TV ad regulation: Direct effect on content cost

The Telecom Regulatory Authority of India's (TRAI's) recommendation to cap the duration of advertisements on television at 12 minutes per hour has thrown open a huge debate. While many are of the view that the implications could be many, the decision is overall expected to largely have a three-fold impact.

Impact on content

A reduction in the minutes of inventory would evidently mean that the number of content minutes per half hour would have to be increased. This means that the cost of producing content will also have to move upward. Consider this: if a general entertainment channel (GEC) currently pays Rs 7 lakh (approximate) per episode with a 22 minute run, the per minute cost for the episode comes to Rs 32,000. Now, with TRAI's recommendation at hand and consequently, the content minutes going up, the 22 minute run could extend to an estimated 24 minutes.

Therefore, a two minute extension of an episode would mean that the GEC will have to shell out at least Rs 64, 000 extra per episode; this means that the cost of that one show will go up by Rs 3 lakh per week and if runs for at least 15 weeks, then the costs are up by 45 lakh per show. Now, if a channel is to run even five original shows a day, the costs will go up by Rs 2.25 crore a quarter!

Sourabh Tewari, managing director, Nautanki Films, says, "With an increase in the content minutes, the cost of producing that content episode will also increase on a pro-rata basis. If the channel is not able to pay that extra cost, the quality of that content will finally get compromised because after a point, the producer would have to cut down."

Broadcaster's dilemma

Industry experts are of the view that the Indian broadcasting ecosystem is still not ready for the development. Indian broadcasters are still heavily dependent on advertising revenues as enough income from subscription is still a distant dream. Therefore, cutting down of ad inventories and a fixed ceiling on the ad minutes would mean that a channel would have to increase the per-second advertising rate. And, in a market where marketers feel that television is already overpriced, this could mean bad news.

"There has to be a rational in the pricing. Today, marketers are already squeezing channels for rates. And with such a move, TV is only expected to drive away the advertisers. While brands with deep pockets could think of locking inventory for a while, smaller advertisers will start looking for other options," says P M Balakrishna, chief operating officer, Allied Media.

The move will have a cascading effect, say many. Experts state that while the regular advertisers keep a channel's bottom-line safe, it's the seasonal and occasional advertisers who help the channel earn the profits.

For example, if an HUL or a P&G (both regular advertisers on TV) pays Rs 75,000-80,000 for a 10-second spot on primetime fiction on a GEC, an occasional/seasonal advertiser shells out an approximate Rs 1.2 lakh for the same spot. "And with this move, the channel will not be able to make the extra numbers and yet have to spend more on content. This could eventually lead to a compromise on the quality of content," says a top media executive on conditions of anonymity.

It's not just this! The impact could also extend to channel promos, packaging and brand commercials. If a brand wants to invariably become a part of that 12 minute inventory, apart from paying more money for the spot, the commercial time of the creative could also get reduced. This could mean that a story that is now being told in, say, 10 seconds could eventually be pushed to become a 5-8 second narrative. And with so much money spent on creating one commercial, the brand might eventually choose to walk away from television after all!

According to R S Suriyanarayanan, business director, LMG, with a fixed upper limit, the gap between the ad rate variations will be narrowed. Currently, inventories, especially of GECs and movie channels, are more often than not choked. Therefore, there is a filter that works wherein the lower rate brands are automatically dropped out during a programme run time.

"With this move, the lower commercial rates will have to go up if the brands want to be a part of that particular hour inventory. This will narrow the gap and lead to more standardisation of prices," he says.

Impact on viewers

As of now, the move is expected to be a gain for the viewers. With a cut in the inventory time, the drop in ratings owing to the ad breaks will reduce, thereby leading to overall audience stickiness. For example, if a half-hour show delivers a rating of 2.5 TVR and its ad break delivers a TVR of (say) 1.5, with the inventory cut, the ratings of the show is expected to go up even further.

However, here is the dig. This also means that the popularity of that ad break is pulled down. Consequently, this could also mean that a brand's impact on a viewer could slip down multi-fold, opine industry viewers.

"While the move could prove to be good for the industry provided all other things remain constant, one has to understand that it's a game of demand and supply, and everything is ruled by market forces. Therefore, the decision in the ad inventory time should finally rest with the broadcasters because at the end of the day, they too understand that too much of advertising could lead to audience fatigue," says Pankaj Krishna, founder and CEO, Chrome Data Analytics & Media.