Friday, July 01

Why clients pay 50% too much for advertising


Ceska Televize will no longer carry advertising in any form useful to a big advertiser such as P&G or T-Mobile, and Robert Kvapil of CT wonders why advertisers don't make more fuss about this political decision. The answer, I am afraid, is contained within my previous blogpost. There is no organisation of advertisers, such as ISBA in the UK, which would allow them to speak with one voice, and with the power of their combined business.

Individual clients tend to go to great lengths to squeeze the revenue of creative agencies. Some of them start to take a limited interest in their media budgets too. There are now several media auditors in the market. However the tangible benefits they provide to clients are the subject of some controversy. Certainly they do not address the concentration of commercial media ownership, which has made advertising in the Czech Republic far too expensive.

Some advertisers would be shocked to find out how much money they have wasted over the last 12-13 years. If an association of clients had existed during this time, they would have found out. The big telco companies for example are not organised to look at regional data in the way that P&G, Unilever or Nestle can do. If they had been sitting in the same association the FMCG companies would undoubtedly have shared some important information with them. For most of the last 12-13 years the cost of reaching a typical target audience in the Czech Republic has been 50% higher than to reach the same target audience in Hungary. Why? Because of the cost of TV, which sets the relative prices of all other media. For a while, lest we forget, Nova and Prima were effectively owned by the same business interests. They could charge what they liked, and the only alternative was the limited airtime on CT, which was always sold out. This situation was actively encouraged by politicians. Some may simply have been intimidated by Vladimir Zelezny, but others, such as the unelected 'spokesman' Ladislav Jakl, worked consistently to try to remove advertising from CT, and sought to disguise the ownership of the two commercial stations. In Hungary by contrast the two private stations were in the hands of respected international owners (SBS and RTL), who compete aggressively. Another politician who deserves a special mention for his role in creating this oligopoly is Ivan Langer. He loudly proclaimed that digitalisation would bring the necessary competition in the TV market. I always knew this was an empty promise; people only watch digital channels if there is something worth watching. It has only been successful in the UK because huge global companies such as Sky made massive investments (buying football and film rights), and the BBC responded. Who could ever afford to make interesting content - in Czech - which people here would want to watch? The answer is on your TV now.

So the oligopoly rolled on, and continues to do so, and the advertisers pay, because they do not talk to each other, let alone use their unquestionable influence to demand a more competitive TV market. The retention or even expansion of advertising on CT would have been the most obvious goal for them. There is no law which says that public TV should not carry advertising. There are issues if it does, for sure, and they would fill up another blogpost, but they do not add up to a fundamental rejection of the concept of advertising on CT.

What are the consequences of the failure of advertisers to form an effective lobby? For the biggest advertisers, who might have been spending as much as 300m CZK per year across the main media, they have been paying 150mCZK more than they should have done. Each year. Meanwhile led by their newly empowered procurement people they will run expensive pitches with the aim of reducing creative agency fees by perhaps 2-5mCZK year, and resist paying even 25,000CZK in pitch fees.

That is the price of the peculiarly Czech resistance to collaboration in business. I wish I understood this resistance better.



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