TV advertisers threaten legal action in spat

TV advertisers threaten legal action in spat

Tensions continued to rise in the television media buying business as the Indian Society of Advertisers (ISA), the apex body of advertisers in the country, told its members that it—and they—considers legal action as one way to try and stop a 25% surcharge on TV ad rates announced by the Indian Broadcasting Foundation (IBF), which represents TV broadcasters.

IBF has said it will levy an input cost surcharge of 25% on TV advertising rates effective 16 October, which could sharply increase ad rates for television commercials for existing and new ad deals.

A letter from ISA chairman Bharat V. Patel, which was forwarded to its members by ISA’s director general Ranjeet Salvi, says the society is “exploring all legal options and believe that this action of the IBF and the individual broadcasters is patently unfair and improper".

See: Bharat Patel’s letter

The letter also suggests that “individual advertisers consider and act on the following remedies available to them in the event of a breach of contract by any party. A) File legal action for liquidated damages. B) Adjust all outstanding payments against such a damage claim".

It also suggests different letters that ISA members could write to their advertising agencies and television channels about the “arbitrary and unilateral action (that) is unfair and illegal".

“We reject any such surcharge levied by the IBF," says Rahul Welde, vice-president (media services), Asia, Hindustan Unilever Ltd, one of India’s largest advertisers on television.

But IBF insists it is ready to call the legal bluff.

Says Jawahar Goel, vice-chairman, Zee Telefilms Ltd and president of IBF: “If the matter is going to court, then let the court decide. Who are we to say anything? Most contracts have clauses for adjustment and re-negotiation. What we are doing is not unlawful."

IBF inked an agreement with the Advertising Agencies Association of India (AAAI) in early 2001 that set the contours of the commercial relationship between the two. A joint committee was formed as a part of the deal.

Says Goel: “The purpose of the joint committee was to recover the outstanding dues from the clients within the agreed credit period. We also had other conversations with the AAAI on changing the remuneration model, on account on rising costs on the part of the broadcasters, but nothing came out of it."

That inaction, says IBF, is one reason why the surcharge is being proposed.

Advertising agencies and media buyers also appear to be taking sides.

Colvyn Harris, vice-president of AAAI and CEO of J Walter Thompson India, says: “We can’t arbitrarily support something like this unless it’s fair to all parties concerned."

Jagdip Bakshi, CEO of Contract Advertising (India) Pvt. Ltd, says that the surcharge amounts to cartelization.

“If input costs have gone up, its understandable that channels would want to hike rates," he says.

“The shock was that the IBF did the price-fixing bit as a part of a joint cartel. And, that it was to be levied on all existing contracts. If you are in a mercantile agreement, you cannot possibly breach the contract," he adds.

Bakshi also wonders about the fact that the surcharge is levied uniformly across all channels. Whether the channel is worth it or not, its rates are going to rise by 25%, he says.

ISA’s Patel, echoing Bakshi’s thoughts, asks: “If all the soap manufacturers got together and hiked their price by X percent, would it be acceptable?"

Some advertisers, such as Aditya V. Agarwal, director of cosmetics maker Emami Group, say there could be other ways to deal with the rate hike.

“Broadcasters ought to honour their deals," he says. “The legal option is there, but I think that a better way for advertisers to cope is to fight cartelization with cartelization. Like five days without ads on any network," he adds.

Meanwhile, newspaper companies are trying to snag some of the ad budgets from those unwilling to pay more for television ads. Most have already drawn up lists of big TV ad spenders and are making pitches for print campaigns.

“Advertisers will undoubtedly try and balance it out from TV to print, because it’s the need of the moment," says Abhijit Pradhan, director (sales and marketing), Mid-Day Multimedia Ltd, owner of Mid-Day tabloid newspaper. “But it’s only a temporary hike for print players."

People familiar with the issue say that major advertisers such as Procter & Gamble Ltd and Maruti Suzuki India Ltd, as well as media buying agencies, such as Lintas Media Group, Mindshare, the media agency of GroupM Media India Pvt. Ltd that is owned by the WPP Group Plc., have already sent out letters as suggested by ISA. Till late Friday, Mint couldn’t independently ascertain if the letters had indeed been sent from these companies.