Advertising Biggies Zero In

The advertising industry, being a ‘fellow traveller’ to the producers of goods and services, will generally reflect the economy’s health. When there is rapid corporate growth, advertising spends will be high to aid that process. When industry is in a mode of consolidation or slowdown, ad spends will be the first hit of cost-cutting. The Indian advertising industry has grown at a healthy 10-15 per cent annual average over the last 10 years; but in 2008 and 2009 — the worst slowdown years — growth pulled back to a snail’s crawl of 8.1 per cent and 3.5 per cent, respectively.

Advertising companies have been hard put to convince advertisers that in a slowdown in fact good advertising campaigns work well to loosen the consumers’ purse strings. There has been some success as earlier scepticism has given way to larger spends on advertising and marketing. The film industry is a case in point. Earlier, film producers put aside 5 to 10 per cent of their budgets for publicity and marketing. Today, as much as 40-50 per cent of a film’s project costs is deployed in advertising, especially targeting the youth in social media and digital communities.

Media company GroupM data shows the Indian advertising industry to have grown three-fold in a decade from Rs 15.636 crore in 2005 to Rs 48,977 by the end of calendar 2015. Significantly, the growth driver is digital advertising, which was just Rs 186 crore 10 years ago, and now accounts for Rs 4,661 crore — a healthy nine per cent chunk of the ad pie.

An anachronism of the Indian ad industry is the continued relevance of the print and newspaper platforms, which in other parts of the developed world have almost disappeared in the face of the onslaught by the Internet and television. A Pitch-Madison report earlier this year revealed that print advertising is still the largest platform accounting for Rs 16,000 crore revenue annually or 41 per cent of the pie. And it is significant as it continues to grow!

It is these opportunities — the continued importance of ‘legacy’ media along with a rapid growth of digital advertising — that has made the big advertising multinationals gung-ho about India, and to come rushing in with investments and talent.

The five or six big international ad companies have a stranglehold over the Indian market. UK-based WPP, US’ Interpublic Group (IPG), the French Publicis Groupe, US-based Omnicom, France’s Havas and Japan’s Dentsu Aegis Network control 90 per cent of the advertising and media market. But it is not difficult to see why they want to further consolidate and increase their investments. For the largest of them, WPP, India accounts for $600 million of revenue; and it is growing at 10 per cent as compared to a global growth rate of 5 per cent and sales growth at just 3 per cent.

Maurice Levy, head of Publicis Groupe, points out India is ahead of the other BRIC nations as the latter were export-driven and have found their income evaporate as commodity prices declined globally. On the other hand, India has been a beneficiary of the fall in oil prices, which has put more money in the hand of consumers and corporates.

However, as Martin Sorrell, chief of WPP, never fails to point out, India is under-advertised. He may be right. India’s ratio of advertising expenditure to GDP is about 0.4 per cent, which is poor compared to the US (1.3 per cent), the UK (1.1 per cent) and Germany (0.9 per cent) or even developing economies like Brazil (1.6 per cent), and Thailand (0.9 per cent). But then that is the big opportunity. Noor Fathima Warsia, BW Businessworld’s editor - advertising & marketing, has delved deep into the subject to unravel why these international ad men are spending so much time and money in India. She has also pulled off a coup of sorts, getting exclusive interview with the head honchos of all the Big Six.

You can’t afford to miss such a good read!

(This story was published in BW | Businessworld Issue Dated 30-11-2015)