Indrani Sen: IBF Pitching Against Pitch Discount

20 Aug,2018

By Indrani Sen

 

Recently we saw an unprecedented move from the IBF chief Punit Goenka who sent an email to all agency heads asking them to take prior approval from the broadcasters before quoting any discount on their channels to the advertisers particularly during pitch presentations. So far, most of the agency heads have refrained from commenting on the same; advertisers, who actually instigate such practices and demand the same from the agencies, have been totally silent. We read an anonymous comment in exchange4media on August 13. “In a free market, only demand and supply determine prices,” said the head of a leading agency when asked to respond to the concerns raised by the Indian Broadcasting Foundation (IBF) on ‘pitch discount rates’.

The process of an AOR pitch is supposed to be confidential and the idea of getting a prior approval on the rates quoted/ used for arriving at the savings would betray the confidentiality. Even if we imagine that agencies would agree to observe the IBF dictate, on what basis would a broadcaster differentiate the discounts offered to multiple agencies pitching for the same business? How can the agencies at the stage of pitching agree to the terms and conditions of the broadcasters offering the same or differential rate discounts to them based on certain guaranteed business without the consent of the advertiser concerned? Globally, there is no such precedence of getting approval from media owners on rate discounts before making any media pitch.

Including an offer of rate discount in a media AOR pitch is not a new practice, it has been existing from Day One of the system. In fact, it is the crux of the approach on which advertising agencies were divided into creative and media agencies was the efficiency of media buying (read as discounted rate) based on large volume of media buying  Similarly, “Pitch Discount” has been an integral part of pitching for any media AOR business. This change in the mass approach of buying and selling media has been in practice for two decades, beginning in end of 1990s. It was accepted by the all the players in the market (media owners, advertisers, agencies) and has been running without any major hitch. So, what has prompted IBF to raise this issue with the agencies now?  Why are the broadcasters gunning for only the agencies without having a tri-party discussion involving the clients?

It is the advertisers who actually gained most from the system of dividing the creative and media portfolios of their advertising agencies. When the break-up took place, the traditional 15% commission was split into 12.5% for creative function and 2.5% for media function. Working in the media segment, I never understood the logic of marginalising the value of the media functions to one-fifth of the value of the creative functions. Media agencies have been struggling to make profit within the frugal 2.5% service fees since then. In some cases, their service fees have been raised to 3% or 3.5% or some incentives have been added on ROI delivered by the media plans. On the other hand the service fees of the creative agencies have been delinked with the value of the annual advertising expenditure. The creative agencies now get annual fees for their services based on the terms of their contracts varying from 5% to 8% of traditional media expenditure. The practice of calculating the creative agency fees based on traditional media expenditure has been becoming obsolete over the years. So, it is the advertisers who have laughing all the way to their banks.

It appears that the IBF members are concerned about the drop in their business margins. If there is a pressure on the margins, it is not just due to the rates negotiated by the media agencies, the growth in number of TV channels, rural ratings reported by BARC, rise of the digital media the change in the process of delivery of video content have all added to the pressure on the business margins of the broadcasters. Last week, we saw an article in Brand Equity on the phenomenon of Indians shifting from cable or Dish TV connections to OTT platform for video streaming and viewing(https://brandequity.economictimes.indiatimes.com/news/media/cutting-the-cord-many-indians-are-skipping-cable-to-binge-on-video-streaming-services/65383783). The shadow of Programmatic Buying getting extended to TV spots is also looming large on the TV industry. So, broadcasters have to take a pragmatic view of the overall situation instead of zeroing on the “Pitch Discount” offered by the media agencies.

The IBF members are at a liberty to refuse a discount promised by any agency to an advertiser which will leave the agency to stew in its own juice. In order to implement such a step, IBF needs to have a control over their own members so that when one broadcaster refuses to accept any discount, another broadcaster would not agree to accept the same. Instead of controlling their own members, IBF is contemplating taking stringent actions against agencies even to the degree of revoking their accreditation (https://www.exchange4media.com/spotlight/margin-pressures-push-industry-to-find-solutions-to-pitch-discount-issue_91580.html) which is totally unfair. It is strange that when IBF includes representatives from agencies and advertisers, such a move has originated without a tri-party discussion at industry level involving AAAI and ISA.

 

 

 

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