MUMBAI: The Indian broadcasting industry is in a tizzy following the Telecom Regulatory Authority of India (Trai)?s binding decision to implement a 12 minute per hour ad cap effective from October 1.

The ad cap will understandably have an adverse effect on broadcasters? inventories which help them generate an estimated Rs 14,000 crore in advertising revenues. And this could also impact their

survival, because most of them are dependent on sale of their respective advertising inventories at a good price. All in all, it could well turn turn out to be a very expensive regulation.

General entertainment channels like Colors and Star have already announced that they will be raising ad rates by 30 per cent and 20 per cent respectively. This move does not really come as a surprise for many, as Colors CEO Raj Nayak explains: "We would have anyway done our annual hike by about 10-15 per cent so as to be able to absorb the increase in costs of programming, production etc. We have not still seen the full impact of digitisation in the form of either a fair share of reduction in carriage fees or an increase in subscription revenue, and with the inventory cap becoming a reality, we are left with no option but to increase our advertising rates to be able to stay on course."

The hike in ad rates on Colors will be effective from July 1 but one wonders will it work in a marketplace where negotiation is a norm and prices are anyway discounted by up to 30 per cent? To this Nayak asserts: "We are here for the long term and we value our relationships with our clients. We will work closely with them to arrive at a win win situation. Having said that I believe, clients who are paying least will have the biggest impact."

The channel has done all its calculations based on its revenue objectives, annual rate increases and has arrived at the 30 per cent hike figure, which Nayak says is what the channel needs on an average to stay on course.

Star India CEO Uday Shankar preferred to keep his cards close to his chest. He said, "I cannot talk about our strategy."

However, the ad rate hike may also drive advertisers towards lower priced outlets and other lesser crowded genres.

Vikas Khanchandani - Consumption of inventories on under-leveraged channels will improve.

AIDEM director Vikas Khanchandani says: "Both GEC and Niche play different roles for different advertisers and the weight-age applied are depending on the need of the brand. The hike in advertising rates is to bridge the gap from reduction in available inventory to broadcasters on account of the decision by TRAI on the cap. Each broadcaster or channel will increase their rates basis their current P&L and the impact of reduction in airtime over what they are currently selling over the cap and/ or any other escalation in input costs. The consumption of inventories on under-leveraged channels will rise."

In that case, will GECs bother about inventories being spread over to niche channels and other outlets? "That?s not such a bad thing. The truth is there is already an overflow of inventory on GEC channels even without the cap, and with the cap the supply demand ratio will change dramatically," says Nayak.

The ad cap is thus affecting one and all, so wouldn?t the niche channels want to go the GEC way and hike their ad rates as well? Do we see the rate hike spreading across the ecosystem- news, niche, etc or to other mediums? Nayak replies in the affirmative saying: "We believe this problem of supply-demand will also spill over to the Niche, Music, Sports & News & movie channels too. So I will not be surprised if they too will be forced to re-look at their advertising rates. I would like to believe that with the pipe getting choked, these channels too will not be left with an option but to increase their ad rates, unless they have a magic wand or a secret formula."

A magic wand or not, all broadcasters general entertainment or niche would do all that they can to lessen the adverse impact of the impending ad cap.

Offering a media buyer?s perspective ZenithOptimedia partner Navin Khemka said that the smaller channels that sometimes run as much as 25 minutes of ads in an hour will find it difficult to sustain themselves. "They will take a big hit if they are not able to increase the effective rate. The ones who run 12-15 minutes should be fine. The key is to be a top three player in a genre. Then you should be alright and manage a hike. At the moment it is hard to say what kind of a rate hike channels can manage. You also have to consider the fact that sometimes annual deals are done. Channels will either try their best to honour them which they should or do some restructuring."

In terms of ratings he thinks that the issue of variance in numbers will resolved in a couple of months time. "It is actually in the channels interest that the fluctuation continues as then they can say that they are not responsible for the poor delivery."

A+E Networks| TV18 VP, head marketing Sangeetha Aiyer offers a different take saying that for the factual and lifestyle genres increasing rates might not be feasible. "The current economic environment is difficult. The ad market is not great. With the slowdown most genres apart from the Hindi GECs are facing a revenue crunch. Also packaging in digital cable has not happened. Tam also has to get its house in order. FMCGs account for 40 per cent of the factual genres revenue. So ratings do play a role especially since factual channels have language feeds."

So what is the way forward? She notes that doing more local properties is one way as for that channels could charge a premium. "The aim should be to conceptualise ideas that can work as a tentpole which is what we did for ?The Greatest Indian?. Of course for that you have to earmark monies for production, marketing. I would have preferred it if the ad cap had come once digitisation was complete. We normally air 15 seconds of ads."

MSM Rohit Gupta - It?s a demand-supply equation.

MultiScreenMedia (MSM) president network sales, licensing and telephony Rohit Gupta declined to talk about his channel's strategy. He however added that it is likely that most genres will go in for a rate hike. "If you don?t then you will lose money. It is a demand supply equation. Market forces will take over. You could see a situation where clients look at more genres and channels given the shortage of available inventory on channels that they frequently use."

Times Television Trigunayat - Movies Now to hike rates by 50%

Movies Now is looking at a 50 per cent rate hike in the coming six months. Times Television Network CEO English entertainment channels Ajay Trigunayat is in favour of the reduced inventory. "English movie channels air around 15 minutes of ads in an hour. What was happening was that channels in other genres were abusing inventory and airing as much as 20 minutes an hour. This compromised the effective rate in the English movie genre. Now the viewer experience will be better. Less ads will result in more stickiness for the genre which will also justify a rate hike. Overall I expect ad rates in the English movie genre to grow by 25 -30 per cent."

Trigunayat concedes that the 50 per cent hike target is ambitious. "But we always set out ambitious targets for ourselves. In the short term there will be issues. I expect resistance from clients. But things will iron themselves out. A clearer picture of various channels? strategies will emerge by August. On our part we are not getting the rate that we feel we deserve. Generally for a new player clients wait to see the response that the channel is getting. The other challenge has been TAM ratings which have seen big fluctuations. Our rate has been flat for the past six months and fluctuations in the ratings have played a part in that. The ratings could take over a year to settle down. Clients therefore will have to look at other metrics like brand positioning, quality of the content etc. We also have to spend more time convincing clients".

On the issue of rating fluctuations Gupta conceded that there is a trust issue. "At the same time clients do not only use ratings. There is qualitative analysis that goes into media buying. Clients do their research. Over the past five years Sony?s inventory has stayed the same. Yet we manage revenue growth of 20-30 per cent as we hike rates."

Asked if less inventory on more mainstream genres will benefit the English movie genre Trigunayat noted that English movie channels are already running at full capacity. "If you look at players whether it is us or Star Movies, HBO, Pix their inventory is full. They will all increase rates. Clients will benefit if they book spots now well in advance which is what happens in the US."

Neo Sports Krishnan - Ad cap unfair on sports genre

Neo Sports Broadcast COO Prasana Krishnan said that the ad cap is unfair on the sports genre as breaks happen according to the sports action going on rather than on the basis of the clock. "Sometimes you might not have much of an ad break in an hour. Sometimes you might have more if there is a live cricket telecast. I would have preferred it if the rule was an average of 12 minutes an hour in a day. Then things would have evened out".

The news genre is not left unaffected by this development. An industry insider points out that the government should be more considerate towards news broadcasters. "You cannot reduce our ad inventories while you do nothing about the enormous burden of carriage fees that we have to bear." He further adds that unless the carriage fee is brought down substantially and subscription revenues are also looked at, the ad cap compulsion is unfair. There must be a considerable drop in carriage fees wherein a network of 2-3 channels has to pay approximately Rs 10 crore - Rs 12 crore while single channels pay not more than Rs 2 crore - Rs 3 crore, he said.

Khanchandani adds: "Impact on news will be different from that of niche. News is most impacted by the decision and have to significantly increase their own rates on account of very high dependence on ad time. If the increase in GEC pricing is very steep the advertiser might optimise the plans in favour of some genres but as I mentioned it depends on the requirement of the brand."

A CEO of a news channel while refusing to come on record admitted that "the news broadcasting industry will also look at hiking ad rates because even our inventories are being adversely affected."

In such a complex scenario based on the government and business environment, the advertiser?s target audience and consequent decision remains the bone of contention. After all, with the impending digitisation, there is a lot of ambiguity revolving around which channels are reaching the audience and which are not.

Khanchandani gives some perspective: "The television platform continues to be an effective medium for advertisers at large and I strongly believe in the medium. The impact will be varied across genres and channels. It?s a function of demand and supply and their respective state of inventory utilisation. Fundamentally prices will go up across channels and inventory utilisation across under leveraged channels will improve."

GECs are confident of their loyal advertisers; as Nayak puts it: "The advertising market is buoyant, I see a reasonable growth this year over previous year and we believe as long as we deliver value people will continue to invest in our channel."