Indian advertising needs urgent oxygen

The CCI ‘raids’ on India’s top media agencies have dominated the headlines in the past couple of weeks. Agency head-honchos are in silent mode. The AAAI meanwhile has put out a ‘Competition Advisory’ that interestingly states that member agencies must continue to conduct their business ‘independently’.

They should continue to ensure that there is no formal/informal communication between members on the way their independent businesses are conducted. Members have been requested not to discuss (through any mechanism, including emails, WhatsApp groups, documents, any informal, or formal meetings, etc.), any commercially sensitive information, including the prices or pricing strategies, market allocation (e.g., territories, customers), output restrictions or quotas, pitches or tender collusion or terms of sale, remuneration, discounts, or credit terms.

Also read | Advertising sentiment remains subdued during festive quarter

Members have also been advised to exit any existing WhatsApp groups and cease communication with each other, with immediate effect. Additionally, communication among members regarding business matters, AAAI says, should not occur through WhatsApp, either individually or collectively or through any other means.

It is a sad state of affairs. An entire ₹1 trillion+ industry is on back-foot defensive because of the supposed ‘collusion’ by a handful of big players who have always dominated the AAAI, and been the movers and shakers of the advertising business in India.

While the antitrust watchdog’s actions have focused the spotlight on the media end of the business, it is the creative part of the advertising business that needs even more discussion and debate. Because it is there that the heart and soul of client brands are actually nurtured. It is there that big ideas are birthed, and big brands are born.

Good old days

In the good old days (25-30 years back), advertising in India was a comfortable 15% commission-business. Then when the media function was dismembered into independent buying entities for ‘better efficiencies’, and creative agencies became stand-alone businesses, most clients decided to delink media spends from creative fees. And, without exception, all creative agencies agreed. Hence, started the slow but sure ruin, and possible demise, of the creative business.

Global clients first introduced a cost-plus model they were imposing in every other country, in conjunction with their ‘network’ agencies. A mutually agreed upon organogram and resource structure; each man-head ‘bought out’ (read dedicated to brand) for 1600 manhours a year; CTC of each team member topped up by an overhead (varying between 100 to 160%) and finally a pre-agreed agency profit of 15% or thereabouts, plus a possible variable bonus. I myself put these global templates into effect on Colgate-Palmolive and Citibank at Rediffusion (we were part of Young & Rubicam then) in the late ’90s. Every other ad agency did the same. Indian clients emulated the global brands, and soon that became the new remuneration model.

Also read | Leo seeks to preserve creative legacy amid advertising’s digital shift

But the tracking of time-sheets, collation of man-hours etc. were too cumbersome and time-consuming. So clients switched to a retainer format for remuneration—number of yearly projects were estimated along with manpower cost and a revenue formula was hammered out. About 90% creative agency relationships today are on monthly retainer.

Inadequate to define

Monthly retainer agreements rarely defined the entire gamut of work that a brand actually requires. And do not normally provide for late-nights, weekends and holidays. A retainer today invariably means 24×7 service. And servility. If not slavery. With brand strategy, and artworks, and lots more thrown in for free.

Then clients started squeezing the retainers too while concurrently loading on more and more deliverables. The threat of a ‘pitch’ was/is held out every other day. There is always a hungrier agency who will quote cheaper.

The big network agencies can still take the pressure of dwindling incomes; the smaller agencies are hurting to the point of many shutting shop. Most clients don’t flinch in paying a celebrity Rs. 5-7 crore for an endorsement, don’t grudge the celebrity agency a 15-30% handling fee and readily pay for a TVC production where everyone knows there is a 50-60% margin, but no, they will not pay an extra rupee to the creative agency for round-the-clock service and winning ideas.

Creative agencies will die. Soon. If clients don’t kill them, AI will. Most agencies are constantly in cost-cutting mode. They just can’t fight back – be it client uncertainty or technological obsolescence. There is just no money in the business. Help!

Dr. Sandeep Goyal is chairman of Rediffusion.

Also read | Controversy, advertising’s middle name