The Rs 1-trillion question: CCI raids on ad agencies – Brand Wagon News

Three days ahead of the IPL, a carnival that brings huge ad monies, the Competition Commission of India raided offices of India’s biggest media agencies over alleged collusion on ad rates and discounts. What will the fallout be for India’s `1-trillion ad business? Experts discuss.

— Compiled by Christina Moniz

Column #1

Anita Nayyar
Marketing leader, former Havas Group CEO (India & SE Asia)

Header: ‘Transparency & trust will become key’

There is a lot of speculation about what steps the CCI will take once its investigations are over. If the allegations of ad rate price fixing and market rigging are proven, the penalties could be around 10% of the agency profits. That’s a serious hit for media agencies, which already work on very thin margins.
There was a time in advertising back in the 1990s when clients paid agencies a standard 15% commission but after media consolidation took place, that has shrunk by half to around 7-8%. That kind of commission is too meagre for the advertising business, which is resource intensive.

If they were earning enough by way of remuneration from clients, there would be no need for media agencies to get into these kinds of practices. If allegations of price collusion hold true, agencies will need to look at different revenue models and that will not be easy since everything they do will come under the scanner.

Transparency and trust will become key, moving forward. There will be some impact on media agency and client relationships, and the agencies will have to work hard to restore client trust. For brands that have worked with their agency partners for several years, there will be some difficult conversations. Clients will demand greater transparency in the way their media budgets are used, both from the agency and from publishers. Agencies will also need to demand better commissions from their clients.

However, I don’t expect many advertisers to jump ship and seek new agency partners. Most of them will have media plans for the year in place already and there is too much at stake for them to abruptly switch agencies. Let’s not forget that nearly 80% of all advertising business rests with the top five media agency networks, all of whom are impacted by the CCI raids.

But, as they say, every adversity presents an opportunity. In this case, independent and medium-sized agencies stand to benefit, depending on their level of expertise and what they can deliver. This is the time for them to put their credentials on the table and build strong relationships with advertisers.

Column #2

Nisha Sampath
Managing partner, Bright Angles Consulting

Header: ‘Int’l HQs will strengthen scrutiny of India ops’

It is not surprising to learn that agencies and media houses crossed a few lines to indulge in anti-competitive practices, in an industry which deals in thousands of crores annually.
What is surprising is the timing of the raids, at the start of the IPL season, signalling the intent of the regulators to root out malpractice.

This has been a shock for the advertising industry, which despite its huge size and massive turnover, prefers to avoid the spotlight, except during awards ceremonies. The raids will hopefully lead to greater introspection among leadership teams and implementation of processes that keep their team’s actions within legal bounds.

International HQs will definitely strengthen internal scrutiny of their India operations, hopefully leading to better compliance with the country’s laws, and upholding of the ethical standards that shareholders expect from top multinational firms.

It remains to be seen if the independent agencies will benefit from the fallout. If the large agencies lose their credibility and competitive edge, the smaller agencies could get an opportunity to acquire some of their clients, especially if they offer niche expertise and strong digital-first solutions.

In the future, clients might also act to protect their own interests, by building in-house media teams who can negotiate and audit media buys, or even deal directly with broadcasters. In the long run, the industry needs to find the right resolution in consultation with all stakeholders, which is infinitely better than being policed by an industry body.
Digital platforms have shown that despite size and scale, they can offer both big and small advertisers the independent flexibility to allocate budgets optimally based on algorithms and real time data. It would be wonderful if legacy or traditional media can move towards a more open model, before their credibility is eroded in a world where data transparency is becoming more and more crucial.

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