Broadcasters show strength

Why the advertisement blackout was a good sign for TV

On Wednesday, many of India's television channels were forced to go advertisement-free, thanks to disagreement between broadcasters and advertising agencies over how advertisements were billed. Like scam advertisements, the dispute over net payment billing reveals an advertising agency industry stuck in the 1980s. After all, net billing will fix a faulty billing system that has continued for decades and ensure complete transparency across the value chain. So far the broadcaster was billing the agency for an amount that didn't pass through its hands. The tax authorities asked it to pay service tax on that gross amount; the broadcaster is now telling the media agency that instead of billing it on the gross amount, the bill will be based on the amount that it actually gets. You could argue that broadcasters can always offset the service tax against their other tax liability and, therefore, bills on the gross amount would not necessarily mean a higher tax burden. The law offers that facility. But broadcasters argue, correctly, against a billing system that does not reflect reality. Advertisers agree. However, agencies that charge creative or media commission on the basis of the gross amount are resisting. It is not just because the base on which their commission is calculated goes down. It is also because the opacity in the system to allow them to make extra money in the spread between the advertiser and the media owner goes away.

This also shows that consolidation in the television business could be working as a force for good. The fragmented and not-very-profitable Rs 37,000-crore Indian television industry has been battered by price regulation on the pay revenue side and consolidated media buying that pushes down rates on the advertising side. More than 60 per cent of all media buying is controlled by five large media agencies. As a result, rates per 10 seconds of television advertising kept falling in real terms even as audience size kept increasing. But in the last three years, there has been some consolidation. Five networks - Star, Sun, Sony, Zee and Network18 - now represent 65 per cent of the audience. Also, the Indian Broadcasting Foundation has got its act together as a body. It forced advertisers and agencies to come on board for the Broadcast Audience Research Council, the organisation that is to deliver a new set of television ratings.

This, then, is the second bit of muscle flexing by broadcasters. The blackout of advertising across India's 600-plus channels is a reflection of the changing power equation between media buyers and sellers. As luck would have it, precedent is with the broadcasters too. Many print and online companies are on net billing. Radio operators are considering shifting to it. If agencies want to stay relevant, they will have to agree to it.