POV: Gross or net billing?

While the discussion between agencies and broadcasters continues, advertising has been temporarily pulled off from television screens, the only exception being made for IPL. afaqs! spoke to stakeholders on their views.

The story of commissions and margins for airtime sales dates back five-six decades. In the old days, media owners had no sales teams. They sold inventory through agents (that evolved over time into what we know now as media agencies). As compensation for their efforts, these agents got a commission of 15 per cent from media owners (and not clients). As the business evolved, the agencies realised that they were closer to the advertisers than that to media owners. This was the time when the media and creative services began to be offered under the common roof of the full service advertising agency.

From the early 1990s, advertisers started to hand over the creative and media duties to separate firms. Since the agencies were different, the advertisers then agreed to pay fees. Thus, the 15 per cent amount started to decrease.

Though the nature of the relationship changed, the billing system carried on as before, with the gross amounts being reflected. The tax authorities didn't seem to care either until recently when they sent notices to the broadcasters saying that they were liable to be taxed on the gross amount rather than the amount they actually received.

Broadcasters are now insisting on the net billing amount, without the media agency commission. But agencies are not willing to play ball. After talking for weeks, matters finally came to a head when the Indian Broadcasting Federation (IBF) advised its members to pull off all advertising which did not comply with its requirements of billing.

Given the varying reasons of stakeholders, what is the solution to the issue?

Uday Shankar, CEO, STAR India

Net billing is the only solution to this issue. Whenever there is a discrepancy in the billing amount where the broadcaster is not getting the amount which is being billed, net billing is the only logical solution.

Gross billing has always been there, but the tax department had never objected to it. But now that the broadcasters are being asked to pay the taxes on this extra 15 per cent, we had to take a stand on this. We have stopped advertising on the channels, too. The only brands who will be seen advertising on the channels are the ones who have agreed to net billing method.

Meenakshi Madhvani, managing partner, Spatial Access

One thing that I fail to understand is why are the media agencies not ready for net billing? The solution to this problem, I think, is that the agencies will have to accept the net bills. The media owners have all the right to ask for that 85 per cent bill. As it is, that 15 per cent no longer exists and the broadcasters' right to claim the net billing method is long overdue. This has come down to as low as 2 per cent.

To prevent the loss that the media agencies are bound to suffer (due to the difference between current 2 per cent of Rs 100 and the expected 2 per cent of Rs 85), the agencies can always negotiate with the advertiser to pay them the existing 2 per cent of the gross value. Largely, I also believe that this 2 per cent may just be the legitimate amount, while the other revenues might be in the range of 2-4 per cent.

Paritosh Joshi, independent consultant and a member, TechComm, BARC

If a broadcaster prices 10 seconds of inventory at Rs 100, the price is notional. In reality, the broadcaster realises only Rs 85 out of the Rs 100. The other Rs 15 are a myth. No major agency, and certainly no media AOR agency, makes that kind of commission. The spread has been used to wage price cutting battles by contending agencies. Broadcasters will need to hold their nerve but if they do, it will clean out the fiction and everyone, including agencies and clients, will benefit in the medium to long term.

Arvind Sharma, president, AAAI

Advertising Agencies Association of India (AAAI) is in discussion with Indian Broadcasting Foundation (IBF) and India Society of Advertising (ISA). We are hopeful to come to a decision by tomorrow evening.