A look at factors affecting the advertising industry and understanding how implementing regulatory measures can help foster growth in the industry overall

Advertising has changed globally; practices have become more refined due to industry benchmarking and adoption of international standards. Consumers themselves have become more educated and no longer appreciate blatant advertising and clutter. A stable economy has resulted in trickle-down economics that have encouraged growth, leading to new players emerging in the industry resulting in healthy competition.

On the heels of change industry standards have to evolve at the same pace, to become more open and transparent, ensuring that stakeholders can all benefit mutually. Without a good framework and transparency the industry may crumble. But before transparency can be ensured, there has to be economic viability; without economic sustenance the industry cannot grow and innovations cannot take hold. The advertising and media landscape therefore depends on the economic growth of the industry overall.

 

THE ECONOMIC MICROCOSM

Amin Rammal Director of The Brand Crew and Firebolt 360 observes that, “Overall growth seems to be consistent across industries. The financial sector is doing well as well as automotive, appliances and electronics sectors. The macro environment is stable and companies have shown good profit margins. We also see new segments coming in the market along with many SME’s. When the economy grows, you see a rise in advertising.”

“Globally, spending on advertisement is usually a percentage of GDP. If you look at Pakistan’s advertising expenditure you’ll see that the advertising market is growing but it’s still underpenetrated in terms of advertising to GDP ratio. Currently, it is almost a quarter of the world average and half of the ratio in the lesser developed world”.

Discussing further on the advertising industry and speaking on behalf of Media planning and buying, broadcast media Fouad Hussain says, “All these industries work in tandem with each other. Ad-ex and advertising budgets have grown a lot in the last decade, but still need to increase a lot more. The industries advertising round the year in Pakistan are FMCG, telcos, and mobile phones. Automobile companies hardly advertise and pharmaceuticals only advertise limited products like over-the-counter drugs i.e. Panadol and Dispirin. The real estate sector also advertises heavily, but is inclined towards cable networks”. Fouad Believes we need to have more than twelve to fourteen sectors advertising so that revenue can jump to PKR 120 billion from the current PKR 75.4 billion, which will go on to strengthen our  industry.

 

FACTORS AFFECTING THE INDUSTRY

There are various elements that factor into the industry growth equation. “Lower fuel prices and controlled inflation gives advertisers the ability to increase their purchase power. From a business perspective; the lower interest rates help with their spending while on the other hand lower fuel prices mean less cost of production which means better profit margins. This indirectly trickles down to the marketing side. On the other hand, increase in oil prices, interest rates, or fuel shortages, affects advertising in the long term as uncertainties put a halt on such expenditure and activities”, Amin explains.

He further details how random occurrences can cause uncertainty, for instance, “The Dharna situation in 2014 affected media placements and there were a lot of droppages. Also affected were event management companies as they have their venue bookings, vendors lined up, payments to make etc. Depending upon the extent and length of the situation, law and order and political instability may be recovered from swiftly at a macro level. For example, activities can always be postponed and rescheduled, unless they are not time sensitive”.

The biggest challenge facing the advertising industry is the issue of delayed payments as Fouad points out, “A lot of advertisers are paying their dues later than the stipulated time frame which creates a vicious cycle of debt in the industry. Broadcasters are also to be blamed as they give this kind of leverage to agencies. There are numerous media houses where salaries are not paid on time and people wait for months before being paid. This vicious cycle affects every organization in the industry and is primarily because of irresponsible cash flow management and seemingly lax rules and regulations. This issue needs to be settled on a collective level amongst the broadcasters, publications, clients and governing bodies (PBA and APNS). Since 85% of the capital involved belongs to broadcasters, they should be taking the lead in resolving this.”

 

THE NEED FOR REGULATION

Although issues like oil prices and fuel shortages or political unrest cannot be controlled, issues like delayed payments can be addressed through regulatory bodies such as APNS and PBS. Sarmad Ali, President of APNS and Managing Director Jang Media Group, highlights the function of regulatory bodies, “The primary objective of a body such as APNS is to protect its members, the newspapers and magazines that come into the fold of APNS, as well as agencies that are accredited by APNS”.

Further explaining the process Sarmad comments, “When advertising agencies place business on credit with a newspaper, they draw up a basic contract called a release order. If the agency does not pay the publication on time, the publication will submit a complaint to the APNS. If the agency or client does not pay the dues within the time stipulated by APNS, the agency gets suspended. On the flip side, if the agency’s clients do not pay the agency on time, the agency can file a complaint with the APNS. APNS then corresponds with the client and if there is a late response, or no response, then the client is blacklisted. If a client wishes to change agencies, it must clear all print media release bills that are due to its current agency before it is allowed to appoint a new agency. As an added measure of protection, agency appointments are not recognized until outgoing agencies provide NOC’s (No Objection Certificates) for the clients and certify there are no outstanding dues”.

 

ENCOURAGING SUSTAINABILITY THROUGH REGULATION

The goal of regulatory measures is to foster sustainability through better business practices, mitigating credit risks that lead to delayed payments that affect the industry negatively. Sarmad shares his observations noting, “There have been agencies that have done business for years and never been suspended or if they were suspended it was for a very short period. There is plenty of sustainability and sustainable clients. There was a time when the government was considered the most sustainable client – we used to say that the government is not a credit risk. Today, however, government advertising is a bigger credit risk than the entire private sector put together”.

 

ANALYZING EFFECTIVENESS OF REGULATORY MEASURES

Speaking on the effectiveness of the regulatory measures Sarmad maintains, “At times they’re very effective, especially for clients who need to continuously advertise, if they get suspended, they need to pay to continue advertising. Then there are clients who may have been suspended from newspapers, so they move their advertising to television and vice versa. There is a dire need for us and PBA to form an association that can make joint industry decisions on such clients”.

 

EFFECTIVE REGULATION THROUGH UNIFIED ACTION

Emphasizing the importance of unification of regulatory bodies Sarmad argues, “There is a need for all associations to come together. For instance, there is APNS and PBA on the media side, then PAS (Pakistani Advertisers Society) which represents clients, and the AAP (Advertising Association of Pakistan) whose members are advertising agencies. In 2000 or 2001, at the PAS event highlighting the need for a joint body that looks at the industry’s issues at large, I stressed that we need to eliminate the boundaries and to look at the issues from the industry’s perspective”.

 

BETTER PAYMENT SYSTEMS: A POSSIBLE SOLUTION

Elaborating on a solution Sarmad claims, “A way to encourage sustainability would be to design a payment system that incorporates both APNS and PBA. It can become difficult for advertising agencies to meet their obligations when they must pay both APNS and PBA at the same time. Right now APNS has 6 clearances and PBA has 12, so there are 6 times when APNS and PBA payments coincide. This puts a strain on everyone. Perhaps an alternating plan or 12 equal clearances for both organizations which will mean smaller payments that can be cleared more swiftly than large outstanding payments can be devised”.

 

IN SUMMATION

Regulatory bodies and measures are necessary to develop a solid framework for the growth of an industry, without which the mutual growth of stakeholders cannot be ensured. The responsibility falls on all stakeholders of the industry to develop standards and practices that are both viable and transparent resulting in sustained and ordered growth of the industry overall.