The deadlock between broadcasters and advertising agencies over the billing issue continues,with both the parties failing to reach a decision after a late evening meeting on Thursday. The standoff between the two industrys stakeholders took a serious turn after the Indian Broadcasting Foundation (IBF) directed its members to stop airing any commercials beginning from May 1 till the situation was resolved.
Broadcasters claimed they were losing close to 90% of their daily advertising revenue following their decision to stop carrying ads,but they seemed determined to take the issue to its logical conclusion. “Despite repeated discussions,no concrete step has been taken by the other party. The stand-off will continue till the time the issue is resolved. Advertisers,too,need to feel the pinch, said Shailesh Shah,secretary-general,IBF,the industry body representing majority of broadcasters.
The issue pertains to the structuring of payments between broadcasters and media agencies. Media agencies,for past several years,have been paying broadcasters a gross amount in return of airing of their commercials. This gross amount,theoretically,comprised 15% of the commission that broadcasters pay the agencies. While the practice continued for several years,the ground had reality changed. Agencies,for instance,were no more getting 15% commission. The commission,in fact,varied from 2-3% to nil depending upon the negotiations between the two parties. Insiders also say that the commission was a garb under which broadcasters hid the discounts they would offer the agencies.
The situation became tricky in March this year when some broadcasters received notices from the income tax department asking them the reason for not deducting tax at source (TDS) on the so-called commissions given to the agencies. IT department’s assessment was that of the Rs 13,000 crore ad revenues,the annual trade discount stood at about Rs 1,950 crore and on this,annual TDS was pegged at a little over Rs 1000 crore. Posed with a situation where they would have had to dish out crores of rupees in the name of TDS,broadcasters decided to move to a net billing system,where the agencies will only pay them the net amount due to them. The IBF also asked its members to send net bills to media agencies from April onwards. This did not go down well with the Advertising Agencies Association of India (AAAI),the umbrella body for ad agencies in India.
To my mind,there is no reason to continue the gross billings practice which gives rise to service tax complications. Net billings is a more transparent arrangement, said Sanjay Gupta,COO,Star India. He explains how it works: I raise a bill of R100 for an advertiser. But he discounts 15% out of it (agency commission) and in reality,pays me Rs 85. Both of us know beforehand that he is going to get Rs 85 worth of inventory. There are no complications in this arrangement.
So far broadcasters such as Star India,Multi Screen Media with the exception of Sony Six and Set Max which are currently airing the Indian Premier League,Zee Network and Viacom18 have refrained from carrying any commercials on their network channels. However,channels that are not members of the IBF have continued to air commercials.
Advertisers,meanwhile,are hopeful of resolving the matter amicably. AAAI is in discussion with the IBF and Indian Society of Advertisers (ISA). You will hear from us the moment these discussions are concluded, said Arvind Sharma,chairman,Indian subcontinent,Leo Burnett and president,AAAI.