A month after the government published a game-changing emergency ordinance for the advertising industry, players are trying to counter its effects. Currently, media agencies are trying to push forward an amendment that would give advertising clients the option to decide if they wish to work via agencies or directly with TV stations.
By Otilia Haraga
“Transparency in adopting public decisions is a sensitive point for the Romanian administration. Ever since 2002, there has been a law in place that compels the authorities to hold consultations before decisions are adopted. Granted, it excludes emergency ordinances, because these are seen as emergency measures to solve unpredicted, crisis situations. In this case, it is very hard to justify the ‘emergency’ of the measure – the situation of the rebate had been known about and discussed in the industry for years,” says Ioana Avadani, director of the Center for Independent Journalism.
Emergency ordinance (OUG) nr. 25/2013 published in the Official Gazette Nr. 208 on April 21 took the advertising industry by surprise.
It removes the rebate cashed in by media agencies and puts it in the domain of the relationship between the TV channel and the advertising client. In theory, this measure is meant to bring more money to broadcasters.
It also stipulates that the advertising agency can intermediate the purchase of advertising space on TV only if it is empowered by the advertising beneficiary (the client) to represent it.
The advertising money must be paid directly by the client to the broadcaster, based on the invoice issued by the broadcaster to the client. Any exception or tariff advantage, irrespective of its nature, must be on the invoice issued to the client.
Agencies can only receive payment from the client, and no material benefit whatsoever from the broadcaster.
Currently, there is confusion in the market, says Radu Florescu, president of the Romanian Advertising Agencies Association. He says that there are many clients that buy traditionally through the agency, and while some are situated here in Romania, others are not.
“The idea of paying a TV station directly is not an option for them, so the big companies that cannot buy directly need new contracts. This cannot be done in a day or two; it could take them six months. So there’s the threat of a reduction of spending for Romania. It is going to reduce media consumption, spending, taxes, VAT – everyone loses here,” says Florescu.
Secondly, he argues that the ordinance creates major confusion as far as the contracts that are already in place are concerned, because “everything has to be redone in mid-stream.”
“It’s like writing a manual about how to put out a fire in the middle of the fire. Even if it does not apply retroactively, this is meaningless, because if you have a one-year contract and it was signed six months ago, it applies in the middle of the contract and you have to redo all the paperwork,” adds Florescu.
Alin Alecu, managing director at Goldbach Media Romania, tells BR that another important aspect that was not taken into consideration was that of ongoing or future public auctions.
“This ordinance blocks the progress of the auctions that have been won and creates difficulties in organizing future auctions, which I believe the government has not considered,” says Alecu.
Relevant local industry associations such as the International Advertising Association (IAA), the Union of Advertising Agencies in Romania and AmCham have already voiced their concern about and opposition to the ordinance.
“The government has thrown the stone into the water and the advertising market is now forced to look for solutions. The atmosphere differs from case to case, but I see concern for the future everywhere. The advertising market has been extremely badly affected by the crisis anyhow. A new major disturbance was all we needed,” says Alecu.
Media agencies are now lobbying to push through an amendment that would modify the ordinance and allow clients to choose if they wish to work directly with the broadcaster or via an agency.
“We are for transparency, it is in the parameters of normal business practices all over Europe, USA and Asia, and the amendment we have would actually portray Romania as one of the progressive countries in the media because it would have full transparency from the client perspective, agency perspective and media perspective. So, in a way, what we are proposing would put Romania as a front runner as opposed to being the most backward in the world,” says Florescu.
He added that most of the TV channels, agencies and major advertising clients have endorsed the amendment.
“The question is, if everyone is supporting this amendment, why would the government be opposed to it?” he wonders.
The amendment is currently being debated by the government and the Senate. “We believe that the people at these levels, who have taken the time to listen and understand, are now much more favorable towards it,” says Florescu.
He argues that the major impact of the ordinance will be on the small agencies and TV stations, as well as niche TV stations with no operations in Romania.
“This ordinance will take away competition because there will be fewer agencies, fewer channels, less choice and less competition, and quality will go down,” he explains.
According to the Media Fact Book 2012 published by Initiative Media, television remained the main media channel chosen by advertisers in 2011 even though the TV market continued to decrease, falling by 4 percent to EUR 200 million versus 2010.
At that time, the CME (Pro TV, Acasa TV, Pro Cinema, Sport.ro, MTV) had the largest budget share, representing 50 percent of the total net TV adspend, followed by Intact Group (Antena 1, Antena 2, Antena 3, Euforia, GSPTV) with a 25 percent share and ProSieben (Prima TV & Kiss TV) with 7 percent.
Channels with a less than 7 percent share were Kanal D, Realitatea TV and public TV channels TVR1 and TVR 2.
Avadani argues that the ordinance does not eliminate the rebate since “it only applies to TV stations, which leaves ‘open’ the print and online area.” She adds, “We can easily imagine that more consistent sums, with the corresponding rebate, will go towards these areas. And since in our country, there is cross-ownership – meaning that the same owners have TV, radio, print and online outlets – the OUG only compels agencies to develop new approaches.”
From the point of view of the agencies, she says that “‘losses’ are relative.”
“The rebate was an additional sum on top of what they obtained via legitimate business practices. The agencies have imposed it and some of the mass media has maintained it; there was a certain dose of greed from both sides. This is why the agencies are not in a very comfortable or credible position in claiming government procedures are not correct,” says Avadani.
She concludes, “The ordinance is trying to solve a real problem via inefficient and incomplete measures – because it only covers broadcasters, via unjustified measures, impositions are being made on contracts signed between civil parties, and it was adopted brutally – in a secretive manner and without the consultation of the parties. I do not believe there is a winner in this process, on the long term,” Avadani concludes.
From the point of view of the advertising clients, the measure is set to create complications.
Alecu forecasts that clients will be much more affected by the measure, because they will have to hire more people to follow the processes, their list of suppliers will get larger, and the accounting department will have more work to do. “In conclusion, I do not believe the clients are happy with this ordinance,” he said.
However, Florescu has a slightly different opinion, believing this will just reduce the quantity of TV advertising clients are willing to buy.
“Normally one would say that clients will have to hire a lot more people to deal with this internally, but they are not going to do anything of the sort. What they will do is deal with fewer TV stations and that will kill the small TV stations. Eventually, that is going to force the inevitable: a move more towards online and other forms of media,” he forecasts.
Business Review asked three advertising clients for their views on the changes that this ordinance has had on their TV advertising business. However, none was willing to comment.