A key problem for the digital publisher and advertising network ecosystem in India is that of reliability in receipt of payments from advertisers, and the inordinate amount of time it takes for payments to be collected. The Internet and Mobile Association of India has, for the last three years, been trying to cobble together an agreement with the Advertising Agencies Association of India, with little success. A key part of the issue is that from the publisher site itself, some large digital publishers (and we’ve heard, Google), refuse to come on board, because they get their payments in time, and without an agreement, payment cycles do not improve.
Still, the attempt to put together an agreement for enabling faster payments continues: we’re aware of a meeting that took place on the sidelines of the IAMAI’s India Digital Summit earlier this year, involving all key stakeholders from the publisher and ad network side, but that yielded little.
To understand the impact of the long payments cycle in India on startup businesses and why payments get delayed, MediaNama spoke with (a rather diplomatic) Manish Vij on the issue. Vij understands multiple sides of this issue, since the Smile-Vun group has been involved with both the agency side with Quasar Media, the ad network side with Tyroo (now SVG Media) and DGM:
MediaNama: How are you impacted by the delay in payments?
Manish Vij: My biggest problem is not for companies like ours. We somehow manage at scale, though we also face challenges. The biggest problem is that…think about startups with a digital advertising revenue stream. You actually need a minimum of four to five months of working capital to launch a digital media business, a 120 – 150 day cashflow, because a majority do not adhere to the payment terms of 60 days.
MediaNama: How is it 150 days?
Manish Vij: A typical campaign run is about 30 days, a bill is generated sent to agency post verifications within 15 – 20 days, the agency further takes 15 – 30 days to consolidate, and then sends to the client. Post receiving an invoice, a clients internal checks, verifications and financial processes take another 30 / 45 days. Then after that the agency receives payments, and may take another 10-30 days to make payments back to publishers. So it takes anywhere between 70-125 days post running a 30 day campaign. These are approximate time-lines, and may depend on the publisher, agency or client. So almost half your year is gone, receiving the payments post a campaign beginning.
This creates a problem in terms of starting up, and also a problem in terms of scaling up. The problem with scaling up is that more one scales up, the more money he needs for working capital at such high levels. Banks don’t generally give non-collateral loans to start-up entrepreneurs, and therefore this problem is a grave. We have not factored the cost of capital here for 5-6 months which typically could range between 10 – 15%. That, many times, is practically the net profit margins in most cases.
In my opinion if all the stake holders come together in this value chain under a common code of conduct, which is under discussion through IAMAI, we can solve this problem. For large global publishers this problem is close to zero, as their money is mostly paid on time, because of their scale – with need of continuous media exposure – or strict policies. The way it works is that the large international publishers operate on a fairly strict policy of not taking advertiser requests unless outstandings are paid within a particular time. Because of this, large global publishers payments are fast-tracked by the value chain most of the time, or the payment discipline is maintained, while the large, small, primarily, Indian publishers don’t get paid in the stipulated time.
MediaNama: So where does the problem lie?
Manish Vij: While it may not be correct to pin-point this on one of the stake holders in the value chain, in our opinion, if the agency, being closest to both publishers and advertisers, tries to fast track its administrative work on the payments, making their clients adhere to a strict payment discipline, this problem can be reduced to much lower levels. I am sure the digital media companies, who are the beneficiary, will fully support any requirements that can make this discipline happen.
MediaNama: Don’t the agencies lose out if the money doesn’t come in time?
Manish Vij: There is a bit more administrative work required in digital media, than probably other straight-line mediums, but that’s exactly what I mean. It is the discipline of the value chain that can reduce this time significantly. If digital media companies start sending their verified invoices on time, agencies start saying that as soon as the campaign ends within 15 days they will have a cut off to raise consolidated invoices to clients, and make their clients agree on a 30 day max payment cycle, this problem will drop to 45 – 60 days
MediaNama: The clients are paying TV on time. So why not for digital?
Manish Vij: They do but not to the extent of a digital media company does, because for agencies the delay is in their commission or retainer, which is typically between 5 and 20% of the total campaign value. 80-95% is the digital media’s (publisher’s) money or cash flow being used
The impact on the market is there are scale up challenges for publishers and networks, and the startup ecosystem. If these don’t scale up or are not encouraged to scale up we may restrict new innovations, and increase reliance on venture money in the domestic digital media market. This hurts the entire digital media start up ecosystem. In fact, we got an acquisition request from a digital media company who said it’s a cashflow problem as he needs money to scale up. This is the kind of impact.
MediaNama: We heard of situations where payments came in after a year and a half…
Manish Vij: Those are extreme cases. Average is between 90 and 120. I’m saying lets try and get this to 60 days. IAMAI is trying to facilitate and give this problem some collective structure.
MediaNama: But this IAMAI plan is a 3 year old plan. Nothing has happened.
Manish Vij: I know that. That is unfortunate, but I know they are trying.
MediaNama: So what’s stopping it from happening?
Manish Vij: I think it is difficult for every publisher and agency to come on a single page, and agree to strict norms of discipline for this entire process. Also this problem is majorly limited to large or small Indian publishers which only accounts for less than 40% of the total digital media market in India.
MediaNama: Why don’t the larger international publishers come on board?
Manish Vij: Probably because either this problem does not exist for them or they have their own global payment policies
MediaNama: If 60% of the market decides that it won’t participate, will that impact advertising?
Manish Vij: We don’t know. My sense is it will still do impact.
MediaNama: What stops that from happening? Nothing has happened. We saw the clauses, they seemed to be reasonable. What stops the group that agrees with the proposal from doing this separately?
Manish Vij: Even there, a critical mass is required. I think we should see it coming very soon. It is a difficult task to get everyone to agree on a common process. I also want to make it clear that there are agencies and clients that adhere to discipline, and pay on time. We just have to extend that discipline to every digital media (publisher), agency and client. My request to all players in the ecosystem, is to make this happen.
MediaNama: One thing about these rules that you were creating was that these were only applicable to IAMAI members. There’s a very large part of the ecosystem that is not a part of the IAMAI. It’s just around 200-300 companies, and not the thousands that inhabit the digtial space. You’re still creating a situation of have-and-have-not’s. (Ed: some kind of a cartel)
Manish Vij: I can’t speak on behalf of the IAMAI, but I think they have a reasonable membership structure for startups as well. If a startup benefits in a way that they get money on time, and they have to pay a very nominal fee to become a member, I think it makes commercial sense to do that. It’s an effort from all end. It’s a pain area from everyone. It just needs to get to a practical framework.