Scrapping the 12-minute ad cap: masterstroke or late throw of the dice?

MUMBAI: The government has removed a restriction that was introduced in 2006, when India had a fraction of the channels it has today. Television has changed dramatically since then. But so has the advertising market.

Today, digital accounts for 59 per cent of India’s advertising market, compared with 21 per cent for television. Dentsu puts India’s total advertising market at Rs 1,21,339 crore, of which digital accounts for Rs 71,621 crore and television Rs 25,964 crore.

So the real question is not whether television can sell more advertising.

It is whether advertisers want to buy more television advertising.

That is a very different question.

More minutes, but where is the demand?

Broadcasters now have more inventory to sell. But advertisers do not necessarily have bigger television budgets.

Many will simply use the additional inventory to negotiate better rates.

That could mean more bonus spots, lower CPRPs and greater pressure on broadcasters to deliver the same audience at a lower cost.

Television therefore gets more supply at a time when demand is already under pressure.

That is not necessarily a recipe for higher yields.

The timing is awkward

The decision also comes at an unusual moment.

The Delhi High Court had recently upheld the 12-minute advertising limit, arguing that television uses a scarce public resource and that broadcasters do not have an unlimited right to monetise it. The government has now moved in the opposite direction and removed the restriction.

Broadcasters have welcomed the move.

Advertisers have been more cautious.

The Indian Society of Advertisers had argued for a more controlled increase rather than an unlimited one. Agencies, meanwhile, have generally favoured a market-led system.

The reason is simple.

More inventory gives buyers more negotiating power.

Then there is the BARC problem

The timing becomes even more complicated because television ratings are currently in a period of disruption.

BARC has been asked to address technical and regulatory issues while expanding its panel. The result is that the industry does not have the normal weekly television ratings currency it relies on to establish reach and CPRP.

That creates a difficult situation.

Broadcasters have more advertising inventory.

Buyers have less certainty about the audience they are buying.

That is a powerful negotiating position for agencies.

They can argue: If the ratings cannot completely establish the audience, why should we pay the old price?

That is likely to lead to heavier discounts, bonus spots and performance guarantees, particularly for smaller and mid-sized channels.

Large networks with marquee shows and major sports properties will be better protected because advertisers still want those audiences.

The pressure will be greatest on regional, news and secondary entertainment inventory.

More supply can actually reduce the value of inventory

There is another danger.

Television advertising has traditionally benefited from scarcity. Prime-time programmes, major sporting events and popular entertainment shows have limited advertising capacity. That scarcity helps broadcasters maintain pricing.

Remove the ceiling and that scarcity disappears.

The most valuable programmes may continue to command strong rates.

But the rest of the inventory could become much harder to sell at existing prices.

This is where the policy could backfire.

Broadcasters may discover that they have more minutes to sell but are earning less per minute.

Who gains?

Agencies are probably the immediate winners.

They have more inventory to negotiate with and more flexibility during peak periods.

Advertisers also gain, particularly large FMCG companies and other advertisers that buy television at scale. They can potentially obtain additional reach without proportionately increasing their budgets.

Regional broadcasters could benefit because they can accommodate advertisers who previously could not find space within the old limits.

But the biggest networks with the strongest content will remain in a different league. Their premium shows and live sports will continue to attract demand.

Who is at risk?

The biggest risk is to broadcasters that treat the new freedom as permission to simply increase the number of commercials.

That could create a vicious circle:

More advertising leads to more clutter.

More clutter irritates viewers.

Viewer attention falls.

Advertisers see weaker engagement.

Agencies demand lower prices.

Broadcasters add still more inventory to protect revenue.

And the cycle continues.

Television has seen versions of this problem in other markets. International experience suggests that simply increasing the amount of advertising does not guarantee an increase in advertising revenue.

Sports will be different

Sports broadcasters have a natural advantage because the live match itself limits how much advertising can be inserted into the game.

But the temptation will be to load more advertising into pre-match, post-match and studio programming.

That may generate additional short-term revenue.

It can also irritate fans who already have the option of watching cleaner digital streams.

The premium value of live sport should therefore be protected rather than diluted.

News and GECs need to be careful

News channels are particularly vulnerable because they operate in a highly competitive market.

More commercial breaks could mean more short-term revenue, but excessive advertising can make programmes harder to watch.

For general entertainment channels, the danger is even more obvious.

A drama depends on continuity.

Breaks that become too long or too frequent can damage the viewing experience.

The channel may make more money from the commercial break and lose viewers from the programme.

That is a poor trade.

Digital has the advantage television cannot ignore

The bigger problem for linear television is not the 12-minute rule.

It is digital.

Digital platforms can target audiences, measure impressions and increasingly connect advertising to outcomes. Connected TV can combine the large-screen experience of television with many of the targeting and measurement capabilities of digital.

Simply giving linear television more advertising minutes does not solve that competitive problem.

In fact, it could make the difference more obvious.

Digital sells precision.

Television must now find a better way to sell value.

The smarter response

Broadcasters should resist the temptation to fill every available minute.

The additional inventory should be treated as a buffer, not as a target.

Use it when demand is high.

Use it during major sporting events and festive periods.

Use it to accommodate advertisers when prime inventory is tight.

But do not turn every programme into a longer commercial break.

The bigger opportunity is to make television advertising more measurable and more valuable.

That means better targeting, addressable advertising, stronger integration with CTV and better attribution.

If a broadcaster can demonstrate that an advertising spot generated a measurable business result, it has a much stronger argument for maintaining its price.

The real issue

The removal of the 12-minute cap is not necessarily bad news for television.

It gives broadcasters flexibility that they have wanted for years.

But flexibility is not the same thing as growth.

The industry should not confuse more inventory with more demand.

And it certainly should not confuse more minutes with more money.

The smartest broadcasters will use the new freedom selectively.

They will protect premium inventory, avoid excessive clutter, improve measurement and use technology to demonstrate value.

Because in today’s advertising market:

Inventory is not scarce. Attention is.

The broadcasters that understand that distinction will benefit from the new rules.

Those that simply fill every available minute may discover that they have won the regulatory battle and lost the commercial one.