'A few media agencies in the fray are in this desperate volume building at any cost game' : Andre Nair - Mediaedge:cia Asia Pacific chairman and CEO

For Andre Nair, chairman and CEO of Mediaedge:cia Asia Pacific, it is time to pack his bags. After three more than successful years at the helm of GroupM in India, Nair's last working day in India will be 14 January, after which he heads out to Singapore, where he will be based. This is not to say that Nair is severing all links to India. He continues to retain overall responsibility for GroupM in India, as too Mediaedge:CIA India - which resides within GroupM but operates independently.

As a parting shot to the media frat as it were, Nair offers a glimpse of his three years as head of the country's most powerful by far media independent and his take on the media business.

In this, the first of a two-part interview, get a load of Nairspeak on what's good, bad, and ugly about the media business in India, both on the client side and as regards rival agencies.

You're all set to head out to a new challenge. Looking back over the last three years, what have been the highs of heading WPP's media agencies in India?

The first high for me personally was coming to India. To live and work here was an exciting prospect. Second was launching the group company and the individual operating companies of MindShare & Maximize (now Maxus) within three months of getting the remit to do it.

The third high, which stretches into the fourth, was that within the first three months of official launch we won nine new business pitches. Carrying that forward into end-2002 we had 53 business wins and no losses as far as existing clients moving out. Over the last three years we've won over 190 new pieces of business.

On the manpower front we had two great hires in Vikram Sakhuja (Mindshare Fulcrum) and M Sukumurthy (Broadmind). And CVL Srinivasan in end 2003. Also, empowering our senior managers. Having P&L responsibility to manage their own units was a big thing for them.

There are some common threads that run through all this: new business, growth of individuals, hiring of great talent, launching of new business units and companies. We launched Mediaedge:cia in May.

Finally, being recognized over the course of three years for the work we've done which is reflected in the number of external and internal regional and Indian media awards we've won. The highlights of which were winning the annual Asia Pacific Media Magazine "Office of the year" in 2002 and EMVIES "Media Agency of the year" 2003.

And the lows? Keeping aside businesses that you failed to win.

Losing some good people, some pitches and some clients. And of course, leaving India.

When you came here, one of your primary responsibilities was to manage the smooth integration of HTA Media, O&M Media and Contract Media into GroupM. The common assumption is that if you hadn't been there, there would have been a turf fight among senior executives. Could that be termed as one of your key successes? As in managing the transition in such a smooth and seamless fashion?

To be fair to everybody, that wasn't just me. It was a number of us working together. It was a real team effort with the senior managers of the company. And yes, a testimony to the success of that effort was that 99 per cent of the staff stayed with us and 100 per cent of our clients stayed on.

So what is your take on the media scene in India today? What's the biggest problem that the industry is confronting?

Looking at the downside, it's this continual erosion of remuneration. A lot of silliness goes on today, both with clients and other agencies in the business.

Two, as an industry we've never really got to grips with training our people. I still fear for the brain drain of media folk to other industries. And even if they are in the same industry, leaving India, so the rest of Asia gets the benefit of our talent.

When you say the continual erosion of remuneration, doesn't that boil down to the big issue among all the media agencies, which is margins?

Not margins, remuneration, which is what ultimately affects profitability. It's not a question of margins of 20 Vs 10 Vs 5 Vs 1.

Some clients seem not to realize that there is a cost of doing business. And cost of business, particularly in our industry, in a large way goes to staffing quality people.

Some of them are single mindedly working to cut the remuneration down so that it is not a question anymore of margins; it's a question of trying to break even or preventing going into loss.

"Some clients seem not to realize that there is a cost of doing business. And cost of business, particularly in our industry, in a large way goes to staffing quality people"

If everybody is aware that the problem is eroding remuneration as you term it, why isn't the industry collectively working together to raise the bar?

Exactly, but that's not happening. We would be the first to support any moves in this direction.

But one criticism that Group M in particular seems to constantly have thrown in its face is that they were the leaders and they started the whole two-and-half per cent game.

We DID NOT start the two-and-half per cent game nor are we a 'discount shop'.

The creative agencies started this game prior to the coming of age of media agencies, by getting the AAAI to prescribe the breakup of media as 2.5 per cent out of 15 per cent, and since they never invested in building their media product, the market saw no reason to disturb this remuneration structure. We have been fighting this from the day we started, and there are clients who are now seeing the greater value we bring and beginning to remunerate differently.

We do not go out and charge the two-and-half per cent every which way. What we do is we say to clients, 'If you want this scope of work it's X per cent, if you want more then it's plus X per cent.' So remuneration is scaled up or down according to the scope of work.

We work with clients in a range of commission levels. But today more than half our business, close to 60 per cent in fact, is fee remuneration and fees are based on scope of work with incentive upsides based on performance evaluations. Ultimately fees are the fairest system of all because a client gets what they pay for.

If there is that kind of clarity in terms of what you bill, then it's a take or leave, so what's the problem?

The point is that ultimately, because we're market leaders, everybody shoots at us. But there are a number of our competitors who are the worst offenders of this. I know of agencies that have gone down below 1 per cent. I don't know how they run their business, but that's not my call anyway.

The problem is that apart from us, Carat and Madison, there are no other independent media agencies in India. All the rest are full service agencies with branded (and subsidised) media departments calling themselves media agencies. And these agencies, in order to compete with the media agencies, give away media free, or try and value them at 2% and less in pitches - as they are anyway working on creative at 5-7.5% and have no investment worth talking about, in their media product. Obviously many clients see through this, but there's always the temptation to use these benchmarks to negotiate remuneration with the real media agencies. And what complicates the scenario further is that the few other media agencies in the fray are in this desperate volume building game at any cost, and are accepting business at 2.5% and less, and not too bothered about profitability at this point in time.

You talk of eroding remuneration but all the big agencies, whether yours, Madison, Rediffusion DY&R and the like have had a stellar year, clocking 15+ per cent profit growth. Which takes me back to my previous point - if there is clarity in terms of what you bill, where's the problem? And your top and bottom lines also reflect that.

Yes we did grow although I don't know where you get your numbers from. But that's not the issue. Just because we grew doesn't mean that we start giving away cut price remuneration. Aren't we allowed to charge appropriate compensation and make a reasonable profit like all other businesses? You don't hear anyone questioning the profit margins of Reliance.

We should be remunerated appropriately for each of the clients we work for. We don't want to get into a situation of where profitable clients subsidise other clients - that's just not fair or healthy.

"We work with clients in a range of commission levels. But today close to 60 per cent of our business is fee remuneration and fees are based on scope of work with incentive upsides based on performance evaluations"

One offshoot of the size that is Group M today is the number of oftentimes big daddy clients that you service. Now take cricket on TV for instance, how do you manage competing demands from similar category clients having similar requirements for what is a finite inventory availability?

Their requirements will be quite different. The fact of the matter is that we purchase 70 per cent of all cricket inventory out there. That is a function of the requirements of some of the clients we have. Ultimately, if there is that one thing that two clients want, it is the initiative and the speed of the individual teams that will decide.

But that is the end of the process. The beginning is that we will get the inventory because we have such large requirements. We get it at a price that is better.

Is it always better?

Guaranteed. We wouldn't purchase it otherwise.

Staying with the cricket example, and I believe this can be extended to other genres as well. Would not the very size of your cricket requirement make it an inverse monopoly kind of situation? Wherein you cannot walk away from it even if you do not agree on the price?

Ultimately we have to advise our clients what is an appropriate price to purchase or not purchase. Yes, we leverage our size. But should it come to an instance where the price is not reasonable for us, that is what we advise the clients. Ultimately it is their decision but based upon our advice.

Coming back to the original question (of managing clients wanting the same thing), in all the instances that we've gone through, it has never happened that two clients both have exactly the same requirement. And if you're looking at cricket, it is also because of the sheer amount of inventory that has increased substantially from 2002 to 2004 moving into 2005.

There's enough inventory out there for agencies to purchase.

Looking at trends in the business, one common strategy among all media companies today is the increasing importance given to BTL activities - direct mail, market research, public relations, promotional events, Internet Marketing. What has been the growth in BTL as opposed to the traditional prints and TV buys?

Well, I would not call them below the line activities; I would call them non conventional or non traditional media, which encompasses a whole host of other things outside of what you've mentioned as well.

Ok, nonconventional media. If one were to look at growth, how does it stack up today? Globally as well as in India?

I can't give you any real numbers. One, because the sheer variety of what goes under nonconventional is so broad that it's not actually captured by most measurement systems for a start.

Some of them are very fast growing. Event management for instance. Internet, outside of India is growing at a much faster pace. But I think if you look at where Japan is today in its media mix, it can give some indication of the potential nonconventional media holds. 30 per cent of advertising money spent in Japan goes into things other than TV, print, radio, outdoors and Internet.

And now of course there is wireless. Does wireless have the potential to overtake all the others do you think?

Potentially yes. Though I believe it is used much more effectively globally than it is in India. One reason could be that people here are just too TV oriented, too conventional media focused. Secondly I think that many people just don't understand the technology and therefore the potential that goes with using this kind of media. Thirdly, some people could be looking at numbers and saying there aren't enough mobiles to compete with television.

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