LookBack 2017: Struggling & Taxing year for A&M

18 Dec,2017

 

We kick off our ‘LookBack 2017’ series with veteran adperson and MxM columnist Indrani Sen reflecting on the all-important AdEx barometer

 

By Indrani Sen

 

During December, 2017 we have seen quite a few industry reviews about estimated adverting expenditure for 2017, a struggling and taxing year for the Media & Advertising Industry in India. On December11, 2017 we learnt that AdEx for the year 2017 will probably be less than industry expectation, but industry is hopeful that AdEx will revive next year.

 

The industry was on a roller coaster ride of growth from 2013 to 2015 when the annual growth rate of advertising expenditure went up from 11.3% growth in 2013 to 16.5% in 2014 to 17.6% in 2015 (Pitch Madison Reports). The sudden assault of demonetisation drove the growth rate down to 12.5% in 2016, but as predicted by the Pitch Madison Report in February 2017, industry was expecting an increase in growth rate to 13.5% in 2017. However, the early estimate of AdEx indicates that the growth rate will drop by at least 1% to 12.5%, or perhaps more. Recovery from the effects of demonetisation has taken longer time than expected by the industry analysts; on top of that the GST imposed from April 2017, created enough confusion in the market place and arrested the growth of advertising expenditure. It is now expected that the growth rate will be 11/5% or less.

 

The entire retail and distribution system of FMCG sector in India use to run largely on the system of cash transactions. Demonetisation imposed in November 2016 created total disruption in that system which was carried forward to 2017. Subsequently, the introduction of  GST added more confusion. From the manufacturing companies to the distributors to the retailers to the small kirana shops, all of them and their tax consultants /accountants are still trying to understand the implications of the new tax system. During 2017, the consumers recovered from the effects of the cash crunch induced by the demonetisation, but the choking of the distribution system has led to decline in sales affecting the advertising expenditure.

 

It is not only the distribution system of the FMCG sector which has been affected. Distribution of other manufacturing sectors and agricultural goods are also riding the same rolling boat in troubled water. There used to be a lot of cash transactions in agricultural sector which is still exempted from income tax. The entire sector is trying to come to terms with making payments through banks (not to mention the digital transactions preferred by the government) and the new tax regime of GST.

 

Recently on December 4, 2017, Zenith predicted the market value of AdEx as INR 53,918 crore. Zenith report was first published in June 2017 and revised in December, 2017. It was followed by another report by Magna, the centralised IPG Mediabrands resourceon December 11, 2017 with a prediction that ad expenditure in 2017 will be INR 60,972 crore. The DAN (Dentsu Aegis Network) report published in afaqs in June, 2017 predicted a 13.5% growth for the year, same as the Pitch Madison predicted rate. Earlier in February, 2017 the reports by GroupM and Pitch Madison were published with prediction of varying projections.

 

While, the industry agrees that 2017 saw a decline in growth rate of advertising expenditure from 2016, the estimates for the growth rate and industry size vary from one source to the other as indicated in the following table.

Estimated Advertising Expenditure     (INR Crore)
Medium 2017

Feb 2017

2017

Feb 2017

2017

 Dec 2017

2017

Dec 2017

PMAO TYNY ZENITH MAGNA
TV 21296 27378 19869 24607
Print 19869 18258 23982 20613
Digital 9144 9490   6274 10227
Radio 2008 2464    2122   2114
Outdoor 3234 2942    2178   3411
Cinema 601 672       393 N.A.
Total 56152 61204    53918 60972
Growth Rate % 13.5 10.0 11.0 11.1

 

GroupM and Magna have estimated Indian advertising expenditure in 2017 as around INR 60,000 crore, while the estimates by Zenith and Pitch Madison hovers between INR 54,000 crore to 56,000 crore. While Madison predicted a growth of 13.5%, the other three agencies predicted growth of 10% to 11% in 2017 over 2016.  It is acceptable that estimates made by different agencies will vary to some extent. It would be a more comfortable situation for all of us if the ranking of ad expenditure on different medium remain in the same order. Currently, there is a difference of opinion on which medium has the highest share in the Indian advertising pie.

 

As per an earlier Pitch Madison forecast, the industry was also expecting the AdEx to cross comfortably the mark of 50,000 crore in 2016, which fell short by few crores. In 2017, that mark will definitely be crossed, but without any fanfare as the overall moodin Media and Advertising industry is depressing. 2017 will go down in the history of Indian Advertising as an extended aftermath of demonetisation, which coupled with the woes of GST, slowed down the growth. Let us hope that in 2018, the industry will come to terms with GST, the distribution system will recover, the overall market situation will improve and growth rate of AdEx will rise.

 

 

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