The US-based media conglomerate Walt Disney recently negotiated a barter deal with its long time rivals News Corp and NBC Universal under which it took an equity stake in their fast-growing web site Hulu.com, in return for providing free Disney content to be aired on the web site. Hulu.com primarily airs movies and episodes of film shows.
The deal was meant to help Walt Disney reach a larger audience outside of television and in the digital space and Hulu.com in return would get the much needed premium content for its users. This practice known as media barter is a common phenomenon in the international markets. While the Walt Disney-Hulu.com deal is rather straight forward, companies even buy and sell merchandise and products that may not have any direct connect with their prime business in such deals.
It is estimated that globally the size of this business is nearly $ 3 billion and the US-based Active International is the largest player managing around $ 1 billion worth of media barter business annually. Besides this, Orion Trading, which was earlier known as Magna Global Trading owned by global marketing communications company Interpublicis, is also one of the significant players in the media barter space. Globally, the concept of media barter is at least a decade old.
Under media barter deals, companies essentially barter their under-performing or nor-core assets or inventories with media buyers or media owners in return for advertising and marketing. The media owner on receiving the goods can either distribute them to their consumers through marketing promotions or capitalize them by selling them to relevant distributors.
The phenomenon, however, has yet to take off in a meaningful way here in India. With the country’s largest marketing communications group WPP entering the space, through its media buying network Group M, the game looks set to change.
GroupM recently floated a new agency called The Midas Exchange whose primary mandate is to execute media barter deals. A section of the industry feels with markets still struggling with economic challenges, media barters will be a win-win proposition for the buyers and the sellers.
Interestingly, globally while many companies are left with unsold inventories or products, the media owners are also interested in getting into the barter deals because they are facing a drastic decline in newspaper, radio, television and billboard advertising.
According to WPP, The Midas Exchange was formed at the request of clients who asked that WPP, in cooperation with GroupM, must enter the corporate trading arena to complement current services. The new division is being headed by Kathy Kladopoulos, who has been named at its president. Kladopoulos worked as EVP and managing director of Carat Trade, which she launched nine years ago. Many of WPP clients were already engaged in corporate trading with independent companies, but now prefer that transactions be implemented by the same media agency network that handles their traditional media responsibilities.
The Midas Exchange will purchase under-performing assets from a client at up to full book value for ?trade credits? or sometimes cash. These assets could include discontinued product lines, excess inventory, real estate, capital equipment, transportation vehicles and any other assets that the client cannot liquidate at book value.
The client will then use the ?trade credits? as a partial payment substitution to purchase media or other goods and services. Also, because of its relationship with WPP, powered by GroupM, The Midas Exchange is in a unique position that will allow it to trade original television programming for advertising inventory, which is a significant difference from traditional corporate trading operations.
Kladopoulos said, ?This will provide much greater access to key inventory on the most desirable TV networks, which generally are less inclined to participate in corporate trade deals.? She also pointed out that trade will always be a relatively smaller aspect of the overall agency business.?Conservatively, we are hoping that the Midas Exchange will contribute approximately 10% in the next two years.?
The concept of barter trading formally started in India started in 2000 when media and entertainment behemoth Zee Group floated a company called Intrex which has now been dissolved. ?In India the concept of media barter is not new and there are many media agencies who do it informally. However, formally this business has failed to take off,? says Ashish Bhasin, Chairman India & CEO South East Asia, Aegis Group.
According to Bhasin, there are several reasons why the business did not take off in India. ?Firstly, there is always an issue of valuation of both the inventory in question and the media space.? While clients always try to quote a higher value for its goods and thereby demanding equivalent media space for advertising, media owners stick to rack rate and therefore decline to give discounts. ?In the whole scheme of things it is the brand that suffers. In India everyone just dumps the brand and try to monetize through the barter deal.?
And finally according to Bhasin, most of the deals happen directly between the media owner and the client, and therefore, the scope for a third-party distributor is less and therefore this business has not flourished as much as it has in the west. ?While media barter can be a viable business in India, it may not be in the best interest of the brands.?
But a senior media planner who wished to remain anonymous said, ?In India it is difficult to do media barter formally because most companies hid the practice because they believe it might tip the competitors that the firm may be facing trouble in getting rid of its inventory, which might be a sign of organizational weakness.?
But this does not seem to deter GroupM from rolling out The Midas Exchange to different markets. Kladopoulos says, ?WPP and GroupM plan to begin offering the services of the Midas Exchange in various countries and regions outside the US within the next 12-18 months. India, and all the emerging markets, are certainly on our short list.?
While larger media companies and media agencies have failed to tap into this business in India there are several small time barter traders who have been flourishing in this business. While their number could be small but they have been growing very rapidly. Some of the biggest barter trading companies in India include Net4Barter, Synapse Trade Solutions, One Up Trade Network, Perfect Barters & Traders, who usually work on a 5-10% commission of the whole deal. Most of the Indian publications prefer to go through the barter traders because traders always have a wide portfolio of products which always helps publications to run promotions and therefore increase its circulation. Even Net4Barter started off during the same time. Veena Kapoor, CEO, Perfect Barters & Traders, said, ?The size of media barter industry in India would be at least Rs 100 crore and my projection is it will cross $ 1billion in the next 5 years. Current every media company earns at least 5-7% of their revenues through media barter.? She also says that the number of media barter deals are much higher in B and C class towns in India where competition to capture the market is most intense nowadays than the metros and the A cities.
Barter deals are usually in excess of Rs 5 lakhs and the annual income of barter companies could be anywhere between Rs 5 crore and Rs10 crore. Most of the barter trading companies have mushroomed in the past five years. The barter traders work mostly as facilitators. For example, a newspaper may require product of a particular company in lieu of ad space in the publication. But the company doesn’t want to advertise with the newspaper, it requires outdoor space. ?Therefore our job is to make sure that the newspaper gets the product of the same company and the company gets outdoor space in return?, explains Kapoor.
In the metros and bigger markets in India, media barter deals are also directly handled by large media companies. The head marketing of a renowned publication who didn’t wished to be named said, ?In India media barter deals happens in various ways. We always go for a part-barter part-cash deal where the cash component is always fixed. And we always stick to the card rate and do not give discounts. If there is a discount it has to come from both parties.?
He also said that the publication like many other newspapers in the country also has barter deals with news channels. They decide the valuation of the deal at the beginning of the year and barter ad space with each other accordingly. However, while there is no service tax applicable on publications, there is a 10.3% service tax applicable on television broadcasters, radio broadcaster and outdoor agencies. For some media companies in India the income through media barter is growing. News broadcaster NDTV garnered Rs 7.55 crore through media barters in 2008-2009 and in 2009-10, this income grew to Rs 10.93 crore.
Also, in India bartering equity has also been a common practice. The Times Group has its own venture called the Times Private Treaties, which is a barter program in which advertisement space is bartered for equity stakes in new and established companies. Following the example of the Times Group other major news houses in India have also started to consider barter for equity and that includes publications like HT Media Ltd, Dainik Bhaskar and Dainik Jagran who want to barter newspaper space for equity as well. Talking about the future of the media barter business Kapoor of Perfect Barters & Traders says, ?In the US the media barter industry runs parallel to the cash economy. In India as well it will go in the similar direction.?