Industry POV

Will demonetisation impact on advertising be short-term? - Ashish Bhasin

08/12/2016

In a country as complicated as India, it is difficult to predict the long-term effects of demonetisation on advertising

Life for media companies changed overnight when Prime Minister Narendra Modi outlawed old Rs1,000 and Rs 500 currency notes on 8 November. All saw their advertising plummet in days following the announcement. The unfortunate part is that this was their peak advertising season, a time when brands spend heavily.

According to an earlier report in Mint, FM radio stations could see a decline of Rs40-50 crore in the October-December quarter on account of this. Several radio firms cancelled their ground events and concerts as advertisers backed off and ticket sales were poor.

If C .V. L. Srinivas, chief executive of GroupM, South Asia, is to be believed, advertising will take a Rs1,200-1,500 crore hit in the current quarter. According to estimates by Ashish Bhasin, chairman and chief executive of Dentsu Aegis Network, these numbers could be higher—between Rs1,500 crore and Rs2,000 crore.

“The last quarter of the calendar year is the busiest for advertising. Almost 35% to 40% of the total advertising money for the year is spent during this period,” Bhasin explains. This year, there were two halves to the festival period. The first half was from 1 October to 8 November, which went off quite well. The second half—post demonetisation of the high value currency notes—saw a 15-20% dip in advertising, according to him.

Srinivas agrees: “The impact would have been much higher if the announcement had come earlier. Luckily the good part of the quarter was already over.”

It’s easy to see why brands have cut back on their advertising or held on to their media spending. Advertising is affected by consumer sentiment, which has been pretty low post-demonetisation. According to a top print media executive, some of the biggest packaged consumer goods makers have reduced their ad spending and are monitoring the situation on a weekly basis. But that’s only part of the story. The situation has been further complicated by a severe liquidity crunch. There is no cash in the hands of people. “Obviously they have become more choosy about what to spend on,” says Srinivas. Clearly, the impulse purchase categories are suffering. “Not everyone has digital means of paying,” Srinivas adds.

Paucity of cash has also affected the e-commerce segment where a significant slice of the business was coming from cash on delivery. That part of the business has now been wiped out.

That is not all. A lot of distribution of goods and services—from manufacturer to distributor to retailer—happens in cash. The cash-starved ecosystem has affected the supply chain and goods are not reaching the stores.

Srinivas, however, feels that advertisers, too, are being extra cautious in spending their ad money because even before demonetisation the business environment was challenging, especially for the packaged consumer goods segment. “There was a perceptible sluggishness even earlier, making advertisers cautious,” he says.

The impact of demonetisation may push GroupM to review its advertising growth rate estimates for the calendar year 2016. Having started the year with a forecast of a 15.5 % growth in advertising, the media agency revised it to a lower 13-14% in the middle of the year. “Given the circumstances, we will have to further revise it downward by about a percentage point or so,” says Srinivas. To be sure, the real cause of concern is not the current quarter.

Media companies are worried and wondering if the ill-effects of demonetisation will get carried forward to the next quarter. “Advertising is all about demand creation and building brand equity. So in some cases the comeback for advertisers may be quick, probably even before things become 100% okay. However, the impact could spill into the January-March quarter,” says Srinivas.

While brands, media firms and ad agencies are hoping that after 30 December (the last date for the deposit of demonetized currency notes), the worst should be behind them, in a country as complicated as India it is difficult to predict the long-term effects of demonetisation on advertising.

Will advertising go through short-term pain for medium- and long-term gain? “These steps will lead to economy doing better in the medium- to long-term. But we have to see how short term is short-term pain for the advertising sector,” says Bhasin, adding that the move may impact the next quarter as well.

“What we are not factoring in is that if GST (goods and services tax) is implemented from April, it will result in more complications. It will cause further disruption in the market. I feel the real turnaround will start happening in the next festival season,” says Bhasin.

The print media executive cited above is a bit more optimistic: “This quarter is pretty much gone. Next quarter should improve,” he says. If it doesn’t, he adds, “then we are all dead.”

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

Respond to this column at shuchi.b@livemint.com

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