Tag: MG Parameswaram

MUMBAI: A slowdown in the advertising economy looms large amid weakening domestic growth, a sliding rupee and wobbly markets.

Fears of a crisis worse than the Lehman days in 2008 are spreading fast and wide as India reports its economic growth for the latest quarter at a nine-year low of 5.3 per cent.

The ad economy will now struggle to match up to the early hope of a 10-12 per cent growth this year.

Admits GroupM South Asia CEO Vikram Sakhuja, “The slowdown will certainly impact ad spends. We had forecast a 12 per cent growth for the advertising industry in 2012. But now that the economy is going through a slowdown, it will be difficult to assess at this stage the exact extent of impact it will have for the year.”

A GroupM study pegs the ad industry size at Rs 333.88 billion in 2011, up 13 per cent. It estimates this to grow 12 per cent to Rs 373.97 billion.

Madison Media has been more conservative with the growth estimates, expecting the media advertising industry to grow 9 per cent to Rs 280.13 billion in 2012.

Forecasters will need time to make adjustments to their predictions made at the early part of the year. But many of them feel the need to make only minor downward revisions unless the clouds get stormier.

“A clear pattern in consumer spends is not yet visible. A clearer picture will emerge three months down the road,” says Lodestar UM CEO Shashi Sinha.

Historically, ad spends have seen cuts when the economic growth has softened.

Says DraftFCB Ulka Advertising ED and CEO MG Parameswaram, “We have noticed that over the last decade ad spends are broadly aligned with GDP growth numbers. We have seen that when GDP crosses 7 per cent, it has a beneficial effect on ad spends. Similarly when it goes below 5 per cent, it sends signals for a big ad cut. Fortunately we have not gone below 5 per cent, but 5.3 per cent is still bad enough.”

Media analysts feel the road is going to be bumpy this fiscal. Last month, for example, is a bump for the auto sector. Maruti, India‘s largest carmaker, reported a 4 per cent dip in sales in May while Hyundai Motor, the second in rank, saw a paltry 3 per cent rise.

The demand outlook is unlikely to improve, made still harsh by a sharp increase in petrol price. External factors and a slow start may upset the Society of Indian Automobile Manufacturers (SIAM) to roll back its forecast of 10-12 per cent sales growth for the fiscal.

Says ZenithOptimedia CEO Satyajit Sen, “Consumption will get impacted and there will be pressure on price. Being dollar dependent, the telecom handset manufacturers will be hurt. The financial sector will also see a slowdown. Everything, however, will depend on how we recover from the shock of the fourth-quarter economy growth numbers.”

Print will be hurt the most if this slide continues and companies start shrinking their advertising budgets. Television networks, who depend heavily on advertising as their source of revenue, will also feel the heat.

Says Sen, “Magazines and radio will feel the pinch while television will be the least affected medium.”

Multi Screen Media president network sales, licensing & telephony Rohit Gupta agrees that television is more resilient than the other ad mediums. “Television is still the cheapest medium and in hard times we have traditionally seen print and hoarding face ad cuts. Even in the ‘Lehman‘ crisis, television grew by 10 per cent.”

The mood among Indian industrialists is gloomy as they believe that the economic mess is largely due to government mismanagement and policy paralysis. Despite the European economy getting more desperate and the world, including China, slowing down, a broader ad retreat will not happen if the government starts taking corrective measures.

Companies, however, have already started making efforts to ensure that their ad budgets drive in efficiencies.

Says TV Today Network CEO Joy Chakraborthy, “Advertisers are spending but are showing more caution. In case of a slowdown, they will relook at genres and their advertising mix. Sports (read Cricket) may take a hit as it is a high-investment genre. Niche channels may also get impacted.”

Broadcasters, in fact, will find it difficult to define their terms in case of hard negotiations with media agencies. Advertisers will take a hard look at expensive genres.

Says Sen, “The price inflation in GECs (general entertainment channels) will be under question mark. However, the genre is still a valid opportunity.”

Gupta does not agree that mass entertainment channels will feel the pinch. “The categories which are heavy on GECs are not going to cut back their ad spends. FMCGS are doing well and telecom service providers will continue to invest in promotions. Even the auto sector, which has increased its share of ad spends on TV, will be visible as there are many car launches taking place. Retail, finance and the manufacturing sector, which are seeing a slowdown, are, in any case, not heavy on television.”

News TV broadcasters, however, depend on the financial and retail sectors. They are already struggling to up ad rates due to competition and fragmentation in the genre.

Joy, however, believes that the situation can‘t worsen for them as news is still a terribly underpriced genre. There are also spike events in the calendar like the Olympics and the elections.

“News broadcasters will not get affected unless the slowdown really starts biting more broadly. Let us not forget that news has a wider source of advertisers. Local advertisers are also present. The time, however, has arrived for innovative sales,” he says.

The next two quarters are going to be crucial and companies will swing their ad budgets accordingly.

Says LG CMO L.K. Gupta, “If the next couple of quarters or so are bad, then companies will draw up alternatives in terms of marketing spends.”

Advertising will become sales driven. “With the consumer market being hit and inflation staying high, ad spends will definitely take a blow. The bottom line of companies will be under pressure. Advertising in this backdrop will have to be ROI oriented,” says ZenithOptimedia managing partner Sanjoy Chakraborty.

India is facing headwinds from high gas prices, a slowing global economy and financial crisis in Europe. However, nursing the economy back to health will depend on the government‘s drive to manage the fiscal deficit and introduce policy reforms so that investments flow in. The ad industry can only hope that the situation doesn‘t turn grim.

(With inputs from Prachi Srivastava & Urvi Malvania)