Ad cap effect: Rising customer satisfaction & ad rates

06 Jun,2013

 

By Ananya Saha

 

Broadcasters have agreed to the toe the TRAI line on 10+2 minutes ad duration in a phased manner and fully with effect from October 1. Is it a good call? Will it impact the broadcast industry as the ad inventory comes down to almost half? What should be the broadcasters’ strategy to balance the revenue since it might take time for digitization benefits (subscription revenues) to shape up? MxMIndia asked industrywallahs what they think.

 

PM Balakrishna, COO, Allied Media

The regulation is certainly going to have an implication. There will be a huge change that the broadcast and media industry will have to make. The broadcast industry is skewed towards time bands, where prime time commands higher rates. With lack of ad space, the demand will see an increase. Price will become an issue. It is the medium that will start becoming a problem. At increased costs, the television medium will have to justify the cost to the clients. It is a preferred medium for many brands but with increased costs, they may start looking at other media options. It might create ripples.

 

At the moment, brands and clients have not looked at it much. The industry is in the habit of not reacting till it lands on their head. But in the next one month, clients will start reacting. Going forward, a lot of advance booking will come into play. The move has been strategically placed around the festive time and hence may become chock-a-block. It will affect client and media agencies – we will have to plan much ahead.

 

Punit Goenka, MD & CEO, Zee Entertainment Enterprises Limited (ZEE)

Increasing rates – to keep pace with the increased reach of our media brands – is an on-going endeavour of the sales team. Now, in light of the TRAI directive, requiring us to reduce inventory which will enhance the overall viewing experience to a more engaged audience, the advertisers only stand to benefit multi-fold. So, with our advertisers getting a much better media proposition, the value for the same will also be at a premium. As such, our efforts to increase rates will only get further intensified. The extent of increase in rates will vary across genres and will be through a process of renegotiation of all contracts in a phased manner between July and October.

 

Nina Elavia Jaipuria, EVP and Business head, Kids Cluster, Viacom 18 Media Pvt Ltd

There are two implications of it: long-term and short-term. In the long term, it is good for all parties, including the advertisers, broadcasters, audience. It is a win-win situation in the long term, and it is important to keep that in mind when we look at the short-term implications. There is bound to a short-term pain for a long-term gain. The subscription revenues, to start showing results post-digitization, will have to wait. Ad revenues will fall. However, with limited inventory, the ad rates are bound to increase.

 

The ad rates in kids category has not seen growth in a while. The only increase happens due to FCT or a new channel launch. Most of the growth has come from increased inventory, and it does not make sense since we tend to over-depend on it. With an increase in inventory, the ad rates do not go up. There, clearly, has been over-utilization by about 15-20 percent.

 

We are looking at increasing ad rates by 25-30 percent. We have started working along with the clients and will comply with the deals and contracts. By the time October comes, we should be ready! However, this 10+2 ad cap assumes 100 percent usage of ad time, which might not be true especially in our category. So the ad rate increase will have to take care of it.

 

Rahul Johri, SVP and General Manager – South Asia, Discovery Networks APAC

Our core mission is to satisfy viewers with the highest quality and entertaining programming. We are equally committed to offer the maximum value to our clients who continue to appreciate Discovery’s networks’ efficient and effective inventory.

 

 

 

Ashish Pherwani, Partner, Advisory Services, E&Y

Basically, this regulation will have an impact on broadcasters. By reducing the available inventory, it will put pressure on ad revenues. Broadcasters will try to combat this in three ways: (a) reducing content cost (b) trying to increase ad rates and (c) trying to increase subscription income. Channels with a heavier skew towards prime-time advertisements will face a higher impact. What will be of interest to see is how advertisers react to the reduction in inventory available for prime-time shows.

 

Shailesh Shah, Secretary General, Indian Broadcasting Foundation

No one is being asked to, and no one is “toeing a line”. Every single broadcaster believes that advertising should be in line with the law enacted in the mid-1990s. There are no exceptions. Some believe this will happen naturally as consumers make choices; some believe it can be done in line with digitization. The zillion-dollar question has always been “by when”. None of the broadcasters are really ready for a fell swoop, however.

 

Even though the law has been in existence for almost eight years (Advertising Code of the Cable Television Act), it never got enforced as the government probably felt a new industry needs to develop its roots before such a law can be enforced. The authority (aka government) apparently feels the roots have grown well and it is now time to enforce the law.

 

Broadcasters formed a well-represented committee to find the least-resistant and least-harmful way to help make that happen. The transition it has worked out is best, under the circumstances.

 

Will it hurt? Most certainly, in the short term it will be agony – to advertisers, to agencies and to broadcasters. On the flip side, it is an opportunity for the broadcasters to come together to ensure digitization is done completely and in a hurry so that the thus-far-elusive subscription revenue kicks in, alleviates the pain and, hopefully, makes it go away. Clearly, it will become difficult to survive if one is at the periphery of the industry or has not become relevant as yet. New entrants will find it difficult to get things going in the short term. Regional players will also face hardships. Over time, as alternative revenues come about, and the battle for lesser space intensifies, I believe the industry will find its new level.

 

Advertising rates have always been addressed by market forces, and will most certainly continue to do so. Where the enforcement-related water-line settles is to be seen.

 

The advertising inventory today is an average of just over 11 minutes per hour as measured from daily inventories. The inventory, where it matters, will come down, however, but much less than by half. In general, please understand that it has not been as bad as it is being made out to be.

 

Here’s the irony. There are well over 60,000 local cable operators. No one in the Government has an estimate of more than 75 percent of these. There are close to a 1,000 MSOs. The Government knows about 60 percent of them. These distributors manage their own (mostly) local channels and, as if it were a cottage industry, are not regulated at all. It is estimated that there are well over 30,000 such television channels operated across the country and several of them produce and carry news too. In comparison, the broadcasters are licensed for just over 800 channels, operate just under 650 channels and quite a few are still reeling under the current economic circumstances.

 

The broadcasters are the real Davids in all this and the distributors, who purport to catch a cold every time broadcasters sneeze, are the real Goliaths. I really have not understood what is being “regulated” as a result. The complex sagas of the world’s largest democracy are far more interesting than fictional dramas.

 

To sum up, India needs to digitize at break-neck speed. The industry will hurt in the interim. The quintessential cultural undercurrent of the Indian populace and its businesses that says “this is my fate” will decide what really is the fate of the industry!

 

Ashok Venkatramani, CEO, MCCS

Eventually, it is a good thing – especially from the point of view of the consumer. However, the speed and abruptness with which it is being implemented is a serious cause for concern. It puts undue amount of pressure on a broadcaster who is yet to reap the benefits of digitization and is not sure how it will reflect on the revenues.

 

In the long run, yes, it is good for everybody. It will put pressure on broadcasters like us to create much better content. And of course, it is healthy for the consumer.

 

We are contemplating an ad rate increase, and will announce it very soon. An ad rate hike, when the regulation is being implemented abruptly, is inevitable.

 

*Responses are in alphabetical order by last name

 

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