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Financial Issues with TV Advertising

There are two media segments that define the contour, body and tastes of the Indian market. Television is one of them, the other being film. Both have mesmerising hold over Indian audience, Investors, and advertisers. Television contributes to 36% of total media and entertainment revenue. It controls and shapes the course of several other sub-segments such as; music, films, sports, production houses, and array of distribution business such as cable or DTH. Television advertising revenues grew by 14% over 2007, just short of overall advertising growth, while pay revenues remained stagnant Indian television broadcast industry is regarded as a chain with three links: Broadcasters TV channels who broadcasts programmes Production houses / software makers Who creates programmes and sell to broadcasters Distributors Who downlink the programmes and distribute it in several ways. In television, the product is not a commodity. Content comes in different shapes, sizes, textures and it costs differently. Ex. Cricket tournament could cost million of Rs while a top rated talk show might take half a million Rs. an episode. So much depends on the stars, production house, how much channel spends on promoting the show, its success and therefore advertisers willingness to pay top ad rates for it. Technological issues: Many of the streaming technologies (Internet TV, Mobile TV) that offer a personal/digital video recorder (PVR/DVR), allow consumers to skip ads. Homes with DVRs watch 25% fewer commercials than non-DVR homes. This has tremendous implications for advertisers. Broadcasting revenue through advertising: This is the revenue generated through airtime sold to advertisers. This is done through advertising agencies or through media houses such as GroupM or Madidon. While international norm is 5 minutes of advertising time per 30 minutes of programming; it is normal for Indian channels to stretch their ad seconds into the programming if they find buyers for an exceptionally popular show. India is probably one of few markets in the world where, volume of advertising sold on television has risen dramatically in the last few years, ad rates have actually fallen in real terms, because there is so much discounting and bonusing. There is practice of giving bonus seconds on sister channels or programmes as an add-on to advertisers buying on prime time. Bonus seconds are also offered for not delivering on television rating targets (TVR). To capture more of the advertising rupee going to other channels, broadcasters started putting together bouquets. If an advertiser is taking a package of Zee and ETV Marathi, Zee could offer him Zee Marathi and Zee TV as a package to ensure that all the money comes into the Zee kitty.
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Financial Issues with TV Advertising


Distribution revenue through advertising: Most operators and multi system operators (MSOs) have their own channel, such as CCC from Hathway. These are the advertisements from local retailers or regional brands or for local events. A retailer in Charni Road could be advertising on a cable network in South Mumbai, the area where the potential buyers for his store would reside. These advertisements are broadcast along with the films shown. Size of cable advertising would be approximately Rs 8 billion. Rational for Ad decision: It is crucial to understand time weighted average ratings (TRPs/TVRs) of various programmes and various channels. Every decision on whether to advertise on a channel, the products and brands to advertise for, when to air them, and which programme to choose is based on ratings. Advertising Rates: The rates are usually fixed for every 10 seconds or 30 seconds of advertising time bought. These are called spots. Ad rates differ according to the time of the day for which they are bought. The ad seconds bought during prime time, usually from 8 to 11 pm, are the highest priced on any channel anywhere in the world. This is the time entire households generally watch television. The rates during the other part of the day, called non prime time rates are usually lower. If a particular part of the day starts registering higher viewership, the ad rate of that slot goes up. Discounting is common and average realisation per 10 seconds could vary wildly from channel to channel. There are various ways in which discount can be given. 1. Straight % cut on the card rate. This could vary anywhere between 20-70 % depending on the channel, the time of the day and how desperate it is.

2. Discounts could be given as bonus seconds. If HUL buys 20 spots on prime on Star Plus,
it could get five bonus spots on non prime time shows as a preferred buyer OR because a show it advertised on did not deliver on promised TRPs/TVRs 3. Some spots on few channels are auctioned in advance. These upfront buys could get quantity discount of 15%. The rest of the prime time inventory is sold closer to the broadcast dates. However many of these are locked in rating deliveries. If Pepsi buys time on a new soap on Zee TV, it will do so for 13 episodes on the guarantee of certain rating points. If Zee can not deliver on those rating points, it makes up with hefty discount or with bonus seconds. That explains the rise in the volume of ad seconds without a commensurate rise in broadcasting revenues. Airtime:

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Financial Issues with TV Advertising


The economics of airtime buying and selling operate similarly anywhere in the world. For any television channel airtime is just like the number of seats in an aircraft. Similarly, when there are huge tracts of unsold airtime, it is logical to recover at least a fraction of variable cost by selling at a discount or even at a loss. In India it is normal for several channels to eat into programme time during a hit show to make more money. There is downside to it; it puts the viewers off. The efficiency metrics: When DD was in its heyday, the media planning and buying assignments were not about getting maximum reach, efficiency or impact. It was about scheduling advertising seconds on the best shows. Most of them booked slots for the year. They then spent rest of the time scheduling the right ad with right show. A popular show or a Hindi film ensured an audience of 70-80 % of TV homes. Over a period DD gave all the commercial time on a show to a sponsor. Therefore advertisers preferred to finance the produce and get all the commercial time on the show. From 1992 onwards media planners job became more complex. The whole science of airtime buying and selling started evolving. Media planners and advertisers began looking at target audiences, the kind of people who watched a channel or a programme. Effective rate: It is calculated by dividing the total money paid by the total seconds bought on a channel. Most buyers usually look at the effective rate before negotiating. Cost per gross rating points (CPGRPs): The effective rate does not adequately factor in the amount of reach a channel could give. Reach is measured by the number of people watching a programme on a channel. The total money that might be paid to a channel is divided by the CPGRP. However, this method too has its weakness. It cannot take in adequately the huge difference in impact that advertising on one show with very high ratings, like KBC can make. These are the type of issues planners take into account before making a buying decision.

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