Net billing stand-off solution likely soon, says Arvind Sharma

Watching television, particularly the favourite soaps never had been so much delight for the simple reason that viewers got to view serial sans any advertising or rather small breaks with little advertisements or just in-house serial promotion ads? Wondering why this happened? No no, it is not because the television channels have decided to do away with ads or because the advertising agencies have decided that enough is enough and no more ads on Television. It is in fact a result of notices from the income tax authorities that has demanded that media owners or broadcasters deduct tax at source from the 15 per cent commission that advertising agencies earn and pay somewhere in the region of Rs 600 crores to them. This Rs 600 crores amount to 33.33 per cent of the Rs 1800 crores commission being 15 per cent that advertising agencies get  on release of advertisements in the media. To put it in other words, the television advertising industry is pegged at Rs 12,000 crores and 15 per cent amounts to Rs 1800 crores of which33 per cent is the TDS demanded by income tax authorities.

This money has been demanded from the broadcasters which are used to issue bills for advertisements released based on Release Orders (RO)s which in turn is the gross bill amount of the advertisement released. What happens is that media owners issue gross bills to the agencies which then collect the bill amount from the clients and after deducting their 15 per cent media commission pays 85 per cent of the gross bill amount to the broadcasters or media owners. The income tax department going by the rule book has held the broadcasters responsible for TDS since they issue  gross bills and as in other businesses where the onus of TDS is on the paying party.

This has led to the crisis situation where the broadcasters have begun issuing net bills which the advertising agencies have resented, since it disturbs an established practice. The agencies are in opposition as all discussions and consequent contracts and paperwork happen on the basis of gross rates.  Therefore beginning yesterday major television channels barring some south channels, the Sony Max and Sony Six  (the latter are telecasting IPL) have stopped telecasting ads at the behest of the industry body, the Indian Broadcasting Federation (IBF). 

Whatever is being telecast are the ads that have been contracted at the net billing rates and some pending inventory that needs to be cleared, Rohit Gupta, President, Sony, says “ The ads that are running have been contracted at net rates.” Another senior official from a channel on conditions of anonymity said, “All the ads that are running are of the clients who have agreed for net billing.”

The channels telecasting IPL matches are showing ads since a lot of it has been contracted earlier, the huge money riding on the event and the fact that now matters cannot be stopped or reversed. Most heads of advertising agencies and broadcaster refused to officially comment but were hopeful of an amicable solution and felt that the need was to find an alternate method that is a win-win for all, at the same time the tax authorities are also satisfied needs to be worked out.

Said Sunil Lulla, chairman and managing director of Times Television Network,  “As per law we can only carry ads where the RO and the invoice is of identical value that is  both at the net. Hence those clients and or agencies who are issuing the same are being honoured on air.” On May 1 afternoon, Star Plus and its channels ran tickers stating, “Ads are not running on this channel because advertising agencies have refused to accept revisions in billing methods which are seen as flawed by tax authorities. We regret any inconvenience but Star group is committed to doing business with the highest standards of compliance which reflects the true commercial arrangement between advertisers and broadcasters.”

Commenting on the issue, Arvind Sharma, Chairman of India Subcontinent at Leo Burnett and President at Advertising Agencies Association of India  said, “On the issue of TV billing, AAAI is in discussion with IBF and ISA. You will hear from us the moment these discussions are concluded. We are hopeful that this will happen by today evening.”

According to Shailesh Kapoor, CEO, Ormax Media, a media insights firm, “I hope the stand-off is resolved soon, as it affects both the broadcasters and the agencies. Big campaigns are planned in this summer season and these campaigns will get affected if the stand-off continues.”

Whatever is the outcome, the tax authorities will have to be satisfied and a solution that does not harm the broadcasters and the agencies will have to be worked out. Meanwhile this happens, the channels will continue to broadcast ads free programmes, and they have no option but to do so even at a loss.