Central banks in underdeveloped countries often fall back on a simple solution when government finances get tight: they print fresh currency notes to cover the gap between revenue and expenditure thus stoking inflation.
It all began in May 2012, when the Telecom Regulatory Authority of India (TRAI) ordered a cap on the duration of ads in channels at 12 minutes per clock hour. Broadcasters bought time by appealing against the proposal but now the hour is upon them. Starting October, channels can air only 10 minutes of ads and two minutes of promos for their own shows every hour.
Everyone related to the business is desperately trying to figure out what the stipulation will mean? If inventory falls, will ad rates go up? If ad rates rise, will advertisers bite? If they don't, will some of them move budgets to other media? What will happen to niche channels and small advertisers?
afaqs! waded through the flux to consider the possibilities.
First the overview: Media experts largely agreed that television advertising would be impacted but they offered a range of possibilities of its extent. The base expectation though, is:
• Ad inventory will drop by about 30 per cent overall.
• Ad rates will rise by an average of 20-30 per cent across genres.
• Ad revenues will drop by at least 10 per cent of the total on television, or Rs. 1,400 crore.
The really big questions:
• Which product categories will cut spends?
• Which genres will suffer the most and which will weather the storm?
• What will happen to small channels and small advertisers?
Others believe in the resilience of TV because it is the most cost efficient medium for brands that crave mass reach. Even if ad rates rise, advertisers won't easily move money away. But, within TV, advertisers may shift money from one genre to another since the rates won't rise equally in each.
The one consolation for broadcasters is that subscription revenues are expected to climb significantly as the effects of digitisation kick in. As Pratik Rathod, buying head, Maxus, Mumbai says, "Broadcasters' revenues won't go down, they will increase. Ultimately, their subscription plus ad revenues will be much higher than they are now."
The desired rate hike in each genre will be linked to the anticipated cut in ad inventory. While Hindi general entertainment channels (GECs) are expected to hike rates by 25 per cent plus, Hindi movie channels would have to raise their rates by 35-40 per cent to retain their revenue levels since they stuff so many ads every hour.
English movies and English GECs are expected to attempt an ad rate increase of 20-25 per cent while news channels, both Hindi and English, would ideally like to grow their rates by 45-50 per cent. It is hard to see advertisers ceding these kind of increases. "The news channels have to shell out the carriage fee from their own pockets as they are free to air. Hence, when the inventory comes down by 50 per cent, they will feel the pinch much more than any other genre," says V Balachandran, agency trading head - Motivator, Group M.
Music and youth entertainment channels will seek an increase of about 25 per cent while infotainment and lifestyle channels will be relatively less affected since their ad inventory is under control. The regulation does not apply to any sporting event but the ads have to be relayed only during ad breaks without scrolls and pop-ups during the telecast. Sport has been left out because each game has breaks of a different kind and standardisation is not possible. Even in cricket, the biggest of them, no one can plan for how many wickets will fall or when.
Impact on product categories
FMCG apart, people interviewed felt that Banking, Financial Services and Insurance (BFSI) brands, which use television for brand building but print and other media to generate sales, are apt to shift monies out. This lot of advertisers spends over Rs. 500 crore on television, with nearly a third of that going to news channels. Print will be the big winner but digital will gain too.
Automobiles is another heavy hitter, spending over Rs. 850 crore on TV. It is not a product, which can be easily sold without creating strong visual appeal and that's why TV works so well for it. Automobile marketers spend a quarter of their TV money on news channels. Car sales have slumped and a cutback in spends is inevitable. Brands may use their limited budgets to push feature-based advertising in print or feature comparison on digital. Social media may find new favour.
Telecom spends over Rs. 450 crore on the small screen and Nagpal of Stratagem reckons that "handsets might come back to print media. Though print is expensive, dailies have a lot of supplements for almost each genre and these are less expensive than the main paper."
The broad 'services' category will be hurt too. Marketers are familiar with print, having used it extensively, and may place some extra budgets there. Alcoholic drinks, which cannot advertise directly on television, might also be cautious after the hike and shift a little towards digital.
That still leaves several categories such as durables, household products, laundry and baby care, which will persist with television just as before. Which alternative medium will gain the most? In terms of percentage growth, it will be digital. However, in absolute numbers print will gain the most because of television's loss. Outdoor also stands to gain.
The 12-minute ad cap is going to turn television into a big boys' game. Until now, the medium was peppered with small channels and small advertisers. That will change.
Small channels, which survived by stuffing the air with ads, will be lucky to survive if they don't have a big channel supporting them or a promoter with really deep pockets who has political or business interests to serve through television.
As ad breaks reduce, it is natural that viewers will tend to either stay longer with a channel or even, perhaps, watch more television overall. The flip side is that that the typical channel will now need more content per hour. According to one estimate, Hindi GECs will effectively need two extra hours of content over a 24-hour period.
Of course, production companies are paid on a per-episode basis so if the length is longer by, say 2-3 minutes, the cost increase will probably be marginal. Similarly, in news, channels will just spread the content thinner than before than invest in creating more new stuff to fill in the time gap left by advertising. Others will deal with this problem by increasing the number of repeats.
Best laid plans...
As advertisers and broadcasters scramble to make sense of the new situation, the person caught in the middle will be the media planner. Dhirendra Singh, associate VP at media agency BPN, says, "Due to increase in plan cost and hence CPRP (Cost Per Rating Point), planners will face pressure to enhance efficiency. The challenge will be to reduce the impact of increased cost through rigorous optimisation of the TV plan or use other media to deliver the targeted deliverables."
Ad breaks will be shorter, though, and that will help. "We need to have sharp market prioritisation to minimise wasteful exposure. Media weights have to be aligned with market importance and de-prioritisation of few markets will be imperative to rationalise the increased cost," Singh adds.
The sponsorship premium will increase because there will be many advertisers willing to back a particular property considering the reach and exposure they will get. It will also help the advertisers block competition.
"The biggest challenge," says Balachandran, "will be to convince advertisers to try other media." Which is another way of saying that advertisers love television. They will just have to get used to having a lot less of it.
A Note From the Editor
I can't remember when the television business last went through such an action-packed period. It began with the process of digitisation in the metros late last year. Then came the decision to increase the sampling for audience research by placing people meters in towns with a population of less than one lakh.
Soon after, broadcasters and ad agencies were in a spat about gross billing vs net billing. Next, major broadcasters pressured TAM to report their viewership data on a monthly basis rather than weekly, as is the case now: advertisers and their agencies are obviously unhappy.
Broadcasters have also raked up an old issue: they want the basis for buying ad time to move from Cost Per Rating Point to Cost Per Thousand. They believe that the existing system does not recognise the absolute increase in television's reach.
To me, it shows a new confidence among broadcasters. Advertising agencies in India have long been a part of the international networks (JWT came to India in 1929). That is why media buying has been consolidated. Television, as we know it, is just over two decades old and has been terribly fragmented. That's why it has been an unequal relationship between consolidated buyers and fragmented sellers.
Broadcasters are now coming into their own. They are willing to confront their clients where they would have meekly backed off in the past. Just as a handful of media agencies control the vast bulk of organised ad buying, half a dozen broadcasting networks now reach the bulk of the TV viewing audience. It is a battle among equals.
The disappointing bit in all of this is the stakeholders' unwillingness to invest more in audience research. The business is getting larger and more complex but advertisers, their agencies and broadcasters are unwilling to spend more money on research. Advertisers spend Rs. 14,000 crore on television advertising annually but their media agencies pay TAM only Rs. 10-15 crore to research where this money goes. At least broadcasters cough up about four times as much. Advertisers themselves pay nothing at all.
Unhappy with TAM, the Broadcast Audience Research Council was set up in 2008. Five years later, a CEO has finally been appointed. It seems that everybody knows what is wrong with the way things are but nobody is in a hurry to fix them.