TV.NXT 2011: Price determined not by value, but by the demand supply equation

Madison World's Sam Balsara spoke about whether airtime is over-priced or not, both from the point of view of media owners and advertisers.

On Day 2 of TV.NXT, held on September 30, 2011, at the J W Marriott, Mumbai, Sam Balsara, chairman and managing director, Madison World, discussed the topic which interests advertisers most: Is airtime in India overpriced?

Balsara said that the answer to this question depends on who you are representing -- a media owner, or an advertiser. The answer is not based on facts, but solely depends on the perspective, angle and interest of the representing group.

Taking the advertisers' point of view, Balsara mentioned that the lobby feels airtime is overpriced. According to Balsara, advertisers believe that the ratings are dropping sharply. In addition to this, the clutter on virtually every channel is going up dramatically.

According to Balsara, it is becoming strikingly difficult today, to make an impact on the consumer's mind. The cost of reaching the Indian customer is indeed very high as compared to his buying potential and the per capita consumption. Advertisers need to understand the value of every customer they are reaching.

Unfortunately, advertisers believe that there is poor accountability on the part of Indian broadcasters, and there is no assurance on audiences, or often, even on carrying committed inventory.

Hence, the real issue which lies beneath is that the Indian markets for the advertisers is still small, and not growing adequately as compared to the rest of the market in the world.

Speaking from the media owners' point of view, Balsara pointed out that of late, there has been a dramatic increase in TV-owning households. "We now have over 100 million CNS homes in India of the 140 million total homes," he informed.

But yes, the classic argument issue of CPT (cost per thousand) versus CPRP (cost per rating point) still exists. They complain, that if for print, they take only CPT into consideration, then why is it that for television, CPRP is considered?

He added, "Media owners claim that advertisers are taking the advantage of their vulnerability. They believe too much power is vested on media agencies."

Media owners also complain that the advertiser does not seem to recognise the role media owners play in brand building, which delivers an ever-lasting value to advertisers, even after advertising value is over.

Media owners also project that the Indian TV ad rates are among the lowest in the world. But, Balsara said, "This is partly true and partly untrue."

Balsara further pointed out that as claimed by advertisers, media owners believe that there is not much clutter in the TV channel genre. Broadcasters say clutter level is not so high.

On the other hand, channel production costs and carriage fees are rising dramatically, which is hitting the roof in a bad way. Media owners claim that the system forces one to pay the carriage fees. But, he said, "A day will come when the problem will be solved for good."

But, as Balsara pointed out, "At the end of the day, the advertising market is just too small and advertisers and agencies are not doing enough which will help growth in the Indian advertising market exponentially."

Today the Indian advertising market is Rs 27,000 crore worth, of which Rs 10,000 is television. It is to be noted that few years back, the advertising market of China was literally non-existent, but now it has grown to be a $40 billion market, which is eight times the value of the Indian advertising market in terms of volume.

At the end of the day, the home rules are that TV as a medium is cheaper; the advertising market is too small and advertisers and agencies are not helping it grow; Effectiveness of TV has dropped sharply over the years which is a matter of great concern, but has opened a lot of avenues for advertising options; it's difficult to make an impact on TV without spending a lot of money, and then create a winning creative that will stand out in market.

Balsara commented, "The ecosystem we are working in makes it difficult for us to come up with a creative that will create a ground breaking impact."

But ultimately, the real issue is not of pricing, but the size of the market is not large enough.

The global average of advertising as a percentage of global GDP is 0.8 per cent. The US, which is said to be over-advertised is 1.08 per cent, our country is at 0.40 percent, and China, on the other hand, is at 0.75 per cent.

Those who consume advertising, and those who pay for advertising fail to understand that advertising is not a consumption product, but an intermediate product.

Balsara further said, "If you are an intermediate product then somebody will buy you, because you offer help to reach his objectives like profit, market share, brand building, not for achieving personal satisfaction.

"One should price it depending on the amount of value. Hence, we need to force the advertising economy to go to an upward cycle. And, we need to put the effort to do it."

Balsara further warned the media owners to be cautious with the increasing rates in the channel which could lead to a downward spiral. "I am not pitching to reduce the rates, but if the advertising market further goes up, then the laws of economics will stop working."

He also advised them to keep an eye not just on TV's ROI and profitability, but also on the advertiser's ROI who is investing in the TV medium.

He also urged media owners to make a reader or viewer pay 50 per cent of the channel's revenue. "One cannot always rely on the advertisers alone to earn revenue for media owners. To a certain extent, broadcasters have understood, but print hasn't realised it till now. They want the readers to pay as less as possible," exclaimed Balsara.

The Global Media and Entertainment industry is a 1.3 trillion market, of which 400 billion includes Global Advertising, which implies 31 per cent comes from advertising. But on the other hand, the Indian Media and Entertainment industry is worth Rs 45,000 crore, where Rs 24,000 crore is for advertising, which means, 53 per cent of the money is allocated for advertising.

Hence, the study implies that, 'advertising' in India carries too much of the load which is bad for the advertiser, bad for advertising, and ultimately bad for media owners in the country. At the macro level, we need to accept.

Balsara commented, "We need to temper advertisers' concerns on media inflation due to drop in ratings by showing them inflation or deflation in CPT terms, but not in CPRP terms."

Industry focus should be to increase average time spent per day on viewing TV. Average time spent per day is not going up, though the supply is going up with the increase in the number of channels, dividing the market. GRPs will go up only with the increase of time spent in front of the TV.

While addressing the advertisers, Balsara mentioned , "Do not under-invest in advertising, because after that, they should not blame other for the ads not having impact."

He also warned them not to cast wide, by distributing a lot of products across the country. "It sometimes happens, that the return would have come only from the southern part of India."

Even the marketers must stop carpet bombing. Media Owners cannot be held responsible for huge wastage.

Advertisers should accept the fact that multimedia plans works better than other plans. Hence, he asked them not to put all their money on TV, but invest more on multimedia platforms for a desired result.

Media agencies should also keep this in mind that their remuneration must enable them to hire top quality employees, and provide top quality training facilities which would help them to work effectively. Even some ability must be developed to attract talent in competition to companies like BCG, KPMG, Goldman Sachs, Google and Infosys.

The ultimate truth is that price is determined not by value but by the demand supply equation.

(TV.NXT is organised by afaqs!, in association with STAR News (presenting sponsor). The other sponsors include Zee 24 Ghante Chhattisgarh, Amagi, HeadHonchos, ApnaCircle.com, Fox History & Traveller and Lukup. TV.NXT was held at the J W Marriot, Mumbai, on September 29-30, 2011.)