GECs ad rates hike premature, say advertisers

Fearing a worst case advertising revenue scenario and in a desperate bid to project their annual revenue generation targets, major general entertainment channels (GEC’s) – Colors, Star TV, Zee and Sony have decided to hike their advertising rates by 20-30 per cent as opposed to a normal 12-15 per cent. The basis for the hike in ad rates is the order by the Telecom Regulatory Authority of India (TRAI) that has put a cap on the amount of advertising time TV channels can have. Come October, TV advertisements will be restricted to 12 minutes for one hour programming -10 minutes of client’s advertising and 2 minutes for promotion of in-house programmes.

With limited avenues of monetization, the industry has traditionally been solely dependent on advertising revenues to sustain itself. Reacting to the development, RK Arora, CEO, NewsX said, “We are not against TRAI regulation, but, we want it to be in abeyance till the entire digitisation is implemented across the country. As post digitization, news broadcasters will have clarity about the carriage fees. These regulations have been issued at a very in-conducive time, as the revenues of the TV Broadcasters especially in news genre, could be hit due to the TRAI capping the standardised FCT duration for the channel at 12 minutes per clock hour.

He is of the opinion that news channel will be affected as they have to deal with  situations for e.g. Breaking News, Union & Railway Budget , Elections, 15th August and 26th January programming, where in, they cannot have advertising breaks as it may lead to huge losses. The broadcaster should have the liberty to modify the capping on per day basis and flexibility of consuming the unused FCT on the same day. News channels are hugely dependent on advertising with a major chunk of their revenue being derived out of it. Even after 1st and 2nd phase of digitization, the carriage fees have not reduced as per expectations which enables broadcasters to bear the loss of the reduced FCT.

Commenting on the cap, Deepak Jacob, President and General Counsel (Legal & Regulatory), STAR India said, “The TRAI directive will have a short-term impact on the entire broadcast space. The impact will be more pronounced for certain genres such as Hindi Movies, Hindi News, Tamil, Telugu and Music.” On a more balanced note he adds that the long-term impact will auger well for the entire industry and will enhance consumer’s viewing experience.

Said another senior broadcaster said, "We do not want to go against TRAI's regulation. It will take time to implement things though in the short run it will have a diverse effect on the broadcasters."

In the current scenario there is already a shortage of ad inventory on GEC channels and changes in the supply-demand dynamics are expected going ahead. One problem that broadcasters might face is that most channels have signed long-term contracts with advertisers. So contracts made on low budgets may not get renewed. Channels will also need to find new ways of doing business in the new environment. Most GECs fear their inventory will come down by 20-30 per cent from October. Restricted time means fewer ads and thereby affecting revenues since the Rs 14,000 crores TV advertisement industry is heavily dependent on this. The full impact of digitization led revenues is yet to be realized. Also cap on advertising time and thereby revenues would imply that GECs have less ability to invest in high-cost programming like reality TV.

Coming to ad rates hike, Colors will be increasing the ad rates by 30 per cent from July 2013 onwards. Justifying the hike Raj Nayak, CEO, Colors said, “The rationale is that we as a broadcaster have still not seen the full impact of digitization in the form of either a fair share of reduction in carriage fees or subscription revenues. Given that we are a responsible broadcaster and intend to follow the guidelines set by the regulator, we believe that to stay on course and in order to meet the revenue objectives, we are left with no option but to increase ad rates.” He adds further that in the current scenario there is already a shortage of ad inventory on GEC channels with most of them having over sold. With the cap coming into play, the pipeline is only going to get narrower and change the supply demand ratio.”

Echoing a similar sentiment, Punit Goenka, MD and CEO of Zee Entertainment said “We are increasing rates to keep pace with the increased reach of our media brands. It is an on-going endeavor 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 it will be through a process of renegotiation of all contracts in a phased manner between July to October.”

According to Ajay Trigunayat, CEO, English Entertainment Channels of Times Television Network, “This is a welcome change resulting in better viewing experience. Yes, the ad rates need to be increased to compensate for the drop in inventory. The English Movies category will witness a rate correction of 30% + only on this count.”

How are the advertisers and brands taking the proposed hike in ad rates particularly at a time when the economy is going through a bad phase and the annual growth has come down to just 5 per cent. Experts might feel the 30 per cent ad hike to be on a higher scale. Commenting on the same, a media planner on condition of anonymity stated that the proposed hike is quite steep and is a little premature at this stage, given the fact there is still time before it actually kicks in. Also, it is important to pay attention to the fact that with digitisation, the ad break viewership has also gone down. This would make advertisers look for alternate ways since they would want to wait and watch.

A senior media professional on condition of anonymity opines,“It will be difficult to comment at this point since we haven’t received any official communication from most of the channels. The information we are receiving on the ad hike front is by way of what is written in the media . It is too speculative at this point. We would be able to take a stance in a few months time as post IPL almost all broadcasters are launching new properties and the pressure is on inventory sellout. Also it depends on the property the channel is trying to leverage and the client’s willingness to invest in the same”

Avers a senior vice president of a leading ad agency, “The rate hike was imminent because there is less inventory to sell but similar revenues to generate for channels. However, there are two things that need to be addressed. First what is the basis of a rate hike when there isn’t a defined rate card. Channels need to get transparent there. Only TV Today group, Sun Group and DD channels follow rate cards & they can claim to be transparent in a rate hike. Rest of the channel’s rates are shrouded in mystery. Second the government should also put a cap on a number of channels in operation so that fragmentation can be reduced and yield is better for both channels and advertisers. The regulation in its current form is very draconian. The government should only allow certain channels to function if a minimum revenue yield is being delivered.”

At the moment all that can be said it that the hike in advertising rates is to bridge the gap from reduction in available inventory to broadcasters on account of the decision by TRAI on the cap. Each broadcaster or channel will increase their rates basis their current P&L and the impact of reduction in airtime over what they are currently selling over the cap and any other escalation in input costs.