Mumbai: Tensions between representative bodies of advertisers and advertising agencies on one side, and television channels on another, continued to rise, despite what, at first sight, appeared like a reconciliatory step by the latter.
In a significant change of position, the Indian Broadcasting Foundation (IBF), which represents TV companies, announced on Wednesday that its members would honour all their existing contracts with advertisers and not levy a surcharge of 25% on ad rates on these. The Indian Society of Advertisers (ISA) had opposed the surcharge and on Tuesday, it said that its members could approach the courts if their ads were pulled off channels.
However, IBF said that all new contracts will involve a surcharge; the date from which this surcharge will become effective will be announced in November, after the next IBF meeting. IBF did not mention the magnitude of this surcharge and media buyers, who did not wish to be identified, are betting that it will be lower than the earlier announced 25%.
IBF also said that all contracts beginning April 2008 would be on what it termed ‘net rates’. Currently, transactions between TV channels and advertisers are on the basis of what are termed gross rates because they include the agency commission. Bills from the channels are sent to media buyers who, in turn, send it to advertisers. Payments follow a reverse route with media buyers retaining their commission and sending the rest on to the channel.
“We feel that there’s a lack of transparency in existing deals between advertiser, client and broadcasters. Clients often don’t know what the broadcaster is really charging. Broadcasters do not know how much money lies with intermediaries,” said Uday Shankar, chief operating officer, Star India Pvt. Ltd.
However, a media buyer claimed that this was just another way of increasing rates. Charging net rates did not mean ad rates would come down by 15%, this media buyer said.
Agency commissions once used to be 15%, though most advertisers now negotiate better rates with their agencies. If television channels simply decided to convert what was until now—their gross rate—into a net rate, it would mean an increase of 17.65% for advertisers, explained the media buyer (instead of paying, say Rs85 for a spot, they will now pay Rs100, because the commission is no longer deducted).
On top of this, advertisers would have to pay commission to their agency. “Add to this the upcoming surcharge—whether 10%, 15% or 25%—and you have a steep hike in ad rates,” said the media buyer.
The ‘net rate’ concept challenges the traditional relationship between media and agency and client. Media buyers and advertisers fear that other media could follow television’s example.