The gross billings versus net billings issue has come to a head with the Indian Broadcasting Foundation (IBF) sending out a diktat to broadcasters, with a notice dated April 30, 2013, asking them not to run any ads that are based on gross amount ROs received from agencies.
Resultantly, major broadcasters, including STAR India, ZEE, MSM, NDTV and others have stopped airing commercials that are associated with gross billings. Some of the major brands impacted by this ad blackout include Samsung, LG Electronics, Sony, etc.
Star Plus and its sister channels have been running a ticker that states: “Advertisements are not running on this channel because advertising agencies have refused to accept revisions in billing methods which are seen as flawed by tax authorities. We regret any inconvenience, but the STAR Group is committed to doing business with the highest standards of compliance, which reflects the true commercial arrangement between advertisers and broadcasters.”
Speaking on the ad blackout, Vikram Chandra, Group CEO, NDTV said, “We are following whatever directives that we have received from the IBF.”
Alok Agarwal, CEO, Zee News feels that the net versus gross issue is a very sensitive one and needs to be cleared soon. On the ad blackout, he said, “The issue is not about for how long the ads will be discontinued, but that it needs to be resolved in a proper way so that the transition from gross billings to net billings is a smooth one. We have discontinued a huge number of advertisements that are associated with gross billings.”
Gross billings have been the followed by the industry for the last 15 years. In the early 90s, when creative and media agencies weren’t separate entities, the entire 12-15 per cent agency commission was allocated to them. However, following the split between the two, creative agencies pocket 10-13 per cent of the agency commission, while media agencies get 2-3 per cent of the commission.
Shailesh Shah, Secretary General, Indian Broadcasting Foundation maintained, “The 15 per cent never got transacted as for us it was a fictitious number and we were just helping the agencies. What has happened now is that we have received orders from the Income Tax Department and we are planning to appeal against these orders. It will be a long process.”
He further said that IBF is trying to make the Government understand how broadcasters can pay the tax when there has been no such transaction.
According to Shah, this problem has been created by the agencies and it needs to be resolved by them; the agencies have assured that they are looking for a solution. “If the agencies can’t find a solution, we will continue with the net billings,” he added.
Agencies fear losing clients
Satyajit Sen, CEO, ZenithOptimedia India admitted that the ad blackout will impact agencies as revenues will come down, but at the same time he said that it is okay “because it’s all for a cause”.
On condition of anonymity, a media planner shared, “We are losing money and my net has been reduced. It doesn’t justify my agency commission; now I am forced to charge agency commission on the net amount as I am losing out on my commission. For example, if I have been charging 15 per cent on Rs 1000, now I have to charge agency commission on Rs 850.” He feared losing out on clients.
From a media auditor’s point of view, Pradeep Iyengar, President, EMM said, “The fact is that someone has to bell the cat. This move by the IBF is a very practical one.”
He further said, “The blackout of ads will obviously affect the revenues of broadcasters, but someone needs to find a proper solution to this issue soon.”