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The Indian television industry currently generates INR 14,000 crore of advertising revenue. Having better addressability and stricter regulatory regime India has also developed a strong subscription market for television with cable TV annual subscription revenues of INR 22,000 crore and annual DTH subscription revenues from five operators estimated at INR 12,000 crore.
It is estimated that about 30-40 percent of a total of INR 34,000 crore subscription revenues goes to the television broadcasters which comes out to be around INR 13,000 crore. According to careful estimates, in total the Indian television broadcaster’s cumulative annual revenue share stands at around INR 28,000 crore.
Compared to India, Pakistan being an emerging television market generated PKR 2,300 crore of advertising revenue during the year ending on 30th June 2012 whereas the share of cable TV or DTH subscription revenue for Television Broadcasters remains non-existent.
Staying ahead on the development curve and setting an example for emerging markets in the region, representative bodies Indian Broadcasters Federation (IBF) and Advertising Agencies Association of India (AAAI) recently reached a landmark agreement on net billing of advertising revenue. The debate opened up in India between the two bodies when quite a few broadcasters received notices from income tax department in March claiming unpaid tax deducted at source (TDS) on the 15 percent agency commissions mentioned in gross bill amounts that broadcasters usually send to agencies. It is an established industry practice that the television channel bills the advertising agency a gross amount of e.g. Rs100 against which the advertising agency pays out Rs85 to the television channel with the deduction of 15% agency commission.
Whether the new practice will benefit broadcasters or affect the advertising agency business, Anil Wanvari, CEO Indiantelevision.com, commented that there is no winning here; it is just a business practice, which is archaic, legacy. The 15 per cent agency commission is a thing of the past that came into existence when J Walter Thompson set up the first creative ad agency way back in the 1800s.
In most parts of the world the 15 per cent compensation has given way to other forms such as a media fees, creative fees, incentives, lower agency commissions of 2 to 2.25 per cent for agency of record. In India, advertising and media agencies were already operating on the new forms of compensation. But in terms of billings, the practice of putting 15 per cent on bills raised to media continued. The agency was not paid 100 per cent of the bill amount; the client never paid 100 per cent; the broadcaster never paid 15 per cent to the agency. Until the income tax department demanded that broadcasters make back payments of tax deduction at source for the 15 per cent commission, they were supposedly paying agencies. This amounted to more than Rs400-500 crore, which was unpalatable to the broadcasters because they were not paying commissions to anyone; it was only a bill, which said they did.
Wanvari added that television broadcasters in India fought tooth and nail to move over to the net billing system in which the actual money changing hands was stated. So there was no question of anyone paying tax. The agencies meanwhile are still trying to maintain the old structure. They have approached the Central Board of Direct Taxation in India to issue a circular stating that broadcasters are not liable to pay tax on the 15 per cent commission. Agencies say they need to retain the 15 per cent commission structure because around 20 per cent of agencies are still operating at that fee structure.
Uday Shankar, CEO of Star India, who is also an IBF Board member, recently announced: “We have an agreement to go in for net billing. A mechanism has been provided for in the invoice and the contract to enable agencies to charge fees separately from advertisers with effect from May 1, 2013.”
The invoices to be raised by television broadcasters to the agencies will have a rider making it clear that the advertiser and agency were free to have a compensation relationship, which was as per accepted industry practice. The agencies would charge the clients their commission on top of the bills.
The broadcaster can now bill the agency Rs85 for Rs100 value TV spot. The agency will then bill the client for an amount not exceeding 1.1765 of the net value of the bill.”
Analysts predict that the net billing will allow broadcasters and advertisers to more accurately measure their investments, performance and returns and make things more transparent at both ends with all calculations being done at actuals without the fictitious 15% commission and taking the actual 2 to 2.25% commission into account when required.
Call it a coincidence or time to for an overhaul, The Telecom Regulatory Authority of India (TRAI) and a representative committee representing the Indian broadcast fraternity has also finally reached an agreement to implement the 12-minute cap on advertising to the clock hour to be implemented in a phased manner, starting 29 May 2013.
With immediate effect, television broadcasters in India need to restrict advertising to less than 30 minutes to the clock hour. From July 1, news channels need to restrict advertising to less than 20 minute and other channels to 16 minutes per hour respectively. And from October 1, it will be 12-minute cap on all channels.
The implementation of a 12-minute per hour advertising cap will mean very limited inventory of advertising space available, which will inevitably mean higher advertising rates to be charged by TV channels. As an instant reaction to the above, four leading entertainment channels in India — Zee, Colors, Star and Sony — have announced an increase in their advertising rates by 20-30% with an announcement of reevaluating all the current deals to bring them in line with the revised rates and inventory restrictions.
Limited advertising cap will have multiple benefits with television broadcasters extending an enhanced viewing experience resulting into a better proposition for advertisers getting better returns on their investments. It is expected that the advertising inventory on major Indian General Entertainment Channels (GECs) will decrease by 20-30% by October as a result of which and the increased rates, the bottom 20% paying clients will have to go off. This will also mean that with limited advertising available, advertisers will get into the practice of advanced booking of spots which is a standard practice in more developed markets like United States.
Whether or not this will have an industry wide impact across all genres, Rohit Gupta, President MSM, commented: “This move will definitely have its impact especially on music, news and movie channels. But now that we know of it, we need to find a way to protect the interest of every genre and revisit the advertising deals.”
In Pakistan viewers have for long complained of excessive advertising during drama mid-breaks since old PTV days where it was the only television option available for advertising and hence it minted money by airing up to 42 minutes of advertising during primetime. Till date viewers also complain about excessive advertising during live cricket matches run on state-owned and private TV channels. An advertiser commented on the condition of anonymity that the upcoming Champions Trophy with only 15 one-day matches will accommodate almost Rs1 billion worth of advertising and while the international and ICC broadcast guidelines only permit up to 96 minutes of advertising (12 per hour during an 8 hour game) and advertisers not accepting premium rates therefore capping violation by up to 400 percent is the only option left with TV broadcasters to achieve their inflated revenue targets and while the private channel may have their side of the story, with billions of exclusive subscription revenue generated through TV license fee there can be no justification for cluttered broadcast of premium events by the state run channel.
With future challenges including that of digital media knocking at the doors for market expansion and most viewers already getting tuned into second screen option for consuming premium content, it is essential for bodies concerned like PBA and PAS to seriously consider taking the corrections required for a better viewing experience and learn from developments in the region by making processes less complicated for conducting business and providing an enriched consumer experience.
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