Category-wise rate cards: Who will pay the price?

By , agencyfaqs! | In
Last updated : September 25, 2002
The September 5 decision by STAR has opened up a virtual Pandora's box

On September 5, 2002, the number one television network STAR India made an announcement that took advertisers and media agencies completely by surprise. The issue in question concerned a revised rate card system with differential rates for different product categories advertised on TV. In simple terms, the greater an advertiser's need for mass television, the higher would be the price he would have to pay to get his spots on air. Simultaneously, advertisers who depended heavily on mass television would be incentivised to advertise on niche channels.

This announcement meant that a category-wise rate cards would replace a generic rate card, which is the industry norm. In fact, in a recent interview to agencyfaqs!, Raj Nayak, executive vice-president, sales and marketing, STAR India, and the man many consider as the brain behind this move, had said, "The future will eventually veer towards category-wise rate cards as opposed to generic rate cards. As in print, television too should move in this direction so that clients who do not require mass television can be incentivised to advertise on these channels at a lower rate and the ones whose demand for television is more should pay a higher price."

If at one level, STAR's decision to adopt a differential pricing mechanism smacks of over confidence owing to its near monopoly status in the Hindi general entertainment segment, the crux of the matter revolves around STAR's quest for higher profit margins. To understand this scenario better, a closer look at the business of buying and selling airtime would be worthwhile. Media buying works on a simple philosophy - bulk deals mean discount rates. As Ravi Kiran, general manager, Starcom Worldwide, emphasises, "Traditional media buying and planning stipulates that the larger you are as a spender, lower the price you should pay."

Going by this philosophy, large spenders, particularly the FMCG companies that require mass TV channels to advertise their products, typically land up quoting the lowest price, implying that advertisers whose product categories don't demand frequent usage of mass TV end up 'subsidising' the airtime consumed by the big advertisers. As a senior media planner in a Top 10 agency explains, "For every advertiser who is charged lower rates, you can expect the others around to be charged at least three to four times higher to compensate for the loss."

A look at HLL's spending pattern on STAR, Sony and Zee should make the picture a lot clear. According to industry sources, HLL consumed 24 per cent of Sony's sold inventory or airtime from July 2001 to June 2002 during key time brands such as the 1.30 pm to 4.30 pm slots in the afternoon, and 7.00 pm to 11.00 pm slots in the evening. For the same period, the percentage figures on Zee TV and STAR Plus were 19 and 9 respectively.

In terms of revenue realisation however, the figures for Sony are far less. According to industry sources, the estimated spends of HLL on Sony would be Rs 35 crore whereas the inventory or airtime consumed would be 6,80,000 seconds, which means that the estimated rate for a 10-second HLL ad on Sony would be Rs 5,147.

If these rates were to be applied to other Sony clients then the channel's ad revenue would be $31 million or Rs 1,488 million (taken at the current value of the Indian rupee to the US dollar, which is Rs 48.44. Thus $1 million = Rs 4.8 crore) which is far less than its actual realisation estimates of $80 million or Rs 3,840 million, implying that other clients have subsidised the FMCG behemoth's media activities.

It is precisely this phenomenon that STAR is trying to curtail. As Starcom's Kiran highlights, "The current scenario is such that roughly 20 to 30 per cent of the advertisers actually provide a channel with 70 to 80 per cent of their business, which may seem fine from a buyer's point of view but is frankly quite detrimental to the interests of a seller (because this scenario increases its dependence on a handful of advertisers). Which is why STAR is attempting to reverse this trend by bringing in a certain democratisation in the pricing structure."

Concurs another Mumbai-based media planner, "I see this decision as a brilliant strategy on the part of STAR to get more advertisers on to their network. The idea is to make more out of the existing advertisers and get those product categories that don't advertise to come on to the network."

Even as some planners chose to have an objective stand on the issue, there are others who seem uncomfortable with the idea terming it as an attempt to 'penalise' FMCG companies, the biggest spenders on television today. If industry sources are to be believed, FMCGs consume the maximum airtime on mass TV channels with figures of utilisation (of the total inventory or airtime sold) varying from 74 per cent on Zee to 77 per cent on Sony and 59 per cent on STAR Plus. Yet, some observers maintain, within the FMCG segment, it is categories such as soaps and detergents, shampoos and oral care products that yield the least possible revenue for a channel.

However, Ashish Bhasin, president, Initiative Media, has a different point to make. "Even if STAR's logic seems plausible I would like to know how they are going to implement it. Card rates are not sacrosanct and you land up negotiating after that. My question is how practical is their theory." Maintains Shripad Nadkarni, vice-president, marketing, Coca-Cola India, "As far as we are concerned, annual contracts are bilateral agreements and the fact is that both the channel and the advertiser need each other."

Reiterates Partha Pratim Sinha, director, marketing, Zee Network, "Different channels have different ways of selling their airtime. At Zee, we concentrate on adding value to client needs, which is dependent on a host of factors such as context and innovation. Airtime, in my opinion is not a commodity you sell but a solution you market. Which brings me to the point that you can't determine card rates purely on the basis of product categories."

Given that STAR's category-wise rate card is an absolutely new idea, the general mood in the industry is one of wait and watch with most observers keen to know how STAR is going to fix its actual airtime rates. Avers Ravi Kiran, "The question really is how much difference can they allow between small and big advertisers. In other words, would the ad rate be determined by category alone or size of the client?"

Concludes a Mumbai-based senior media analyst, "The industry will demand greater accountability if at all a new rate card based on categories is worked out. Traditionally, media buying is based on historical performance. With the new card system, planners and advertisers are bound to ask STAR to guarantee performance." © 2002 agencyfaqs!

First Published : September 25, 2002

© 2002 agencyfaqs!