For the first time since 1992, IPSOS STAT, which monitors media advertising expenditures in Lebanon, reported a decrease during the first semester of 2003. Previous reports had reflected growth even when the actual market was in decline. In fact, total gross media advertising expenditures in Lebanon declined from $105 million in 1998 to $85 million and are projected to drop by 20 to 25% to around $65 million in 2003. Media TV expenditures went down from $55 million in 1998 (i.e. a share of 52%) to $35 million (i.e. a share of 41%) in 2002 and are expected to decrease to around $24 million in 2003. During the same period however, outdoor (billboards) went up from $7.5 million in 1998 to $16 million in 2003.
The main reasons of the decline of media expenditure in Lebanon, especially on TV, can be blamed on the worsening economic crisis, the high price of TV advertising (resulting in lower cost efficiency by regional standards, which are measured in terms of cost/GRP or worse, in terms of cost/thousand), the escalating price war between various media (reflected in the ratio between real and monitored ad expenditures based on official rate card prices that went up from 3.2 in 1998 to 5.6 in 2002).
The average ratio, which varies enormously depending on the media is, however, much higher than the actual level of discounts given to clients. Indeed, out of the monitored ad spend of $490 million in 2002, barter deals (ads for the entertainment, leisure, media and publishing sectors) accounted for $124 million.
During the same period – between 1998 and 2003 – one can estimate that the average net media margin of advertising agencies (agency commission plus volume rebate, less client discounts) went down from around 22% to around 12% as a result of three factors. First, lower rates of agency commission and volume rebates facilitated by the market domination of regies, representing over 50% of advertising expenditures. Second, is the appearance of media buying units, whose entire raison d’etre is to discounting. And finally, increased discounts to advertisers and the fact that they are increasingly booking their campaigns directly (especially on outdoor) or making barter deals with the media. It means that the total media revenue shared by all advertising agencies in Lebanon will probably not exceed around $7.5 million in 2003, compared to around $23 million in 1998.
Income from production, especially TV commercials, also declined. This can be attributed to the phenomenon of globalization, which has resulted in multinationals using to use more international or regional copy (in our case Dubai). Other factors include the increasing tendency of local advertisers to favor BTL (below the line) activities over brand building and the shift towards outdoor advertising over TV.
The consequences of this decline in revenue for Lebanese full service agencies that rely heavily on their income from media commissions are dramatic. The revenue indexation between high value-added services, such as strategic planning and creative development and execution on one hand and media buying, which is a low price-driven commodity, on the other hand should be broken. It is only by convincing clients that our services should be increasingly remunerated on a fee basis that advertising agencies will be able to survive. The syndicate of advertising agencies should also be more active in defending the interest of its members against the regies, intermediaries whose margins are disproportionate to their value-added.
Ibrahim Tabet is chairman and CEO of DDB Strategies. He wrote this commentary for EXECUTIVE