Paritosh Joshi: How to make a really spectacular mistake

26 Jul,2012

By Paritosh Joshi

 

In all our lives, there are tales of misadventure that we bury away deep and try our darndest to forget all about. Today it’s time to ferret out just such a story from the not so distant past and see if there’s something, anything, we might learn from it.

 

The year was 2007. Private Television broadcasters were trapped in a financial vice. Costs were on a tear as good content: entertainment, sports or news, commanded big premia. Revenues crawled as new entrants into every genre constantly expanded advertising inventory and made price increases difficult. While advertising revenues were still growing, a lot of the increase was attributable to ever-laxer controls by broadcasters on advertising duration leading to flat, or even declining, yields. As an advertising sales person myself, back then, I asked for an analysis of Average Spot Rates (ASR), a very commonly used and easy to compute yield metric, across key genres and channels for the previous three years. My hypothesis, which proved agonizingly right, was that the bulk of revenue growth for channels was coming from selling more inventory and little or none from better ASR. Obviously, I wasn’t the only one seeking such analyses and soon the issue began to dominate all conversations between broadcasters.

 

Here was what the broadcasters were seeing:

  • Television penetration was galloping along, adding up to 10 million new homes, up to 45 million viewers of age 4 and above, every year.
  • Cable penetration was growing by almost an identical figure, having moved up from under 30 million homes in 2005 to over 47 million in 2007.
  • GDP was up 9 per cent for 2007 over 2006 and maintaining healthy buoyancy.
  • Distribution revenues were not a source of any joy as platforms had begun to seek carriage fees to monetize the chronic scarcity of capacity on a decrepit analog network. In the meanwhile, TRAI was binding broadcasters hand and foot where it came to wholesale pricing of their content to platform operators.
  • Media agencies were relentlessly using the dreaded CPRP (Cost Per Rating Point) to pummel advertising prices down. Even category leading broadcasters were unable to exercise pricing power in the face of CPRP maths.
  • While more broadcasters constantly entered the market, the demand side represented by the media buying agencies was getting ever more consolidated. Already, the top two agencies controlled very nearly two-thirds of the advertising spend on TV between them. They had achieved this, primarily, on the back of their ability to extort low prices using their virtual oligopoly combined with the willingness to drop commission rates to low single digit percentages. While the standard terms of trade indicated a 15 per cent agency commission on TV advertising, the media majors were actually working on less than 5 per cent, passing on the spread as additional discount to the advertisers.

 

It was clear to broadcasters that the situation could no longer be permitted to drift but what were they to do and how? A team of planners from across broadcasting organisations was asked to develop a recommendation. Everything had to be done with considerable secrecy, lest word get out and the project be stillborn. The plan was in. Voila! We would all, every last one of us, collectively impose a 25 per cent surcharge.

 

Needless to add, the plan asked for way more resilience from broadcasters, particularly the small and vulnerable ones, than they could muster and in a classic predator-prey drama, they were arm-twisted on the pain of the death-of-a-thousand-cuts by M-this and M-that into abject capitulation. The plan unwound within 72 hours leaving a lot of us with unpleasantly puce visages. An awful mistake had been made. I could tell you the whole ugly story of who shafted whom, when and where but sadly, in a reversal of the trope, if I told you, someone would have to kill me.

 

Now here is the really terrible story. Most everything that made the revenue story look grim in 2007 for broadcasters still looks exactly the same in 2012. Indeed worse in many cases, like for the anæmically bloated Hindi News genre for instance.

 

What is the broadcast industry doing about it? Can something be done about it at all?

 

First, until TV advertising is valued based on a relative, rather than absolute currency, pricing power will remain solidly with the buyers. Until we shift from the iniquitous CPRP to the universally accepted and economically fair CPT (Cost per Thousand contacts), this will not happen.

 

Second, all stakeholders in the BARC (Broadcast Audience Research Council) process would be well advised to apply their might to moving it from idea to execution.

 

Hmm. Someone will have to kill me after all.

 

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2 responses to “Paritosh Joshi: How to make a really spectacular mistake”

  1. Sameer Nair says:

    What the broadcast community needs to do is reduce inventory. Voluntarily. Across the board. While the CPRP & CPT debate plays out, lack of supply of such an essential commodity will always increase demand, price & value. OPEC!

    • Anonymous says:

      Spot on sir! But who will listen when genre leaders are themselves profligate inventory proliferators?