Cautious optimism is the name of the game, says GroupM South Asia CEO Vikram Sakhuja as he sees a squeeze on ad spends in the face of rising inflation

When Vikram Sakhuja speaks, the Indian advertising and media industry listens. As the big man of the India media industry, heading India?s largest and most awarded one-stop shop for marketing investment, he has his fingers on the pulse of this industry. So when the chief executive officer of Group M South Asia, part of WPP Plc, one of the world?s largest advertising and media conglomerates, sounds a warning about the impact of the current economic situation on the media industry, it?s time to sit up.

?The biggest writing on the wall right now is to wait and watch in terms of how the ad spends are going to come on the basis of larger economic factors in the next six months,? says Vikram Sakhuja, chief executive officer, Group M South Asia. In the back of rising inflation coupled with higher interest rates and weak global capital markets, Sakhuja sees cost pressures mounting on media clients. ?We are seeing the spends of some very large spenders coming down. In some sectors like fast moving consumer goods (FMCG), the cost pressures will be there to some extent, for durables and BFSI (banking, financial services and insurance) there could be de-growth in some cases,? he says.

The first half of 2011 was much better. As Sakhuja says, overall ad spends must have gone up by 18-20%. ?For television, the ad spend grew in the 20% area; a lot of it was driven by the World Cup and the IPL. If you take that out, TV growth would be about 10-11%. Print has grown by 10-11%, radio by 20% and digital by 30%. Outdoor isn?t growing that much, it is in the 4-10% level.? January, February, March and April saw good growth but May, June and July are not looking much bullish, he warns.

A large part of the good growth seen in the first half was driven by the ICC World Cup and then the Indian Premier League (IPL). With the cricket factor now gone, and the economy staring at one of its worst growth years, things could be different. ?A lot of people are now banking on the festive season. So if it is a good festive season, then it will be the next mode of buoyancy in the market. Currently, there seems to be cautious optimism for the next month or so,? he says.

A distinctive trend this year is that clients are looking for reasons to spend more on the digital medium, Sakhuja says, but at the same time they want to be convinced about the results. ?Digital advertising will increase across mobile and Internet. I see growth in video advertising on the internet. If we can crack a good creative, even banner advertising using digital capabilities can grow. The contextual targeted nature of digital makes it a rich advertising choice. Without even getting into the interactive aspect of digital, people can start making a case on digital,? he explains.

Sakhuja makes a case for making TAM data (the industry currency for media planners) more relevant. ?TAM is not covering the below 1 lakh plus strata which is a large chunk of people, which becomes an issue for the well-penetrated brands. Second point is that by the nature of market research, the top and bottom of population strata gets under-represented and the burgeoning middle is over represented. That is an issue for more premium brands. My belief is that if we want to get more robust data out of TAM, we should re-look at the sampling methodology and understand what causes variation,? he says.

Coming to GroupM?s own performance this year, Sakhuja says its billings growth has pretty much matched the market. ?In the first half, billings and revenues have been up and margins have been tight. In the second half, we need billings and revenue to maintain the growth but we are a little cautious.?

FACEOFF ViKRAM SAKHUJA, CEO, GROUPM SOUTH ASIA

?Wait and watch the ad spends?

The ICC World Cup and the Indian Premier League (IPL) brought some cheer to the media industry, especially television channels, in the first half of 2011. But the current economic situation could throw a spanner into the growth plans of the media industry. In a chat with FE?s Payal Khandelwal, Vikram Sakhuja, chief executive officer, GroupM South Asia talks about the industry?s performance in the first half of the year, his predictions for the next half and also how moving to audience based media buying across the board can be the best thing that can happen in the industry. Edited excerpts.

How has the media industry?s performance been in the last six months?

Overall, we had a decent growth in the first half. A large part of it was driven by the ICC World Cup and then the IPL. Overall, ad spends must have gone up by 18-20%. For television, the ad spend grew in the 20% area; a lot of it was driven by the World Cup and the IPL. If you take that out, TV growth would be about 10-11%. Print has grown by 10-11%, radio by 20% and digital by 30%. Outdoor isn?t grow- ing that much, it is in the 4-10% level. January, February, March and April saw good growth but May, June and July are not looking much bullish. Part of it is because the cricket factor is now gone. I am hoping that it will pick up now.

We are seeing the spends of some very large spenders coming down. I don?t know to what extent inflation is responsible for that. From a larger economy standpoint, we have been talking about double-digit inflation for quite sometime now. I would imagine that there will be serious cost pressures for clients. In some sectors like fast moving consumer goods (FMCG), the cost pressures will be there to some extent, for durables and BFSI (banking, financial services and insurance) there could be negative growth in some cases. Now, I don?t know about the cause and effect, but if it is inflation driven, the biggest writing on the wall right now is to wait and watch in terms of how the spends are going to come on the basis of larger economic factors in the next six months.

What is the main trend that you predict for the next six months?

The trend that has been going on for a while now is that clients are looking for reasons to spend more on digital but at the same time, they are not giving in blindly. Those who can make a good sale story on digital, can see the growth coming there.

How do you see digital media evolving?

Advertising, search, social aspect and direct response/sales are the four ways in which digital can be used. Digital advertising will increase across mobile and Internet. I see growth in video advertising on the internet. If we can crack a good creative, even banner advertising using digital capabilities can grow. The contextual targeted nature of digital makes it a rich advertising choice. Overall, advertising will continue to be the base on which digital will grow. As digital grows, search will be directly proportional to that. Search, in fact, has been bucking the trend so far. In our case, search growth in the last two years has been much higher than display growth. In terms of mobile growth, we have seen much higher growth rates, it was 70-80% last year and growth has been decent in the last six months.

Are you expecting a good festive season this year?

A lot of people are now banking on the festive season. So if it is a good festive season, then it will be the next mode of buoyancy in the market. Currently, there seems to be cautious optimism for the next month or so. However, we had a good festive season last year. So, I am hoping we get a decent growth this time too. In terms of sectors, consumers durables are very big during this season, autos and parts of FMCG like confectionery etc. Even for soft drinks, pre-winters is another season. The overall spending increases at that time and thus I am bullish on a good festive season but still let us wait and watch.

What, according to you, is the best thing that can happen in the industry in the next six months?

The best thing that can happen is the move to audience based buying across the board. I think that the situation is ripe right now to move to audience based trading. When you are doing TV, we are talking in terms of GRPs/CPRPs (Gross rating points/Cost per rating point) and while we are making a plan for print, it is number of inserts into cost per centimetre. For radio, inspite of RAM (radio audience measurement), we are still talking in terms of number of spots per day multiplied by cost per spot and for outdoor, we are actually getting down to individual pieces of inventory and digital is pretty much bought on CPM/CPT (cost per millie/thousand) basis.

So basically, across media, there is a silo based approach as if one is buying completely different things. However, at the end of the day if you are in the market to get eyeballs, you should be able to do media-agnostic planning. It would make a profound difference on how we spend money behind different channels. Today we are spending more than 80% behind TV and print, 9-10% behind outdoor, 3-4%in digital and 3-4% in radio, that could change. For example, if we look at any circulation data, we are told (which is probably true) that magazines are dying but does that mean magazines have no role at all? There are some marketers who are using these well-targeted magazines to reach their audience. Through audience based buying, integrated selling will become more creative and strategic. If people embrace that, there will be a dramatic shift in the way which spends can be deployed. It will bring more accountability and accountability should be the need of the hour. CPT (cost per thousand) is the idea whose time has come. If I have to look at what has happened in the last six months, an interesting move has been the Zee-Star distribution link-up. Somewhere down the line, zero lack of accountability in the piracy driven local cable operators set-up where declarations are not happening, has led to complete reliance on advertising revenue. And if two powerful competitors can help tame down that beast, then I think the ripple-effect that it can have on advertising will happen at some point.

Whatare the loopholes in our viewership measurement system today, especially television?

Can TAM (television audience measurement data by which media planners decide their investment on channels)be made better? Of course it can. I think by design, TAM is not covering the below Rs 1 lakh-plus income strata which is a large chunk of people, which becomes an issue for the well-penetrated brands. Second, given the nature of market research, the top and bottom of the population strata get under-represented and the burgeoning middle is over-represented. That is an issue for more premium brands. My belief is that if we want to get more robust data out of TAM, we should re-look at the sampling methodology and understand what causes variation.

How has GroupM done in the first half of 2011?

Our performance has been pretty good. The billings growth has pretty much matched the market. It has been a bit patchy as we lost some large clients but we also won some equally large clients last year. We have been getting decent growth but I am in the same cautious mode. Revenues are on track too. In the first half, billings and revenues have been up and margins have been tight. In the second half, we need billings and revenue to maintain the growth but we are a little cautious.