durables and FMCG will remain relatively stable while government election-advertising will go up.

Ravi Kiran: Analysing industries based on the type of goods and services they deliver is a bit self-defeating. The unconventional way of looking at recession-readiness would be to look at the innovativeness of companies and the risk management ability of their management.

In every product and service category, you will find companies that are lean, nimble and have the management bandwidth and depth to withstand turbulence. At the same time, you will find companies that are fat, slow and have bloated cost structures.

In my view, during a recession, the former type of companies will do well, will stay long term focused and will not reduce either marketing or communication activity. Consequently, their marketing investments will not drop significantly. But almost all companies will become careful in how they apportion that investment.

Sam Balsara: Financial companies are aggressive advertisers and they will witness the biggest drop. FMCG will remain stable. No one is going to up advertising spend.

Shashi Sinha: Advertising of financial products, particularly mutual funds, will fall. Also the realty sector, which is pretty fragmented, will suffer, bringing down related industries such as construction or cement with it. Thirdly, with credit drying up in banks, loans will be affected and no one will want to purchase, say a car, at the huge interest rates. So, the auto industry may just be hit by all this. Retail will also be badly hit.

I think FMCG will not be affected at all. Telecom, surprisingly, will remain relatively steady. See, it should be affected as it is a huge spender on advertising, but because of new licences, it won't be hurt too much.

I don't think there's any such sector that will see an increase in advertising.

Vikram Sakhuja: I see most sectors, especially FMCGs, growing advertising. The ones directly impacted by the credit-squeeze are banks (not insurance), realty, automobiles and high-end durables. That impacts about 25 per cent of advertising expenses.

Q. To what extent will each of the following media be affected - print, TV, OOH, radio, internet and niche media vehicles?

Lynn de Souza: In-home media like TV and print may not take such a beating. In fact, viewership will rise since out-of-home activities - travel and leisure, cinema - will decline. But advertisers will not take kindly to rate increases. So rate reductions, given the growing competition in GEC and news space, will be the order of the day. Internet will do well, especially social networking sites as youth turn to cheap and free entertainment.

Ravi Kiran: I do not believe any medium is recession-proof. Relatively small media such as digital and radio will actually grow faster, as the absolute amount for a campaign on them is significantly lower. Similarly niche media options will not suffer much.

There will be a lot of pressure on print and TV, as marketers try and cut the 'waste'. More importantly, there will be an attempt to get more out of the Rupee spent on these two media. Smarter media owners will be able to defend their revenue by offering innovative solutions that protects short term sales of marketers. Clients will shift focus from pure people passion to effective use of tools and technology to optimise their investments.

Sam Balsara: Outdoor, followed by print, will see the highest drop. This is because both print and outdoor are heavily used by financial services advertisers. So, as a consequence, they will suffer too.

Shashi Sinha: People think that big media like TV and print will be affected most, but trust me, they'll get by. Contrary to expectations, it's the smaller media that will be hit. GECs are anyway favoured more. Advertisers tend to cut off from the bottom first.

Vikram Sakhuja: Looking at affected sectors, it becomes apparent that print will be more impacted. We expect print to grow single digits and TV in early double digits. Radio, internet and even OOH will grow relatively strongly.

Q. What impact will the slowdown have on the ad rates of print, TV, OOH, internet and radio? Why?

Ravi Kiran: In the short run, many media owners will increase rates in order to make up for the slackening demand. But that may prove to be counter-productive as high rates may force advertisers away.

Sam Balsara: There will be an arrest in the increase of print rates while TV rates will stabilise. Print ad rates have been subject to huge inflationary trends due to newsprint costs going up. This has, over time, led to an increase in print ad rates. This slowdown will arrest further growth in print rates. In outdoor, there is bidding of railways, bus shelters and airports happening at heavy prices by concessionaires. Now, the lowering of demand by financial services (they are big advertisers), will obviously lead to outdoor players also being hit.

Shashi Sinha: Clients are expecting ad rates to drop, but I don't think this will happen. To my mind, I don't expect it to fall as media in India is already under-leveraged because of segmentation and all. How low can it get?

Some broadcasters may price things a little high and have a 'this is my rate, take it or leave it' attitude. Others will play the volume game… of undercutting a little and getting more advertisers into their fold. It's a pricing decision, and the broadcaster will determine whether he wants to play the pricing game or the volume game.

Vikram Sakhuja: This is the time advertising has to work harder. Market forces will push for lower inflation. All categories are facing cost squeezes compounded by advertising needing to grow toplines. What we don't want is inflation scaring off advertisers.

(For Part 2, click here)

First Published : November 24, 2008

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