AAAI gears up to rein in errant advertisers  ( August '25,2001, BS)

Ramesh Narayan, the recently re-elected president of the Advertising Agencies Association of India (AAAI) is a busy man. The industry he represents has been accused of non-payment of dues to media. In the midst of the brouhaha about the outstandings, the AAAI president is chalking out strategies to deal with the problem at his end. “We will take a long, hard look at the issue this year,” says Narayan speaking on behalf of the ad industry.

Among the first few steps AAAI is mulling is to install a fool-proof system of being warned about defaulting clients in advance. “The idea is to institute a system whereby a client would first obtain a No Objection Certificate (NoC) from its earlier advertising agency before approaching another one for its communications business,” says Narayan. For this the agencies must learn to share information with each other, he adds.

AAAI is also planning to take up the issue with the Reserve Bank of India (RBI). While supplier credit in all other industries is being funded by banks, the ad agencies are still not permitted to avail of the facility. “Since nobody extends us credit, we’re unable to make payments when clients start defaulting. It is an anomaly and we have been trying to impress upon the RBI to rule in our favour,” he says.

Thirdly, the AAAI is examining all the legal aspects too. “We hope to make our contracts with the advertisers more watertight since most of the business was being conducted on good faith all these years,” says Narayan. Lastly, the agencies must have risk insurance.

Clearly, the Enterprise Nexus managing director, Rajiv Agarwal is not exaggerating when he says: “Delayed payments is the single biggest issue facing the advertising industry today.” Figures endorse his concern. Advertising agencies and advertisers owe nearly Rs 1,300 crore as outstandings to the media industry today.

Of this, the television channels share, accumulated in the last three years, is upwards of Rs 750 crore. Media industry insiders say that this is a conservative estimate based on the credit reported by the TV channels. “We estimate the figure to be closer to Rs 1,100 crore,” says a source. Meanwhile, the agencies’ dues towards publications for the last few months are estimated to be Rs 260 crore.

The advertising industry’s top brass, however, maintains that the huge credit that their clients incur, is at the root of the problem. But it’s the agencies that face flak for non-payment to the media. As a result both the advertising and the media industry faces a severe liquidity crunch. Observes Madison Communications’ chairman & managing director, Sam Balsara: “Economic slowdown may have made the problem acute in some cases. I understand that agencies have to put pressure on clients tardy in making payments.”

Grey Worldwide’s vice president Ashutosh Khanna offers a different perspective: “The problem suddenly seems acute because the agencies ignored it in good times. In bad times as agency margins erode and there is no new business, dues becomes a big issue.”

Clearly, the media industry is not taking it lightly. For starters, the Indian Newspaper Society (INS), the representative body of the print media players, has shored up its monitoring system. It keeps a watchful eye on defaulters and is quick to issue embargo notices in problem cases. In the past, INS has recommended a ban on advertisers such as BPL, Daewoo Motors and VLCC. More recently, notice has been sent to member publications to embargo ads of Modi Hoover Ltd, the retail store Jainsons and the National Museum.

Says the INS secretary general P.K. Lahiri: “Though the monitoring system is old, the exercise is far more vigorous now and defaults are scanned on a monthly basis.” The INS manages to help publications recover their dues through this process, he adds.

Burgeoning outstandings have also forced the TV channels to take action. Its association, the Indian Broadcasting Federation (IBF) has issued notices on payment deadline to at least 40 ad agencies.

IBF has 29 TV channels and airtime marketing companies as members including players like Star, Sony, Zee, Eenadu, UTV, Nimbus Communications etc.

Sources in Sony Entertainment Television admit that long credit period adversely affects channel operations as payments to software producers get delayed. Adds a senior Star TV official: “Even today the IBF allows a very generous 75-day credit period to the advertising agencies. It must be brought down to a maximum of 45 days.”

Clearly, as both the print and television media gets serious about late payments, AAAI will exert pressure on the advertisers.