Questions multiply as CCI's continuing investigation rocks the ad and media business

The news reports continue to flow. But each additional piece of news analysis about the CCI investigation into India's top media agencies raises more questions than it provides answers.

With no statement from the CCI, the articles can't even agree on what the crux of the matter that has shaken the business is.

A. Were media agencies colluding to rip off advertisers?

B. Or, were these agencies getting together with broadcaster/s to hoodwink advertisers?

C. Or, were media agencies ganging up informally to beat down the broadcaster/s on rates?

And then the question of why this action was initiated in the first place. If, as most stories say, it is the advertisers who were being short-changed, did one or some of them approach the CCI? 

Surely not. Unlike, say, real estate, media buying is a competitive but relatively non-politicised business. At an industry body level in the past, the ISA (Indian Society of Advertisers) would register a protest with, say, the AAAI (Advertising Agencies Association of India) if many companies on both sides were in conflict over an issue. More likely, an unhappy advertiser would fire - or at least sharply reprimand - the media agency if he/she was being done over. (The only segment of Indian media business that is heavily politicised is the news channel business.)

So, who complained against these agencies? Another media agency? A broadcaster? Or was it someone in the government who prodded the CCI to examine the purported hanky-panky? But, then, why should the Government care about what is a simple commercial relationship between buyer (advertiser) and service provider (agency)? These exist in every industry but officialdom doesn't care as long as statutory requirements are fulfilled. Was that the case here?

The CCI on Tuesday raided the offices of top media agencies, including GroupM, Dentsu, Madison, Publicis, and Interpublic Group (IPG), across Mumbai, New Delhi, and Gurugram, probing alleged cartelisation in the media and advertising industry. As part of the investigation, CCI officials also visited the Indian Broadcasting and Digital Foundation (IBDF), which represents major broadcasters, including JioStar, Sony, and Zee Entertainment. 

As mentioned earlier, the CCI does not have a reputation of raiding the companies it investigates: mostly, it only summons them and demands information. The only other reported case was the one involving Pernod Ricard and Anheuser-Busch InBev who were raided by CCI about a year ago over alleged pricing collusion with retailers.

Speculation is especially rife because this action comes days before the country's most celebrated sports and advertising event, the Indian Premier League (IPL) on March 22. All the agencies have placed big bets on IPL on behalf of their clients and this gives rise to the next logical question: Does the timing of the investigation have anything at all to do with IPL? Or was this merely an extraordinary coincidence?

afaqs! reached out to over a dozen media experts. Not surprisingly, only a few were willing to speak on and off record.

So, will IPL, which is expected to see advertising of between Rs 6,000-7,000 crore across different screens and team sponsorships, be impacted by this last-minute mayhem? 

Krishnarao Buddha, a well-known marketing and media expert, says that "most deals are already signed and may continue as planned. However, new sign-ups, which typically occur based on audience response after 10-15 days of the tournament, may be impacted. Advertisers looking to join mid-event might hold back on sign-ups." He thinks that the raids could lead to a revenue-loss of 10-15 per cent and perhaps more if the matter isn't sorted soon.

Another insider, who preferred to remain anonymous, points out that 30 per cent of the IPL deals that were expected to come through this week are currently in limbo because the main actors on the agency side are otherwise occupied.

Meanwhile, Anita Nayyar, another expert, feels that though the timing of this issue, just before a major event, does leave a bad taste, the impact will be minimal as most IPL sponsors and long-term advertisers are already on board.

“There might be some effect on advertisers who decide later based on match progress (quarter-finals, semi-finals, etc.), but with the event just days away, everything is settled. For long-term advertisers—partners, sponsors, and category-specific sponsors—there’s little to no impact,” she adds.

In terms of its effect on the overall adex, all three experts agree that it will have minimal to no impact. Buddha says it is likely to be around 4-5 per cent, as this issue is limited to major tentpole events.

The experts are more concerned with the long-term ripple effects. Media buying is not a terribly transparent affair at the best of times and all this talk of collusion may make advertisers even less trusting of their agencies. Their trust will have been shaken, thinks Buddha.

Nayyar believes that in some ways advertisers have brought it upon themselves. They've squeezed media agencies to the point where they work on wafer thin margins of 2.5–3.5% of the money they funnel into media for their clients. “Rebates have long been an accepted industry norm—when agencies place large media volumes with publishers they receive discounts. However, the revelation that agencies are actively fixing rates with publishers to prevent clients from accessing lower prices is concerning. While volume-based rebates are standard, outright rate fixing crosses a line,” she says.

Here's hoping that something good comes out of what has turned out to be a messy affair.