Indonesia struggles with ad-spending nosedive

PT Surya Citra Televisi (SCTV), a wholly owned television subsidiary of the media conglomerate PT Surya Citra Media Tbk (SCM), declared a decrease of 1.8 percent in its advertising revenue for H1 2015 in its half-year results.

In March, Hary Tanoesoedibjo, president and CEO of Media Nusantara Citra Tbk (MNC), while announcing 2014’s financial results had said, “Our Q4 was challenging with advertising revenue declined by 7 percent, as clients held back due to election uncertainty and the debate on fuel price hike.” He, however, was optimistic about the coming year and had predicted a 10 percent advertising revenue growth in 2015. MNC is the leading media group in Indonesia with popular free-to-air channels like RCTI, MNCTV and GlobalTV.

If Nielsen’s media-spend figures for 2015 are to be believed, Tanoesoedibjo’s optimism has faced a rude jolt. The year-on-year spending on television and print for the year (Q1 through Q3) is down by 2 percent. According to Yasir Riaz, managing director of Starcom Mediavest Group, the full year might even be looking at a a 5 percent drop.

For an advertising market that was gliding comfortably with double-digit growth figures for almost a decade, a fall from 22 percent in 2013 to 2 percent in 2014, according to Nielsen’s measured media Adex, has been a nosedive.

Indonesia is a sentiment-driven economy, and the consumer confidence index, as per Bank of Indonesia, fell to 97.5 in September of 2015, down from 112.6 in August and the lowest reading since August 2010. President Jokowi’s tentative first year in the high office has led to a fragile political and economic environment, and China’s currency crisis, amidst weak global commodity prices, have provided just the impetus required for the Rupiah to plummet.

Domestic household spending, which is the largest contributor to Indonesia’s GDP, also dropped to 4.97 percent compared to 5.01 percent in the previous quarter. “People are just not buying, and it is hitting the marketers in a big way,” said Riaz. “All the big-spending FMCG multinationals, which report their profits in dollars, have cut advertising budgets in a big way to meet their bottom lines. We, at Starcom, have seen a 15 to 20 percent year-on-year slowdown.”

Added Ahmed Faraz Shamsi, Reckitt Beckinser Indonesia’s marketing director, “I think the media slowdown is simply because of companies holding back investments, primarily the effect of economic slowdown. Forex-related increases and rising cost structures are squeezing the P&Ls.  Indonesia will bounce back, but the recovery is unlikely to happen overnight. Thus, 2016, will continue to be a tough year, where I foresee most players making very measured investments.”

Local marketers have not been spared either. Indonesia is one of the largest wheat importers in the world, and big Indonesian FMCG advertisers such as Indofood and Mayora, with wheat-heavy portfolios, had hitherto been enjoying the benefits of low wheat prices and were injecting these fat margins into their advertising budgets. However, the weak rupiah has caught up with them and thus, their advertising spends.

Other local marketers who have borrowed in dollars and not hedged at a high rate of Rp 15,000 are bleeding, paying their debts and have drastically reduced spends.

With their main revenue contributors, the FMCGs, putting sudden brakes on their ad budget spending, the media owners, especially the TV channels, are in panic mode.

Television accounts for close to 75 percent of Indonesia’s measured media, with three conglomerates running the whole industry and dictating the rules of play. “In the last few years, Indonesia had been witnessing disproportional media inflation," commented JWT’s CEO, DD “Lulut” Asmoro. "A YOY percentage increase in price was at times bigger than the increase in the clients’ marketing budgets. Even with the same capacity, costs were going up. It is a seller's market."

This is possibly the first crisis a lot of the top management at TV stations have seen in their careers and one can see some knee-jerk reactions kicking in. “This is the first year where YOY CPRPs have actually gone lower than the previous year or remained constant," said Partha Kabi, technical advisor, Maxus Indonesia. "This is primarily due to the willingness of TV channels to negotiate on pricing and break all barriers. TV channel revenues have been hit in a big way, and they have been desperate this year.” 

It is also the time when they are waking up to the “digital” competition as the FMCG majors will be looking to allocating their ad budgets to more effective and cheaper advertising alternatives like online and social media.

According to Piotr Jakubowski, head of digital, VML Qais Indonesia, “While we've heard that some of the traditional media budgets have been scaled back, we have not felt much of that in the digital sphere. It may be as we see that Indonesian consumers who are connected to the Internet practically live online and the one-to-one contact with brands through digital channels is still a key part of the marketing mix. Second, comparing scale of investments, digital is still a much smaller proportion of spend for many brands. The impact of cutting budgets just wouldn't be big enough.”

One sector that remains unscarred by the economic trials in Indonesia and is pumping a lot of its VC funds into advertising is ecommerce. Sites such as Traveloca and Belibeli.com feature in the top 25 advertisers in the country. “They are not looking at ROIs but just attracting users, and this is the best time to advertise discounts,” said Riaz.

Market experts feel that instead of knee-jerk short term discount tactics, the television industry can use this shock therapy to their advantage. Instead of sticking to an old fashioned solution to a market slow-down, the media conglomerates can seriously look at investing in creating good content and develop in-house capabilities.