Way forward for the ad cap stand-off

BY CHINTAMANI RAO| IN Media Business | 03/09/2013
TRAI was not wrong to insist on a cap, but it couldn't have come at a worse time: the coincidence of the economic slowdown and digital distribution.
The field of competition has widened, and rates are under pressure, says CHINTAMANI RAO

Let me say it up front: I favour regulation. How many minutes is a matter of detail, but there must be some limit. It is about my viewing experience, so it is a matter of quality of service to me, the consumer. 

I’m neither an armchair critic nor an activist: I’ve been there, done that. When I was a broadcasting CEO, on my news network we had a self-imposed limit. When demand was excessive, we raised our prices; when the news warranted it, we dropped commercials. We knew how to say no to a client, and how to explain dropped spots. Result: we were no. 1 in viewership, and we grew our revenue steadily. 

Any attempt to regulate the media in any form triggers howls of protest about democracy and freedom, invoking the hallowed Article 19 (1). But to argue, as The Indian Express does, that, “The market is perfectly capable of negotiating the proportion of advertising to programming” is nonsensical. By that token all markets are, and there should be no regulation of anything. 

The Express also piously says that, “Limiting advertising is not very far removed from state-controlled product pricing, unacceptable in a democracy committed to liberalisation.” But regulation of this nature is a worldwide practice, including in countries at least as committed to democracy as ours is, and with a much longer tradition of free markets. Of course we argue that India is different, when it suits our purpose to; and cite global practice when that suits us. 

But let’s get the facts right. 

Fact one: TRAI did nothing new, in capping advertising time: it merely imposed the observance of a long-existing regulation. 

Fact two: Broadcasters have completely ignored the regulation. (Most people in the business, I daresay, were not even aware of it.) AdEx data for the quarter ending March (when TRAI issued its order) shows that in that quarter in prime time (7 pm to midnight) 183 of the 340 channels AdEx monitors (about 54% of them) ran an average of more than 10 minutes of advertising per hour. 83 of them ran 15 minutes and more, and up to 33. 

Look now at the other side: 144 channels (42%) did not carry 10 minutes of advertising per hour even in prime time, and 91 of those had 5 minutes or less – presumably because they could not sell any more than that.   

So it is the problem of the haves – the 50% who have the advertising. 

It is not that TRAI is wrong to insist on a cap, but even those who favour one must accept that it couldn’t have come at a worse time: the coincidence of the economic slowdown and digital distribution. The implication of the economic situation is obvious; that of distribution technology is perhaps less so. 

Had the cap been imposed – the existing regulation enforced – in the analogue environment, broadcasters may even have been glad. With analogue distribution viewers had access to a limited number of channels and, correspondingly, advertisers were disproportionately dependent on that handful.  

When demand exceeds supply, you have two options: raise your price or increase supply. Here’s what OFCOM, the oft-cited British media regulator, said about it, in a 2011 paper: “Analysis which takes into account the econometric data available to us suggests that significant increases in minutage may actually lead to a decline in the total amount of television advertising revenue. If the supply of advertising was increased then prices would be likely to reduce and our analysis suggests that the overall effect would be a reduction in total advertising revenues.” [Emphasis mine.] 

That is exactly what happened in India. 

The problem was, and is, that no one trusts anyone else. Every broadcaster has always been afraid that if they raised their prices the competition wouldn’t, and they would be the loser. Consequently, what they have done every time, over the years, is to hold – or even reduce – price, and increase supply. 

A mandated cap should have been welcome, but digital distribution is a great equaliser: smaller channels, which earlier could not afford quality distribution, have become as visible as the bigger ones. Consequently, viewers have access to a great many more channels, and advertisers have a wider choice of channels to reach them through. So if the bigger channels have limited inventory, smaller channels will get the spill over.   

If a channel running 15 minutes an hour had to make the same money running 10 minutes, it would have to raise its rates by 50%. But it cannot risk doing so because digitisation gives viewers, and therefore advertisers, a wider choice of channels. The field of competition has widened, and rates are under pressure. The problem of the broadcasters must be seen in this light. 

True, broadcasters have to some extent have brought this upon themselves, by historically holding prices and increasing supply, doing exactly what OFCOM warned against. But it doesn’t help to berate them for the past, not only because the situation today is what it is but because it is not entirely of their own making: unsupportive regulatory authorities have had a lot to do with it. 

The broadcasting business in India has historically been held to ransom by the distribution trade. While in the rest of the world the cable networks pay broadcasters for the content they carry on their networks, in India they charge broadcasters for carrying their channels, and then charge the consumer for access to it. This is analogous to your neighbourhood grocer charging the manufacturer to stock toothpaste, which they gratefully provide for free, and then charging you for the toothpaste: or worse, for providing you for a basket of whatever goods he chooses to provide. 

The broadcasting industry has been crippled with payment of carriage fees, and no power in India has done anything about the stranglehold of, especially, the local cable operator (LCO). Threatened with the loss of its extortionate earnings, the cable trade stalled digitisation for years, and even today is hindering its effective implementation. Eight months after Phase I digitisation broadcasters are still not getting their legitimate share of subscription revenue. It’s not that the government doesn’t recognise the problem but, as a former Minister for Information and Broadcasting candidly told me, in a one-on-one chat, “The political will to deal with the LCO’s simply doesn’t exist.” 

On another occasion, at a meeting with a group of broadcasters – seven or eight of us, all corporate attire and demeanour, complete with a PowerPoint presentation – the then Chairman of TRAI said sympathetically, “Tomorrow we have a meeting on the same subject with cable operators. This room will be packed, there will be standing room only, and everyone will be shouting. They make themselves heard.” 

That’s not all. The Ministry of I&B suspends channels, pulls out ads, et al, on TV, but no one does a thing about anything in print. Advertising on TV is subject to Service Tax, but advertising in print is not. Why not? Because “print is different.” The best that representations over the years have drawn, in my experience, is a sympathetic cluck and being told that it’s up to the Finance Ministry: never a promise to represent the broadcasting industry to the Finance Ministry. That is why Manish Tiwari’s gratuitous pleas on behalf of broadcasters are too little, too late.   

As The Hindu rightly says, today, “On its part, the government may be keen to curry favour with corporate media houses in the election season. But it would do well to stay out of the ad-time issue and allow the industry’s regulatory institutions to do their work.” 

What, then, of the regulator? 

TRAI started well, when they threw down the gauntlet in March and had broadcasters scurrying for cover. A show of toughness was important at that stage. But a regulation that has been ignored forever cannot be enforced overnight, however desirable it may be. The situation that obtains, for better or for worse, has to be recognised and corrected first, and that takes time. Over several weeks of thrust-and-parry a negotiated position was arrived at. It would not have been the first time in history if a further negotiation extended the schedule for implementation, to make it feasible for broadcasters. 

But last week’s “coercive action”, as TDSAT described it, was a surprising show of impatience, as a result of which TRAI has lost the initiative. Now it is under orders not to pressurise the broadcasters, who will go running back to TDSAT – much better than the Minister, to whom TRAI is not answerable – the moment they feel pressurised again. So it is they and TDSAT who will set the pace now, not TRAI. Round two to the broadcasters. 

For all the sound and fury of the last six months, the way forward now is what the way forward should have been: a negotiated agreement between a regulator who means business and an industry which realises that the public good will ultimately catch up with it. Life is not as complicated as we make it out to be. But the onus must be on the TRAI to carry all stakeholders with it, in the interest of the voiceless one: the consumer. 

Chintamani Rao is a former news broadcaster. As a Director on the boards of key industry bodies he played a significant role in legal and regulatory issues in broadcasting. He is now an independent consultant.

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