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Changes in Ad Legislation will Boost Country’s Media Market, Without Constraining Specific Companies

The Georgian Parliament has already approved a bill of amendments to the law on advertisement by two hearings. The bill had been proposed by the Georgian National Communications Commission (GNCC). The third hearing will be held during the spring session. The bill that introduces new regulations for TV commercial placement will be enacted in April 2015.
The bill has confused some media companies. Particularly, TV segment has expressed special regrets over the amendments. Committee hearings at the Georgian Parliament turned out also much tensed.
The Banks&Finances newspaper has taken interview from GNCC member Kakha Bekauri over the type and character of legislative amendments and the results the new regulations should bring.

-Mr. Kakha, what concrete changes will be made to the law on advertisement?
-It is appropriate to say legislative norms that used to run before 2011 will be returned to the law. Under the previous regulations, broadcasters were able to place ADs for only 12 minutes an hour, that is, 20% of an hour. These regulations meet European standards and Georgia must restore them as part of the associated membership agreement. This restriction was not previously obligatory, but such a mechanism had been presumed in the law, as the legislation called for further enhancement of the European integration course. In 2011 this article was just removed and all limitations in concrete hours were cancelled. The current bill is to restore this article.
-What was the ground for removing the previous limitations in 2011?
-There is no substantiation. The initiative was proposed by the then parliament’s branch economy committee without substantiation. The initiators used to refer to European instructions, but, in reality, they were opposite to European instructions. This fact was reflected in a due conclusion. Namely, Transparency International Georgia and the Association of Young Lawyers of Georgia submitted negative conclusions that time. Under the reports, removal of the limitations would frustrate and hinder the market development and those amendments objected to European instructions. Both of these NGOs submitted negative conclusions in 2011.
In reality, the decision enabled major TV broadcasters to operate by dumping prices. Rustavi 2 and Imedi TV companies were major broadcasters and both of them were controlled by the Authorities. Consequently, dumping prices were to close all resources on the AD market to smaller broadcasters with limited coverage zones, so as small operators have no additional financial sources for operation. In practice, the decision was against freedom of speech and against the media market development. These factors and goals had driven the removal of the restrictions, in reality.
The decision has brought the planned results – after the removal of restrictions for TV broadcasters, dumping prices prevailed in the segment of TV commercials, because no limits existed in certain hour zones, for example, in entertainment programs and soap operas.
Major TV broadcasters, namely, Rustavi 2 and Imedi offered dumping tariffs for placing numerous commercials. This tendency narrowed the AD market and the unjust competition milieu enabled them to take over the market ratios of small TV broadcasters, magazines and internet portals.
TV commercials are reported to be the best advertising way and mean. Consequently, if TV commercials are cheap on the market, the customer, naturally, prefer to buy cheap products and close door to other advertising places.
Removed restrictions in 2011 enabled major TV broadcasters to operate with dumping prices. As a result, the decision narrowed the AD market and all players of the market were damaged, including regional TV companies, TV companies with limited coverage and other media outlets as their business model was based on revenues from commercials.
– Today the mentioned NGOs are negatively appraising an introduction of limitations. What is the problem now?
-I cannot name the reason they have changed position. Today only the bill enactment date is negatively appraised, that is, they demand that legal amendments not be enacted so quickly. First of all, I would like to note amendments will be made to the law stage by stage. We make focus on two main issues: restrictions will be introduced and two products will be separated – AD services and sponsorship packages. Today AD services and sponsorship services are not separated. AD services are provided under sponsorship packages and this is anomaly and inadmissible. This factor hinders the market development.
TV commercials and sponsorship are not interchangeable products and they must not be. Consequently, these changes will also take place, that is, sponsorship package will not include AD services any more. Sponsorship service will be interpreted under European instructions. Sponsorship service does not imply advertising commercials of this or that concrete company, that is, special indications for purchase, consumption or preferences of the product is banned. The amendments only introduce a due interpretation of new regulations on sponsorship (name of company and products).
It is important that restrictions over sponsorship services will be enacted on January 1, 2016, not in 2015. A 20-minute limit will be introduced on commercials, as well as 4-minute limit for sponsorship package and placement of AD services, that is, the bill does not restrict sponsorship service.
In practice, in 2015 companies will be able to place 16-minute commercials an hour, instead of 12 minutes. Rustavi 2 that is the most active in protests will be able to place 16 minute commercials an hour, while only Prime Time TV program places 17 minutes an hour (and this program is reported to have the smallest placement). Under the bill, Rustavi 2 will have 16 minute AD time an hour in 2015 with 17% upturn in tariffs. The TV company has already carried out these changes and the company will receive higher revenues. We are smoothing these changes so as to prevent market shocks from new limitations, so as the customer properly plan their budgets and suppliers, including major TV companies, not to lose revenues. AD market changes are to boost the common market, not to restrict some companies.
In 2016 the bill will introduce an interpretation of AD service, that is AD and sponsorship services will be separated. In 2017 restrictions will be introduced on commercial inserts in news programs. The current norms enable to make commercial inserts every 15 minutes in news programs and this norm will run for two years unchanged. Under the associated membership agreement, the deadline for introduction of the restriction is the year of 2017.
Under the European standards, news programs must not be cut earlier than 30 minutes. This regulation will be enacted in 2017. European instructions contain several other restrictions that will be enacted in 2016 and 2017.
-The changes will enliven the AD market, including TV commercials market. Despite restrictions, will TV companies receive the same revenues?
-Major TV companies set dumping prices on the market and place commercials and sponsorship services at cheap tariffs. As a result, the AD market is narrowed. They are drawing not only TV commercials, but also penetrate advertising space of newspapers and magazines, radio stations and other advertising segments. The point is that losses are inflicted to not only small advertising ventures, but also major TV broadcasters.
They are drawing more number of ADs thanks to dumping prices, but financial revenues are low. Restrictions are to lead them to growing AD prices. The companies with excessive AD orders in certain time sections will lose a quantity of AD orders, but these changes will prepare them for the next years. In 2015 they will not have even quantitative losses.
-The situation and perspectives with major TV broadcasters is clear. What do you think what portion of AD orders will go to other media outlets thanks to the new regulations?
-Today, the ratio of TV commercials on the AD market makes up 75% to 80%. What does this mean?! Last year total value of TV commercials marked 47-48 million USD, that is, the total AD market value made up 65-70 million USD. These changes are expected to double the market in the next 3 years and the market value will increase to 140-150 million USD. Consequently, the ratio of TV commercials will not be 75% to 80% again, but about 55% to 60% (80-85 million USD). We expect this effect to take place in 3 years.
– One issue is when you change the established rules of game in line with European instructions, another issue is whether the business will adequately react and follow these changes, whether there is sufficient demand to double the market.
-Naturally, when planning the changes, we explored the mentioned issues. The AD market is measured by several parameters, for example, expenditures per capita. In Georgia, 10 USD is recorded on TV commercials per capita and this is very low indicator.
What is a TV commercial? – TV commercial implies the sales of a contact with the audience, that is, sales of rating. The customers need to measure the TV product they plan to buy for placing an AD material. They also need a communication with spectators, that is, spectators watch these ADs. Consequently, the quantity of spectators of this or that program and the rating of this or that program is of crucial importance. The price per 1000 contacts, that is, the price of a contact, is one of the parameters to measure AD efficiency. Consequently, the price of a contact is related to capital and the state economy in any country worldwide.
If we compare the capital of our country to the capitals of other similar countries, we will see that in Georgia the price of a contact is lower 2-3 times, that is today in Georgia TV commercials are 2-3 times cheaper compared to the tariffs that should have been set amid current economic situation in Georgia. Another issue is related to the efficiency of ADs. Today 60% of TV commercials are sold because of ratings, 40% is sold due to minutes, that is one minute TV commercial has got its own price and 48 million USD TV commercials are sold due to minutes. This signifies neither AD efficiency is measured nor the quantity of spectators of programs.
Consequently, it is possible that the customers buy AD time in some soap operas for a period of one week, but this soap opera has got various quantities of spectators every day, while the price is the same. Therefore, this is incorrect and the customers pay money for nothing, in practice.
Moreover, today the duration of a commercial in an hour-long soap opera is 35 minutes and each AD block reaches 15, sometimes 16-20 minutes. Naturally, we have analyzed this circumstance and defined that the rating of the placed commercial halves after the initial 2-3 minutes in 15-20 minute AD block, that is, if the customers pay 100 USD and his commercial comes fifth or later, they practically receive 50 USD service, because the quantity of spectators has halved. The customers are ready to pay twice higher price if the number of spectators doubles and their ADs go second or third in the AD block. Consequently, limits will shrink, but the real price will not grow for the business sector. The price will increase in nominal, but the customers will receive doubled effect.
-You have said the customers often pay money for nothing. Do you mean there is low level of business culture in Georgia, as the customers do not realize what services they buy and at what price?
-The business behaviour is correct. The problem consists in dumping prices. The business knows AD services are very cheap and it does not find it worth to care for AD efficiency, despite the audience is halved. All business sectors calculate this. When the price will grow, however, the business will have to count each spectator to receive effect, then the business will have to take decision where to place commercials: in high-rating channels with many spectators and expensive services or in TV companies with limited coverage and less spectators or in magazines and newspapers, radio stations and internet editions. Therefore, the business will have to correctly plan AD strategy and to determine efficiency. But today the business does not need to explore this efficiency, because TV commercials are cheap at major TV channels.
– It is clear it was different situation four years ago, when restrictions were removed and serious problems existed in terms of freedom of speech. It is not difficult to realize that restoration of the previous norms and its real enactment will not damage major TV companies. On the contrary, they will enlarge, as well as all other media bodies, contrary to the existing practice. Consequently, what is a real motivation of these bodies, who object to restoring the previous norms for AD time limitation and their enactment?
-I would not say all major TV companies object to this bill. I have not heard similar objections from Imedi TV company. Imedi had got some remarks like other TV companies, but this was a working process and we have successfully passed this working process, in practice. Namely, before submission of the bill to the parliament, we had worked on the document for about 8 months, analyzed the existing basis, explored western experience, specified details, examined the Georgian market realities. Consequently, we have made detailed analysis and prepared the bill.
For the next two months we organized public discussions with all interested bodies, including market player TV companies. They expressed many remarks and this is ordinary working process. We have taken into account many suggestions, including, we agreed on smooth removal to the transient period and gradual introduction of restrictions. Today, I think no company objects and expresses remarks any more over the current version of the bill, excepts for Rustavi 2.
As to Rustavi TV channel, two main factors circulate around. I believe in intellectual potential of the Rustavi 2 management and I believe they understand that their company will not lose revenues after the introduction of restrictions. On the contrary, their revenues will increase.
At the same time, I can express suppositions that Rustavi 2 management may be afraid their competitors will also strengthen. Indeed, they will not lose revenues, but their competitors, small TV companies and other media outlets will also strengthen and their revenues will also increase. Growth in market ratio the competitors will be higher compared to Rustavi 2 and Imedi.
These changes may be unacceptable for Rustavi 2, because its management asserts only Rustavi 2 exists thanks to the AD market and owners of other TV channels pour money into their media outlets because of concrete political interests.
And another issue is the motivation of the commission and the bill authors, the legislative functions and duties. Namely, we are to promote the AD market development to provide comparatively equal competition, separate AD service from sponsorship service and the so-called product placement have no naturally competitive advantage (for example frequency resource). Competitive advantage will not be misused and they will not monopolize the market thorough dumping prices.