The 20 per cent conundrum

Sherlock Holmes got his fix by injecting himself with a seven per cent solution of cocaine. The Government is more generous. It has decided that the public can get its fix from a 20 per cent solution of ads – interspersed with a programme.

Unfortunately, the Indian viewer is currently getting a much stronger fix of ads, which means that come October, when the new rule comes into effect, there’s going to be a sharp drop in the number of ads being beamed at viewers every hour.

Television channels will need to cap ad breaks at 12 minutes per hour, the limit fixed by the telecom and broadcasting watchdog Telecom Regulatory Authority of India (TRAI), which has finally issued orders after trying to enforce this rule since last year. It has earlier said that the ad restriction is part of the advertising code in the Cable TV Act.

The 12-minute cap includes advertisements as well as programme promos for broadcasters.

Rates set to zoom

The immediate response from broadcasters has been predictable – most have said that they will increase ad rates to make up for the revenue loss. Estimates suggest that ad rates could go up by 20-30 per cent, depending on the genre.

Raj Nayak, CEO of Colors, says, “In the short run there could be a bit of turmoil, especially in certain genres. But in the long run, it will be good for the entire industry and stakeholders. The advertiser is unhappy with the ad clutter and hopefully the cap on ad inventory will address this. Over the last few years, ad rates have been stagnant and growth, if any, comes on the back of increased inventory.”

He added that with the supply-demand ratio changing, spot rates will hopefully find their fair value and said that despite rate hikes, television will continue to remain the most inexpensive medium to advertise because of its large reach.

Broadcasters said ad rates would have anyway gone up 12-15 per cent due to rising costs. But now they will hike ad rates to about 20-30 per cent. Most broadcasters have already got into negotiations with brands for future contracts.

Officials at Zee Entertainment Enterprises in an emailed comment say, “Increasing rates – to keep pace with the increased reach of our media brands – is an ongoing endeavour of the sales team. Now, in the light of TRAI’s 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.”

Zee says it is in a “process of renegotiation of all contracts in a phased manner between July and October.”

Last year, broadcasters questioned TRAI’s move to restrict the duration of the advertising and had even sought legal recourse. As digitisation has not yet taken effect across the entire country, they were yet to see an increase in subscription revenues, they said. They had suggested TRAI enforce this rule only then. However, TRAI has stuck to its stance and in the latest negotiations, broadcasters seem to have finally agreed.

Broadcasters say they are now committed to following the rule despite the challenges. Man Jit Singh, President, Indian Broadcasting Foundation, and CEO, Multi Screen Media, said, “It will be to the benefit of television viewers. It will obviously lead to a reduction in ad inventory. But it will also make television an even more effective medium for brands.”

More wrangling?

Analysts believe that while the general entertainment channels and sports channels might not take a big hit due to the reduction in ad break limits, genres such as movies, news, music as well as regional players are expected to be more adversely affected. They also say that the transition to the 12-minute limit might not be smooth and could see a second round of litigation.

Media planners, however, are still formulating their future strategies. They are grappling with the impact of the ongoing digitisation as gross rating points are falling for all genres. Gross rating is a term used in advertising to measure the size of the audience reached by a specific medium or programme.

Mona Jain, CEO, Vivaki Exchange, says the entry-level cost for advertising on television will shoot up, but adds that less clutter will mean more time spent by viewers, making advertising more effective. “Advertisers may now be able to buy fewer spots and yet make a bigger impact. Brands will need to recalibrate the benchmarks and definitely rethink their strategies,” she added.

Neeraj Jain, Senior Director, Deloitte India also said that though rates for advertising shoot up, advertisements will now have better recall value.

Meanwhile, Smita Jha, Leader - Entertainment & Media Practice at PricewaterhouseCoopers, said the industry hopes that this will finally increase ad budgets. “Earlier, companies did not see the need for massive increase in ad spends because they did not see higher returns on investment in the analogue cable environment. With the ongoing digitisation, they may finally see more transparency and increase budgets.” Jha also believes that the real impact will only be evident next year as advertisers draw up fresh plans for ad budgets.

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