TV ad regulation: What's the dilemma?

The new TRAI notification will cut down channels' ad inventory by almost 50 per cent, compelling channels to increase ad rates.

The Telecom Regulatory Authority of India's (TRAI's) 'forced' notification to cap the duration of advertisements on television at 12 minutes per hour has irked the broadcasters one more time. While broadcasters agree that the move is much needed, there is also a universal consensus that the 10+2 model cannot sustain in isolation.

Why?

Even as digitisation roars its way up to meet its sunset date on time (2014), the Indian television industry is yet to reap its benefits. Subscription revenues are yet to kick in and channels are still heavily dependent on advertising, which attracts more than 70 per cent of a channel's overall earnings.

Currently, channels run an average of about 20 minutes of ad commercial time in an hour. Now, given the new TRAI notification, a channel's inventory will be cut down by almost 50 per cent. Consequently, the channel will have to increase its ad rates by the same percentage, if not more, to keep its revenue level constant. Needless to say, business will be affected.

"The move is not just detrimental for the industry but also for the brands. I cannot envisage any brand suddenly doubling its ad spends or starting to give double the price of what it was giving just yesterday," says Ashok Venkatramani, CEO, MCCS.

Broadcasters are aware that too much advertising can drive away viewers; however, some note that they are forced to play the volume game because, in addition to low subscription revenues and very high carriage costs, "brands are not ready to pay the desirable CPRPs".

Currently, there exist about 550 channels. Of these, 100-150 channels are part of networks and thus, into serious selling. Within the networks too, it's the flagship Hindi GEC (Star Plus, Zee, Colors and Sony) owners who draw in the finer chunk of the advertising budgets as the rest of the genre channels (news, music) are used only as frequency builders.

For a top GEC, the ad rates stand anywhere between Rs 70,000 and Rs 85,000 during primetime; for news channels, the numbers stay at about Rs 3,500-5,000; and for the remaining 300 channels, the 10-second spot ad rates could be as low as Rs 300-400. Not to forget, a major portion of this revenue is re-invested into content.

Pawan Jailkhani, chief revenue officer, 9X Media, says, "The subscription revenues that are currently generated are not big enough to compensate the investments that go into broadcasting; and with the ad rates at their lowest despite the increasing number of television households, channels will only have to struggle further if the 10+2 ad cap is to be implemented now."

The advertiser's dilemma

While broadcasters complain about low ad rates, ad regulation has put many advertisers in a fix. A lot of advertisers believe that the 10+2 ad cap will benefit the cream channels. This means if a channel is within the top viewing bracket, which caters to a particular brand's TG, even an increase in ad rates will not drive away the slot buyers. Rather, with limited inventory available (since bigger advertisers may get into long term deals and block inventories on top channels), brands may have to move down the ladder to buy space on fringe channels, which are not reckoned in their current media plans.

However, the regulation could also drive away a lot of mid-sized advertisers from buying slots on television.

"Any brand has a finite budget. Hence, tomorrow if TV is to double its ad rates while ROI from it is halved, the brand manager is answerable to the bosses. They will probably think TV is not as effective, so cut down on TV and go elsewhere," says a brand manager on conditions of anonymity.

Adds Venkatramani, "There will be shrinkage in inventory, so a large number of SMEs, small individual brands and smaller brands in larger companies will face inventory shortage. For example, Levers has 25-30 brands advertising on TV today. Tomorrow, if the inventory goes down by half, maybe 15 brands will have no inventory to advertise on."

All's not lost

However, the industry is not totally opposed to the new ad regulation. It only wants the implementation of the regulation to take place once digitisation meets its requisite deadline (2014). Once digitisation is fully implemented and substantial subscription revenues start flowing in, broadcasters will find more clarity to create and craft a new revenue model.

"Once digitisation happens one can work on a CPT deal rather than CPRP," says a much hopeful media planner.