Vanita Kohli-Khandekar: The corruption in media buying

Last Updated: Mon, Jan 28, 2013 20:10 hrs

There has been plenty of discussion on the falling standards and ethics of the news media. However, several other ethical issues in the media and entertainment industry have not been talked about.

For instance, there has been almost no discussion on the business practices in the way media is bought and sold by agencies. For years I have been hearing about and discussing this with media agency bosses and media owners, none of whom will go on the record. In the last three years, the stories have got gorier.

There are stories of young media buyers who want media companies to take care of their wedding expenses. There are others who demand that media firms with which they do business should sponsor their honeymoon. Durables such as refrigerators are commonly demanded and quietly given. So are gift vouchers, foreign holidays, junkets or tickets to events.

This plain transaction of cash to be part of a media plan is one of the business practices widely prevalent in the media industry. There are others. For example, if an agency bills an advertiser for Rs 100 for a newspaper ad and should pay the newspaper Rs 98, it may actually pay Rs 95. This is an additional “incentive” that the advertiser may or may not be aware of. This column, however, focuses on the direct “incentives”.

Why does this matter? What is at stake?

Paris-based research firm RECMA claims to be the “only research company that publishes evaluations on the worldwide media agency industry”. Going by RECMA’s numbers, the media agency industry in India ran up a bill of $5.6 billion (Rs 30,000 crore) in 2011. This is the total spending on marketing, including advertising, that passed through the hands of media agencies such as Mindshare, Madison or Starcom, among others. This could be on mass media (TV, print) and non-mass media activities such as events or direct mailers.

This figure represents roughly 70 per cent of all marketing spends in India and is controlled by five large communications groups: WPP, Publicis, Interpublic, Omnicom and Havas. These groups own the media and advertising agencies through which the creative and media future of these spends is decided. For instance WPP owns JWT, O&M, Contract, GroupM, Mindshare, half of Nielsen, and dozens of others firms in design, advertising, brand consulting and so on. So the buyers’ side is terrifically consolidated.

On the sellers’ side, however, fragmentation rules. There are more than 80,000 registered print publications in India, over 815 TV channels and thousands of websites. Dozens of media companies fight for every sliver of marketing spending by over-serving the consumer and undercutting their rivals in almost every nook, cranny and crevice of the media market. The heterogeneous and voluminous nature of the Indian market compounds the problem. For instance, it is not enough to have a channel in Kerala. You need to have a news, music and general entertainment channel in every language and market before the advertiser considers you a national broadcaster.

This makes India a “wonderfully skewed buyers’ market for media”, as one media agency CEO told me many years ago. Till hyper-competition kicked in, much of the media was sold on pure merit or on relationships built over the years between buyers and sellers. Since 2005, the nature of the game has changed. The negotiation has gone way beyond merit and relationships, into murkier territory. Mind you, this is for brands that actually do well in terms of numbers, but are in a competitive market.

This is a problem in several markets across the world, incidentally. In fact, it is to avoid any consolidated media agency from gaining too much power that these are banned in several markets such as Brazil.

In India two reasons are given for the rising corruption. The first is poor metrics. We could debate the quality of the metrics in newspapers and television till the cows come home. But the power to change them rests with industry bodies that commission the studies and endorse them. So why blame TAM Media Research for ratings or Hansa Research for readership numbers?

The second reason is the thinner-than-paper margins. Media agencies get anywhere between one and two per cent of client spends and maybe a fee depending on their deal with the advertiser. The margins on those cuts are razor-thin. As pressured advertisers keep demanding buying efficiencies, the amount media agencies make keeps going down. This puts them under tremendous cost pressure. Something has to give eventually.

The question is, why are advertisers, in whose name these “incentives” are being taken and given, silent? Is it because they don’t care to pay the higher price that a more ethical agency will demand in order to make a good margin? Or is it because they, too, are on the take?

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