As the economy slows down, Indian advertising agencies face fresh challenges — delayed payments and falling fees. Owing to cash-flow issues, many companies are finding it difficult to pay ad agencies on time. To tide over the downturn, many are either requesting advertising partners to renegotiate the fee structure or calling for fresh pitches.
''Due to the slowdown, some advertisers are asking ad agencies to reduce fee by 15 to 20%. There are other companies who are calling for fresh pitches to find accommodating advertising partners,” said a senior advertising professional in Mumbai.
While big multinational ad agencies in India are not facing major issues, medium and small ad agencies are finding it difficult to handle these payment issues.
''In a weak economy, weak companies face cash flow issues. So, there will be a delay in payments to some ad agencies, I am sure it's happening due to cash-flow problems,” said Arvind Sharma, chairman & CEO of India Subcontinent at Leo Burnett.
"But our clients are either multinationals or large Indian companies, so we do not have any serious payment issues," he added.
Group M, part of the WPP Group, has revised its forecasts for advertising expenditure this year.''With the downturn, ad spending is expected to now grow 8.5% in the year, lower than the earlier estimates of 9.9%,” according to Group M's report.
The Indian media landscape has changed a lot with the economic slowdown and, as a result, media planning is revised from week to week, said Ashish Bhasin. chairman, India & CEO, Southeast Asia, Aegis Media Group. '' With the slowdown, there are instances of delayed payments in the ad industry. It's true that some companies are calling for fresh pitches to drop ad rates. I do not think this strategy is ethical,” he added. Like Leo Burnett, Bhasin 's media firm has not faced any payment issues till now.
Sharing Bhasin's sentiment, CV Sridhar, national creative director of Leo Burnett India, said,'' What's worrying for the ad industry is companies asking for reduction in advertising fees. If ad agencies are reluctant to reduce, some companies call for fresh pitches. We have not faced any such issues till now.”
Industry analysts point out that some corporates’ strategy to call for fresh pitches is not welcomed by the industry. "Recently, four corporates have called for fresh pitches to select new ad agencies. Many new pitches are now created or stage-managed for the purpose of fee renegotiation only,” said an ad agency chief based in Mumbai.
While some ad agencies are reeling under payment issues, there are others, such as McCann Erickson India, Madison World and Draftfcb +Ulka , who are not facing any issues till now.
Nitin Karkare, chief operating officer -Mumbai, Draftfcb + Ulka said many ad agencies are facing a crunch because of clients delaying INS and production payments. “ Our agency has prudent financial management processes in place. This, coupled with our client relationships, has ensured our safety,” he added.
Echoing similar views, Prasoon Joshi, chairman & CEO - India & president – South Asia, McCann Worldgroup, said,"We have longstanding relationships with our clients. We have seen the ups and downs many times and we know how to handle these issues."
Sam Balsara, chairman of Madison World, said his agency does not have any payment issues with clients. '' There seems to be an increase in pitches but I do not think it is only to reduce agency fees,” he said.