Battling the ad wars

Local advertising revenues continue to drop amid continued regional instability, rapid brain drain and rumors of a mafia-style monopoly

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An uphill battle awaits the advertising sector in 2004 as it struggles to reverse a plunge in revenues – which have dropped roughly 30% since January 2003 – played out against a backdrop of allegations of unfair competition and mafia-like cartels. As another desperate year draws to a close, many in the sector predict financial disaster in 2004.

“I hope that 2004 will not be worse than 2003 because if the annual drop in advertising revenues continues at this rate for another three years, there will be no advertising industry anymore,” warned Dani Richa, managing director of Impact/BBDO Lebanon.

“Next year will be no different from 2003,” predicted Wassim Rizk, regional director of media group CSS & Grey. “There will be a continuing decline in revenues because of the downturn in the economy – which we in advertising are a reflection of.”

However, Talal El Makdessi, chairman and CEO of the THG/Group media conglomerate believes that the economic travails should not be used to shroud the real problems plaguing the sector, “There is a lot of money in Lebanon in the advertising industry,” he said. Expenditures, by rate card, are increasing by 15% to 20% every year.”

Red Cell media group CEO Joe Ayoub concurred: “We’re suffering from marketing myopia now, where we think, ‘Ah, this is due to the economic crisis. This is wrong. Something is fundamentally sick in our industry.” In a sector dogged by domestic political instability and post-Iraq war fallout, local, independent Lebanese agencies are continuously falling victim to unfair competition and losing out to multinational affiliates that are causing many to pack up and leave the country. The situation is not helped, argued Richa, by regional and international advertisers’ misapprehension that they can reach Lebanese consumers through satellite television. “As a consequence, they are not investing in local media,” he complained. This misconception runs counter to efforts by terrestrial channels LBC and Future Television to increase viewer numbers with programs like STAR ACADEMY and SUPERSTAR.

In addition, belt-tightening across the board has led to a shift from above-the-line to below-the-line investment. The focus now is on the point of sale, rather than on brand building. As a result, the ‘special offer’ strategy has proliferated – with unwelcome effects. “There are so many ‘special offers’ now,” observed Richa, “that they, in general, are not attractive anymore. It’s a very short-term policy.” In the long term, profit margins and consumer loyalty wane.

Agencies, for their part, must discard a preference for discount strategies. “They might work for the day, but down the line profit margins shrink and your ability to attract talent is affected,” cautioned Rizk.

Industry experts are in agreement that if the sector is to recover, advertising agencies and media buying firms will have to work on regaining the trust of their clients. Something that is easier said than done considering that in Lebanon today, it is impossible to determine the correct price of services bought from media or advertising agencies – figures that are easily available in any healthy media sector. Agencies are continuously accused of over billing.

“The client doesn’t trust his agency. The agency doesn’t believe the media is giving it the right price. The media doesn’t believe that the agency is giving the client the right thing, and the agency doesn’t trust the client because he says: ‘I will spend $1 million’ but ends up spending $50,000,” Ayoub said. The lack of objective, professional consultancy on the part of media buyers is another serious issue facing the sector. Clients complain that agencies only recommend certain newspapers and TV stations because they are the most financially beneficial to the agencies, not because they represent the best strategic choice for the client. Although many problems exist within the industry itself, the government, say experts, also bears responsibility and confidence in the government must be restored. “We have no leadership, no responsibility. The only thing that our government cares about is how to collect tax. It’s about time that new talent, new politicians, who are ‘clean,’ educated, unaffected by the Lebanese civil war and are not remotely related to any war leader, take over the government. We have enough corrupt politicians who have drained the country and amassed billions of dollars,” declared Makdessi. A reversal of the decline is only possible if players combat their woes in unison, possibly through mergers and acquisitions, Ayoub said. This is likely, though, to prove difficult since many of Lebanon’s small advertising agencies are family, one-man-shows. “They have to let go of their patriarchal mentality. To survive, they will have to open up, share decisions and not only give but also receive orders.” But the senior industry executives, who hold the strings of power, will be loath to change. The industry’s powerful egos are indeed a formidable hurdle, acknowledged Makdessi. “Everyone wants to be first,” he said. “If the industry’s four or five major players were to sit around a table, leave their egos aside, and talk logic and sense, the solution would be there immediately.”

Unfair competition, if left to flourish, will continue to compound the industry’s woes, say many. They contend that a handful of powerful players have the market in a chokehold and smaller players are being squeezed out. “In the absence of regulation, everything is possible,” noted Ayoub. “It becomes jungle law.” Rizk conceded that agencies are guilty of favoritism with respect to certain media outlets because of juicy incentives – which he said should be revisited and toned down. Makdessi, though, vigorously denied the existence of any form of advertising mafia. “The claims are not true. There is no monopoly of the industry. Those who claim there is a mafia are those who do not know what advertising is. They don’t know how advertising functions.” He said that only small advertising agencies might opt for a particular media outlet to serve private interests. “International agencies go by figures, statistics and research and are accountable for whatever they do.” His denials were echoed by Richa: “This mafia story has been circulated by weak media outlets, which, naturally, do not get a high share of advertising. The only excuse they can offer, to shroud their shortcomings, is: ‘so-and-so is in bed with so-and-so.’ But clients are not stupid, and advertisers can‎’t just do whatever they want.”

More regulation of the industry would help, say some insiders. Most regulation proponents, however, favor auto-regulation and there is widespread aversion to government interference. “They don’t really understand the ins and outs of this business,” said Ayoub. “They could impose really damaging decisions.” But unless the industry gets its act together, government intervention may be just around the corner, Ayoub warned, complete with unfair regulation and harsh decisions that would batter business even more and further damage investor confidence. “We don’t want this to be a government-led industry,” he said.

The term ‘regulation’ is, in any case, meaningless, Makdessi argued. “Why are we afraid of regulations if ministers do not respect them, politicians do not respect them, the government does not respect them. No one respects them,” he said, adding that the best form of regulation would be amending VAT charges so that they are exacted according to rate card, not invoice, value. A number of industry insiders have suggested that the source of the sector’s ills be pinpointed in a process overseen by global advertising bodies, such as the International Advertisers’ Association. An essential first step would be the mutual concession by principal actors that they all bear a portion of the blame. Makdessi, for his part, argued that a crucial ingredient of any remedy must be clean research that subsequently forms the basis for a new rate card sporting fair rates. The media must then respect those rates. “The day the media respects the rates, you will see an increase in the advertising spend in Lebanon by 15% to 20% gradually every year for the next five to six years,” said Makdessi, adding that a recent press conference, he offered to contribute $100,000 dollars as a first payment towards research. His gesture did not prompt others to open their checkbooks. Pessimism fuelled by the ongoing exodus of industry flair from Lebanon currently clouds the sector. The Gulf is packed with Lebanese talent and now, of the seven leading ad agencies in North Africa, five, Makdessi said, are owned and run by Lebanese who have fled the dearth of career opportunities in their own country. For those left behind it will take a long time to rebuild the trust necessary for smooth sailing. “I don’t see any light at the end of the tunnel 2004,” concluded Makdessi.