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.
The concept has been spoken of before, say advertisers and media buyers. The problem with net rates, some media buyers who did not wish to be identified said, is that there are channels that function without rate cards. Rates, they added, varied depending on who was buying the media and how much of it was being bought.
“The existing system (gross rates) is completely transparent. I am sure that the clients don’t think that agencies work for free. It’s a futile exercise to go into net rates, and I don’t quite see the point,” said Anupriya Acharya, president, TME, the media arm of Rediffusion DY&R Pvt Ltd.
Meanhile, with IBF insisting that it will go ahead with the surcharge, ISA and the Advertising Agencies Association of India (AAI), the apex body of ad agencies said they would continue to oppose this.
“We continue to reject the surcharge, whether now or later,” said Rahul Welde, vice-president (media services), Asia, Hindustan Unilever Ltd, one of the country’s biggest advertisers.
“The entire premise of the objections raised by the AAAI and the ISA is that you cannot arbitrarily (collectively) and unilaterally bring a flat increase in rates. It has to be individually negotiated between each client and each broadcaster,” added Acharya.
Senior executives at advertising agencies echoed this.
“Working as industry bodies, there’s a great need to discuss, collaborate and negotiate, rather than taking unilateral positions and getting everyone’s back up. I urge everyone to do so,” said Pranesh Misra, president and COO, Lowe India. And Jagdip Bakshi, CEO, Contract Advertising Pvt Ltd, said that while every business has the right to raise prices, “the method must not be a price-fixing cartel.”
People at ISA say that IBF’s decision to impose the surcharge—it had initially set a deadline of 15 October for advertisers to accept the surcharge with those that did being given a waiver of a month—has actually seen membership of the advertiser body going up, with more advertisers joining it because they want the protection it can provide.
Meanwhile, IBF said there were: channels which have confirmed they will not accept ad deals without surcharge including Bindass, ETV-Northern states, Network 18, INX Media, Janmat, NDTV, Ten Sports, Times Now, Sahara Sony, Star, Zee; channels which have confirmed implementing surcharge on new deals including Discovery, ESPN, India TV, TV Today and MTV; channels which have confirmed they will not take any deal from a client which has been cancelled on other channels on account of the surcharge issue; and channels which are not implementing surcharge on existing as well as new deals including BBC, Doordarshan, and Turner (IBF claims the final positions of these broadcasters is not known).
“Not one IBF member has said that they are not in principle aligned with the substance of the surcharge. Many of them have been advised by their legal counsels that not implementing or changing contracts could invite legal implications. We appreciate the fact because a large member of IBF members have companies incorporated internationally and are subject to laws outside India,” said Shankar.
The tussle promises to heat up in coming days. Some media buyers see a reduction in the quantum of advertising on television in the ongoing festive season because of it. And sd spends on TV could dip appreciably when it’s time to ink the new contracts, say others