It’s about cashflows. The Indian Internet Industry has been plagued for long by issues of delayed payments, with payment cycles going well beyond the usual 60 day period. For online publishers, a minimum of 90 days has been a given, though in the brutal year that 2009 was, we’re told (by publishers, of course) that payments from certain digital agencies have taken as much as a year after the campaign finished.

In this context, an agreement signed in December between the Advertising Agencies Association of India (AAAI) and the Internet and Mobile Association of India (IAMAI) that defines payment terms between agencies and online publishers is of great significance, particularly for small publishers that cannot afford having a large number in their ‘accounts receivables’ column. It’s about cashflows, and this is a game-changing agreement if enforced.

Some of the largest publishers from the Indian Internet Industry, 8-12 of them, are on board, including Rediff.com, Yahoo India, Indiatimes.com, Web18, NDTV Convergence, Livemint.com and Hindustantimes.com. Publishers had held a meeting on 12th January to discuss the agreement, which is, well, quid pro quo, and takes into account concerns of both agencies and publishers. According to a copy of the agreement that MediaNama received from sources (the IAMAI declined to share a copy), key terms of the agreement are as follows:

— Commission: Agencies shall receive a minimum commission of 15% on the gross rates for all advertising placed by AAAI members with publisher members of IAMAI. 15% commission on the gross rates is an industry standard.
— Payment Period: The AAAI Members shall pay publisher members if IAMAI the advertisement amount, less commission, on or before the 75th day after the end of the month in which the activity takes place, or as may be mutually agreed by both parties to this agreement.
— Direct Advertisers & IAMAI Agencies vs AAAI Agencies: Direct advertisers will not be favored by publishers. Publishers will give AAAI members better terms than direct advertisers, in terms of commission and credit period. Both AAAI and IAMAI have agency members, and according to the agreement, AAAI agencies shall get the same terms.
— In case of default: Publisher members of IAMAI will reject advertisements from advertisers who have defaulted to the advertising advertising agencies and then changed the agencies. AAAI members will reject advertisements/accounts from advertisers/clients who have defaulted to publishers and then switch publishers.
— AAAI-IAMAI Working Committee: An IAMAI-AAAI Working committee will be constituted to meet twice a year and work out the recovery process. The IAMAI and AAAI shall each nominate equal number of members not exceeding 6 in all, and a minimum strength of 4 members. In addition, 3 each can be appointed by them as observers. Dr. Subho Ray, President of the IAMAI is Secretary of the IAMAI group, as is Suresh Kapoor of the AAAI group.
— Dispute Resolution: AAAI accepts that its members have the principal liability of payment of outstanding to publisher members of IAMAI. The Advertiser is expected to pay his agency in full before he can appoint another agent, and IAMAI will not entertain any booking on behalf of this advertiser until the AAAI member confirms in writing to IAMAI that they have received payments in full. If an AAAI member defaults in making payments regularly, due to non-payment from advertiser, an immediate settlement shall be sought. If it’s despite payment from an advertiser, publishers of the IAMAI could cease dealing with the advertiser or to all the advertisers of the AAAI member.
If a publisher member of IAMAI provides terms to a direct advertiser then the committe would seek  the publisher members of the IAMAI to desist from such acts and make it withdraw the offer. If they don’t comply, then they will not be provided the benefits of this agreement.

Our Take

— What about IAMAI Agencies & Advertising Networks? Speaking to MediaNama, IAMAI President Dr. Subho Ray said that the IAMAI will offer its agency members similar terms and benefits as the IAMAI-AAAI agreement. This also extends to ad networks. The IAMAI has put a moratorium on agency membership, and they’ll have to become members of AAAI, which is opening up to digital members.
— Anti-Competition? According to the agreement is that Publishers shall not offer direct advertisers better terms, and agencies and publishers can both gang up. It also divides the industry into the haves and have-nots (signed and not-signed). The word ‘cartel’ does come to mind. Dr. Ray said that this is a private treaty, and not enforcable in the court of law.
— Will Google & MSN Sign Up? We think it is unlikely. Both Google and MSNs AdCenter have auction based price discovery mechanisms, and though MSN India might sign up as a publisher, the search business is expected to stay out of this. They’re primarily focused on small advertisers, not large agencies.

While this agreement appears to bring sanity and structure to the wild west that has been the Indian Internet Industry, I don’t think offering better deals to agencies over direct advertisers is good for competition. However, the bigger issue is of enforcement – sales executives have targets to meet, and from an agency point of view, how does one compare offerings when they really aren’t standardized? The variations in offerings can be mind-boggling. The working committee will have its hands full.

We’d love to get your detailed views on this agreement. Do leave a comment or mail nikhil@medianama.com (which we can publish at MediaNama)