For newspapers which are nervously watching their readers desert them for the internet, the rise of a new type of advertising arrangement in India may offer a glimpse into the future.
Called ‘private treaties’, and spearheaded by Times of India publishers Bennett Coleman & Co (BCCL), the structure enables the newspaper to take up equity in companies in exchange for advertising inventory. And it has proved resoundingly popular with media groups, with the likes of HT Media, Dainik Bhaskar Group, Jagran Prakash, NDTV and Network 18 jumping on the bandwagon. But the model raises some uncomfortable questions about the relationships between newspapers and their advertisers.
1 Newspapers in India are possibly the cheapest in the world, thanks to large volumes and ruthless price wars. That also means that newspapers depend heavily on advertising revenues, which are being eroded. Through the private treaty model, BCCL aims to tap mid-sized businesses and entrepreneurs in metros as well as advertisers in the rapidly growing tier one and tier two cities of India, hitherto dependent on local newspapers for advertising support.
Explains CVL Srinivas, director of private treaties at BCCL: “Times private treaties helps increase the advertiser universe since most of these businesses are first-time advertisers who are able to enter the market thanks to this model.”
2 The model works best for cash-strapped clients who cannot risk sinking capital for long-term returns. It also helps clients to build brands without having to spend ‘expensive’ capital in their formative years.
Advertisers enjoy the best rate on the rate card for the space they consume; the clients enjoy fixed premium positions that in a normal case may be difficult to get and a special service group formed by the publication helps them build their brand.
3 The deals are typically structured in two ways: Equity-based and sales-based. In the former, the publication takes stakes in the company for a specified period of time, usually three to five years.
“The condition is the publication cannot sell the bought equity to a third party,” says Mona Jain, executive vice-president, IMX. “The choice lies with the advertiser to buy it back.” In sales-based treaties, the publication and advertiser agree on a sales increase. If the sales growth is achieved the advertiser pays an agreed premium to publication. If not, the publication makes good with free space for the incurred loss.
4 The model offers various advantages to its clients: it allows advertiser capital support to be able to take a longer period view of their marketing strategy.
5 The grey area arises when newspapers offer paid editorial as part of the deal. “The advertisers are willing to pay substantial money, over and above buying of pure space to engage with their consumer by integrating brand message with editorial content,” says Jain.
“While we do highlight positive news about the clients, the publications in no way curb any information that a reader needs to know,” says Nitin Jain, director and business head, Optimal Media Solutions. OMS, earlier known as MediaNet, is a venture floated by BCCL about five years ago that “looks at content-led advertising”, explains Jain. Unlike private treaties, the clients pay in cash for coverage in BCCL’s group publications.
6 Private treaties invariably cross the line between advertising and editorial, raising questions over the credibility of news content. PT clients are known to expect their media partners to steer clear of negative stories, a situation that does not sit well with journalists.
In fact, one of the reasons cited for the recent departure of the Times of India’s executive director was his displeasure over intrusions made by marketing men into the editorial space.
“This is merely a mode of payment and forms a small component of the overall advertisement revenue. When such questions do not arise in the case of cash advertisers that are much larger in number, where is the question of diluting any boundaries in respect of a small segment of advertisers?” counters Srinivas.
What it means for…
Media owners
- With no investment other than in the form of space options in print media, the media houses are able to diversify their investment in growing sectors in a developing economy.
- In a climate where competition for readers is cut-throat, meanwhile, the ability to sustain advertising revenue is critical.
- The increasing overlap between editorial and advertising is unlikely to bode well for a company’s editorial integrity. And some newspapers are unswayed by profits on offer: ‘Money cannot buy our integrity’ read a recent front-page on Mumbai daily DNA, in reference to the increasing popularity of private treaties.
Advertisers
- For companies which have smaller budgets or whose marketing is in an early stage of brand building, the ability to run newspaper campaigns is obviously attractive. Offering media houses an equity stake also means they will take the company’s media spend more seriously, in the form of better rates and premium positions.
Media agencies
- Private treaties tend to operate as direct deals between the advertiser and publishing house. For media agencies, exclusion from an increasingly lucrative revenue arrangement is hardly ideal.