The future of OOH in India: What Now?

By Surina Sayal , afaqs!, Mumbai | In OOH News | October 08, 2009
After bleeding during the recession, OOH companies are picking up the pieces. Will they learn from their mistakes, what positives lie ahead... Read on to find out

Nothing sums up the circumstances in India quite like the figures. Between January and July 2008, there were eight investments in seven months in OOH companies. Since then, not a single investment in an Indian OOH company has been announced. That is, 14 dry months.

Those investments put big bucks in the hands of a few organised players, creating fierce competition for sites, leading to astronomical bids, which the OOH companies naturally expected their clients to pay through high ad rates. With the downturn, OOH companies big and small have been severely wrong-footed.

It wasn't only bad stuff that happened in 2008, though. Among the most positive things was that OOH was finally accepted as a mainline medium. New advertisers turned to it while the existing ones upped their spend. Newer media formats like digital and street furniture gained prominence. There was also a surge in innovations.

"The feeling of euphoria that was witnessed in 2007 to mid-2008 led many companies in the wrong direction. Most outdoor companies bid sky-high for various tendered properties. The valuations were unrealistic," admits Yuvraj Agarwal, executive vice-president, group revenue, Laqshya Media.

Hanging by their fingernails

As the slowdown took grip, site occupancy plummeted and ad rates tanked. Ashish Pherwani, senior manager, Media & Entertainment (and OOH segment champion), at the consultancy Ernst & Young confirms, "During the slowdown, OOH was hit at least as hard as - if not harder than - other media. Currently, the sector is fighting to raise rates which dropped by as much as 50 per cent."

Noomi Mehta, chairman and managing director, Selvel One Group, adds, "'Lowering prices' is too gentle a term for the suicidal discounted deals that are made at times like these. These are normally done by small operators and fly-by-nighters who are out to make a quick buck and are shaken off by the first financial storm."

Even bigger than the problem of getting business is the matter of collections. The tightening of credit facilities by banks and delayed payments by clients and OOH specialist agencies have compounded the issue. In the absence of a formal credit policy, every company is facing a liquidity problem and is forced to part with huge discounts and credit notes each year to recover dues. As Mangesh Borse, director, Symbiosis Advertising, puts it, "We are making profits - but only on paper, since payments are delayed by as much as six months."

Nabendu Bhattacharyya, president, Ogilvy Action, one of the most prominent specialist agencies, says that the problem lies elsewhere, "I strongly believe that 99 per cent of the clients pay on time if the paperwork at the agency and media owners is perfect. Clients can sometimes get into a real cash crunch but that happens rarely."

Matter of 'authority'

The economic hit has made OOH companies especially careful about the way they bid for government tenders which, in the past, were considered a quick one-shot way of gaining size.

Everyone has in their minds the experience of Big Street, part of the Anil Dhirubhai Ambani Group (ADAG) which, in August 2008, bid Rs 79 crore to gain the rights (for 10 years) to Mumbai's Bandra Skywalk (a 1.3-km long raised pedestrian walkway). Under the changed circumstances, Big Street decided this May to walk away from the contract, forfeiting its earnest money with the Mumbai Metropolitan Regional Development Authority (MMRDA). OOH companies have mixed feelings about bidding for government property.

Mehta of Selvel One believes that dealing with the authorities has its pros and cons. The pros include the scope for 'managing' situations that occur, since accountability is poor, payments can be delayed. Besides, it helps a company build substantial inventory through a single stroke. It also guarantees stability since government property is unlikely to be touched by even whimsical changes in municipal policies on outdoor advertising.

The cons, Mehta believes, are the large earnest money deposits and the fact that the reserve (or minimum) price for such projects is high. Large tenders are also fiercely contested to the point of almost guaranteed loss, as seen in many cases.

New media, new issues

As if things weren't bad enough in the established part of the business, they got far worse in airport advertising which has grown only in the last few years. Big boy Times OOH, which has the advertising rights for Mumbai and Delhi airports, and gets 70 per cent of its revenue coming from there, too, has been feeling the pressure. This paragraph in Entertainment Network India's (ENIL) Annual Report for 2008-09 is revealing, though the exact figures for Times' OOH business are unavailable. While stating that Times Innovative Media (which owns Times OOH) grew 11 per cent year-on-year, ENIL managing director, A P Parigi's message to shareholders, says that the growth could have been far higher had not been a drastic fall in outdoor media spends by companies. The report goes on to say later: ' The OOH business is very capital intensive and has a long return on investment cycle. Huge investments have already been made in the OOH space to acquire properties. With the advertising market slowing down, the return on investments made in the OOH space is experiencing intense pressure.' It wasn't just Times OOH. Others too found the going turbulent. Laqshya Media, which has the media rights for Hyderabad Airport as well as for Colombo, lost money, too.

This had to do with the fact that - apart from everything else - air traffic tumbled in the slowdown. "Passenger numbers started dwindling and the 40 per cent plus growth rates witnessed in airport passenger traffic in 2007-08 turned into negative 10 per cent rates. This led to a loss in valuations for airport properties. To make matters worse, categories like real estate, airlines and financial services virtually stopped advertising, resulting in advertising demand contracting," shares Agarwal of Laqshya Media. The company exited digital screens, which were a drain on its resources and went through an organisational restructuring exercise to focus on long term growth. It also downsized in verticals like Laqshya Digital Media, where the gestation periods were long.

In fact, in digital media, one of the biggest players, OOH Media that currently claims to operate about 5,000 screens in 22 cities across India and reach out to 50 million people a month, has slowed its expansion spree considerably.

Ishan Raina, MD & CEO, OOH Media says, "When we started off, the game was one of increasing the number of screens. Now the focus is on the number of advertisers: my target is to increase the number of clients from 300 to 1,000."

The good news, he says, is that under pressure, marketers are willing to explore new options. The bad news? Being a new media, digital screens have been hit on pricing. "So, we are selling more and adding clients but our topline growth has slowed down as compared to last year - though we are still growing," says Raina.

While the worst may be over, the good times are still some time away. Says Raina, "Once the client has tasted a low rate, it will take at least a year to increase prices. I expect price pressure on the media industry to continue for two to three years. We have to be very careful about our costs."

Media owners are hoping that a combination of the festival season and the launch of many new products which has been postponed will see them through till the end of this year. "By that time, the steps the government has taken should hopefully kick in and demand should remain steady. I feel the government itself will emerge as a big advertiser," says Mehta.

Will investments return?

Pherwani of Ernst & Young certainly thinks so. "There are several media companies as well as some PE (private equity) firms who still have a keen eye on the sector. As it gets more mature, with an increased amount of large public tenders around street furniture, transport and infrastructure, it is placed to grow and attract investment."

Raina, whose own firm has received funding, points out that what has happened in OOH has taken place with the internet and radio, too. "This is in the nature of most new businesses. First, their potential is overestimated in the short term and then underestimated in long term."

OOH's New canvas

Revaluation of properties: With marketers questioning the rates of OOH property more closely, media owners are reviewing their own investments. In some cases substantial investments have been made to improve the outdoor media format - for example, new international-style bus shelters, digital screens and better airport infrastructure. Here, marketers are more willing to appreciate the logic of higher rates. But advertisers are questioning traditional advertising formats where they are expected to pay more simply because the owner has thrown more money to win the space.

On another front, asset owners now also need to proactively target advertisers, and sell more actively to them around their communication objectives, rather than present themselves as a 'vendor of hoardings'.

Measurability: Pherwani of E&Y points out that a major reason for the drop in outdoor site rentals could be the lack of measurability, since marketing managers need to be able to demonstrate the effectiveness of their spends at the best of times, and doubly so during a slowdown.

The measurement system for outdoor media, better known as the Indian Outdoor Survey (IOS), was launched in June by MRUC (Media Research Users Council) with Hansa Research. It has been designed to provide audience-led research at par with other media in order to establish traffic, cover and frequency estimates and will aid in planning and buying of hoardings, bus shelters and kiosks. To start with, the survey has been launched for Mumbai, followed by Pune. The industry is upbeat about this first industry measurement tool and hopes to see the survey cover other parts of the country as well. Pherwani points out that when transparency grows, so will the advertisers' faith in the medium, leading to its growth.

Credit Policy: Industry veterans got together at the Outdoor Advertising Convention 2009 held in June in Mumbai, to discuss the formation of a credit policy. Industry veterans like Madison's Sam Balsara and Noomi Mehta discussed plans to work on a detailed credit policy on the lines of similar enactments by the Indian Newspapers Society and the Indian Broadcasters Federation.

The project has been handed over to Soumitra Bhattacharyya who retired from Laqshya early this year as CEO and is now an independent consultant. The aim will be to create a comprehensive credit policy for the industry, which will be presented and negotiated with the Advertising Agencies Association of India for implementation nationally. This will involve review of billing practices, accreditation of agencies, definition of credit period and terms, penalties for non-compliance and the like.

Watch those government tenders: Companies now approach government projects and tendered bids with caution. Tenders used to be for a few years and this was an issue since OOH firms were reluctant to make big investments if they didn't have a longer term to play with. They are increasingly pressing for - and sometimes succeeding to get - longer-term contracts. This is changing the view of tenders since a long-term tender provides the much-needed stability.

Coming consolidation: The OOH business in India has traditionally been a fragmented one. Consolidation is inevitable, feel seniors.

Robin Carruthers, director, Square Circle Outdoors, part of Shlok Media, points out that there isn't a single player in OOH who can fulfil a client's need on a pan-India basis. "This explains the emergence and current position of the OOH specialist agencies. Most advertisers look for a single-window operation and end up going to specialist agencies which offer them this solution," he says. E&Y's Pherwani thinks that firms need to get together and build national networks, which is what larger advertisers are clamouring for.

Carruthers opines that consolidation is not just about buy-outs and mergers but also formation of governing bodies where big industry players come under the same umbrella to ensure that all operate within a certain set of guidelines. These steps have been initiated with the formation of the Indian Outdoor Advertising Association (IOAA). While consolidation will ultimately take place by way of buy-outs, he believes that this is still some time away.

Agarwal of Laqshya summarises the situation best when he says, "We're all dealing with issues that impact our professional and personal lives. What will set people apart during this time is learning what doesn't work, adapting to it, and making sure not to repeat it once the good times return. Maybe we'll have our umbrellas ready the next time it rains."

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