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Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
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ADVERTISING
Is TRAI in the right to regulate TV ads?
Consumers have hailed it but broadcasters feel TRAI’s advertising cap on tv smacks of regulatory overreach. But what forced the regulator’s hand and what will be its impact?
 
Broadcasters and advertisers contend that TRAI’s move amounts to exceeding its regulatory brief. “Trai has no jurisdiction in the subject. Advertising is governed by the Cable and Satellite Act and the appropriate authority is the ministry of Information and Broadcasting,” says Uday Shankar, President of the Indian Broadcasting Foundation, and the Chief Executive Officer of Star India. According to Shankar, the regulator is at fault for overstepping its brief. Barun Das, Chief Executive Officer of Zee News, has questioned the timing of the regulation at a time when the entire broadcasting industry is going digital. “We have a limit mentioned in the Cable Act. If at all there is a need for regulating the duration of advertising, it possibly could have waited some more time for the digitalisation process to settle down. Limiting ad time before the digitalisation process is complete could be killing for the broadcasters,” he says.

The IBF, on its part, says that the TRAI’s notification is short-sighted and flawed. “Advertisements serve as a powerful tool for generation of sales of new products and services and hence contributes to the growth of the Indian economy. Capping advertising will lead to poor quality programming and absence of diversity as it will reduce the broadcaster’s profitability. Reducing advertising time will reduce overall advertising inventory leading to a situation where fewer products will be advertised squeezing out smaller brands from the consumer’s vision.” The IBF and other broadcasters are now likely to approach the appellate authority TDSAT in appeal against the TRAI’s notification.

In fact, the timing of the regulation on advertising limits seems to have stuck in the craw of a major section of the broadcasters. That’s more so because the regulator has already capped the subscription price of a channel at Rs 10. If both forms of revenue are being regulated, naturally the impact on profitability – and on quality – could be crippling. According to brokerage and market analyst Motilal Oswal Securities, the TRAI regulations on advertising will impact ad volumes on a clock-hour basis. While prime time GEC inventory might be impacted by 10-20%, the impact would be much higher in other genres like news, movies, and sports. “We believe it will be difficult for the broadcasters to fully offset the volume impact through price hikes given the current weak advertising environment,” says a report put out by the brokerage. It further adds: “The advertising regulations might force broadcasters to invest more in content and increase original programming hours to protect revenue, thus impacting margins.”

But do TV channels have to be overly dependent on ad revenues even when broadcasters are looking forward to much higher subscription revenues in an age of digitalisation? According to TRAI’s estimates, dependence on advertising by pay TV channels had reduced 71.97% in 2011 from 76.33% in 2007. With new platforms like DTH (direct-to-home) adding 8-9 million homes every year, Indian television executives say the TV broadcast medium is all set to boost revenue by constantly reaching new viewers. As DTH and cable television together will add nearly 40 million viewers annually, there’s every reason to expect that revenue from subscriptions will swell even as advertising volumes continue to grow, say analysts.

 
However, broadcasters, especially in the highly competitive GEC space, continue to face headwinds in terms of competitive pressures and rising content costs. “But the growth in advertising revenue, however, has been healthy, though the impact of any slowdown in key industries remains to be seen,” says an ICRA report on the television broadcasting industry, released last year. According to a report by Media Partners Asia Ltd, a Hong Kong-based company that provides analyses of media and telecom industries, India will emerge as the third- largest television advertising market by 2016 behind Japan and China. With a compounded annual growth rate of 15%, television ad revenue in India will overtake Australia and Korea to touch $5.4 billion (Rs.26,325 crore), says the report. It adds that advertising and subscription revenue of Indian television will grow at an average 12% annually in the next four years to reach $15 billion (Rs.73,125 crore).

Not everybody fears that regulating advertising time will have a major impact on revenues. Some have in fact welcomed the move and hope that it might actually work in favour of consumers and advertisers. Although media agency executives expect the move to push up rates for commercial time, the curbs on inventory will also reduce clutter, helping advertisers, says a senior executive who declined to be identified. Consumer durables firm Videocon Industries has welcomed Trai’s move for this reason. “Shorter break period will offer marketers high-visibility impact as the clutter of ads will reduce,” says H.S. Bhatia, Chief Marketing Officer at Videocon India. He adds that this would also mean viewers will be less prone to switching channels, an advantage for advertisers. But, in general, broadcasters and advertisers are against any regulation on the subject given that advertising is outside the jurisdiction of the TRAI as it is akin to content regulation and goes against the fundamental right of freedom of speech and expression. It has also been brought to the TRAI’s notice that such regulation is contrary to its own recommendation in 2004 when it had said that there should be no regulation on advertising for any channel. And over a period of time, restriction on advertising is bound to impact and lead to the jacking up of ad rates, which would in turn affect small and medium enterprises.

The broadcasters and advertisers’ associations have also pointed out that the focus of the moment should have been to drive digitalisation than regulate advertising. In its rejoinder to the TRAI’s notification, the IBF has said that market forces ensure that a broadcaster takes into account the extent to which increasing the number of advertisements shown will cause viewers to switch off or switch channels, and this decision also impacts the amount of revenue raised per viewer from the advertisers. No broadcaster will therefore increase the number of ads beyond a point that will cause viewers to switch off or move to another programme. “Hence for TRAI to view advertisements as an inherent nuisance that impedes viewing reflects a basic lack of understanding of the business model of the broadcasting industry,” it said.

          
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