The advertising industry: How much money are we talking about

Tuesday, 10 May 2011 03:24

Written by Resti Reyes. Jr.

According to Nielsen Media Research, the total value of the advertising industry in the Philippines is estimated at around P226 billion a year – as of 2010, accounting for 4% of the economy. This data shows a healthy 17% growth in total Adspend from 2009 to 2010. That’s only counting the amount of money spent on traditional media ad placements – television, radio, and print. It does not include cinema, billboards and other outdoor media, or the internet and other forms of digital media – such as mobile. That’s because we currently do not have the capability to monitor these other non-traditional forms of media and therefore cannot have a viable reading of how much money goes into them. My own estimate is that these alternative media channels can easily add another 20% to the total media Adspend.

The figure does not even include the creative and production costs of the materials that we actually see and hear. The usual ratio between what a client spends on his creative productions and his media placements is 10-90, meaning, he spends 10% of his budget on the creatives, and 90% on the media. All things considered, a reasonable estimate for the total advertising industry’s value would be around P300B per annum, or about P25B a month.

So where does all that money go?

Based on its data, Nielsen says 75% goes to television (P168.3B); 20% to radio (P45.8B); and only 5% (P12B) to print. Over the years, television has slowly been gaining ground, from around 40% 30 years ago, to its now dominant 75% market share. Both radio and print have lost ground, print more than radio. If the data is correct, then we could expect as much as P14B a month being spent on television. Somehow, that doesn’t seem to be true. The three major networks, ABS-CBN, GMA7, and TV5, have combined gross sales of only about P3.5B a month, or P42B a year, and they already account for at least 80% of all TV spending. There’s more than a hundred billion pesos missing in this equation, and we’re only talking of television.

There are similar gaps between what Nielsen reports for radio and print, and what the networks and publications actually report. If Nielsen monitoring is reasonably accurate, how do we account for the gaps? The answer is simple: Nielsen reports are based on published rates, or what is popularly called “Rate Card” in advertising parlance; whereas what advertisers actually pay are based on their respective negotiated rates (“Nego Rates”). And sometimes the difference can be more than double or even triple the value. Nielsen also reports every single TV and radio spot that they monitor, as well as every single print ad, but we all know that every now and then, some of these ads are actually free – bonuses gained out of the volume of buys negotiated by the advertiser.

The trouble is, nobody can tell whether a spot is a paid ad or a freebie. They look exactly the same.

The truth is, nobody really knows how much money actually changes hands in advertising media buys. Nego Rates are sacred, known only to the handful of people who use them, the media buyers and the media sellers – when they shake hands, that’s the point at which media sales are concluded. If you are not privy to that particular negotiation, then, sorry, you won’t know exactly how much money is changing hands.

We’ve long advocated abandoning this practice of using nego rates, and pushed for the standardization of all computations using published rates. It would then be much easier and more efficient to track industry Adspend data. There is always the danger that when people leave their jobs, they take certain sensitive data with them, like nego rates. So when media buyers change jobs, the sacred data they carry in their heads may not feel so sacred anymore to them. How do you prevent them from using that knowledge when they start negotiating ob behalf of another client? And when you put the power to negotiate millions in the hands of people who are paid only modest salaries, there is also always the danger that they could exploit these instances for better deals for themselves, not just for their clients. There is always the possibility for little pockets of corruption among the buyers and sellers of media.

But of course changing established norms is, as they say, easier said than done. How do you prevent the bargaining process from happening when millions of pesos are at stake? People haggle for the littlest discounts over purchases in the area of tens and hundreds of pesos, what more when millions are at stake?

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