The CEO of Saatchi & Saatchi Levant discusses the political and economic factors impeding the growth of the advertising industry in Lebanon.
Economic recession, political instability and the advertising industry do not make for happy bedfellows. A $100 million industry during the war, the advertising business has steadily shrunk in subsequent years, despite all indicators pointing to the potential for growth. As the best and the brightest among Lebanon’s young advertising professionals turn their eyes toward the Gulf, Eli Khoury maintains that Beirut still boasts more assets than its competitor to the East. Executive finds out what the long-standing head of Saatchi & Saatchi Levant views as his industry’s main challenges and some of the remedies he recommends for the ailing patient.
What do you see as the key challenges facing the advertising industry both at the local and at the regional level?
The future of the industry both regionally and locally is linked to politics. In Lebanon, the current political situation is having a major impact on the industry’s development. It already has had an impact, and it will have even more of an impact should the situation deteriorate. If the situation changes, it ought to have a positive effect. And the same goes for the Middle East – the clash of civilizations, the war in Iraq, the Israeli-Palestinian conflict, terrorism… all of this has direct implications on the business. So how the industry will fare in 2005 and beyond really depends on how the political situation evolves.
In what way has politics in Lebanon affected the business?
Firstly, let’s look at the state of the media in this country. A healthy media is a media that works for its buck. The others will survive regardless, because they are politically funded. Of course we all know who is subsidizing this. Because this industry thrives on competition and freedom of speech, a media, which is in the pockets of the politicians, is not beneficial to it. Nor is the audio-visual law, which was passed. The whole purpose of introducing that law was to prevent regional media from moving to Beirut. And of course there was the whole MTV incident. So these are the issues on the media side. On the advertisers and audience side, i.e. our clients and our clients’ clients, there is the problem of poor purchasing power, which makes advertisers stingier and exclusively sales oriented. To give you an idea, the size of the industry during the war was around $100 million.
And now?
For the year 2004, I doubt the total revenue of the industry was worth much more than $60 to $65 million. And this despite the fact that post-war economic predictions estimated the advertising industry’s potential at up to $300 million. So the impact the political situation has had on the economy has directly affected our industry – advertising is after all frequently considered a luxury, which is the first to go during cut-backs. And the manner in which the politicians have minimized all competition within the media in the country, has had an impact on us. As a result, both the media and the advertising industries are suffering.
Is Dubai then becoming a more attractive location for the advertising industry in the region?
Dubai is trying to take our place, but if you look at its human resources, it’s purely based on expatriates, so this endeavor is economically unfeasible.
Why would an expatriate haven not result in an area bustling with creativity that could compete with Beirut?
Creativity has soul, it comes from within a society. You cannot import different talents and put them in a basket and tell them to be creative. Furthermore, from a financial perspective, there are significant differences between Beirut and Dubai. Having spoken to TV stations that operate in both cities, I have discovered that the difference in operating costs between the two is tremendous. There is a difference between having to import ten talents from abroad and pay them hefty, and having to import your entire staff, down to the person who makes coffee. In Beirut, the basic HR infrastructure is already there, and then you can get fancy when it comes to above-the-line positions. In Dubai, you need to hire your entire staff from abroad and provide them with a house, a car, etc. For an operation such as my own, the difference in operating costs would be at least 180-200%.
Could you not justify the higher expenditures required to set up shop in Dubai with the greater market size the Gulf has to offer?
Dubai is the center for a lot of the business in the Gulf, which allows it to be somewhat of a regional player. But if you look at the advertising industry in Dubai today, it is merely composed of sales ads. I don’t know what the size of this business is, but I doubt it is enough to sustain an entire industry. There is no creativity involved, so the revenue generated will be minimal. The industry there gets by because it is also servicing Saudi Arabia and surrounding Gulf countries, which Beirut does as well. There isn’t much Dubai can offer that Beirut cannot. The difference lies in the fact that in Dubai, they don’t have the political problems that we have here, and there are more economic incentives offered. In Lebanon, that local market is tired.
What is the share of local clients vs. international clients in Saatchi’s Lebanon portfolio?
It terms of volume, local business represents barely 30% of my portfolio. And seeing how money is scarce here, you usually can’t get fancy with many of these projects. The clients are more interested in pushing the product rather than building the brand, at the cost of creativity. There are no big expectations – people just want to address their urgent needs. What worries me with this trend is the impact it has on the new, young ambitious talents that are entering the industry. At Saatchi we try to push for creativity as much as possible, even at our own expense sometimes, regardless of what the client is willing to pay, partly to give these people the opportunity to use their talent to the fullest.
Is the brain drain among the young Lebanese advertising professionals significant?
Yes it is. They are leaving Lebanon for Dubai, where the pay is better, and there are less hassles. It may not be fulfilling professionally, as the requirements there are low, but the pay makes up for that. Yet I don’t mind this so much, as long as we keep the manufacturing brains. I can export HR, as long as I produce here. The challenge I face in my company is that in order to keep the brains here in Beirut, I need to pay them the same salaries as I would in Dubai. Otherwise I end up with a team of graduates, and one senior manager. This incidentally, is what you will find in a lot of advertising agencies in Beirut. Middle and senior management has been wiped out. In Saatchi, we prefer having more chiefs than Indians. But this requires paying high salaries.
Has branding awareness among Lebanese companies improved?
Let’s face it – they don’t have time for such a luxury. They need to focus on the bottom line, on breaking even. The economic times are not propitious to educate people about branding. Some companies have the money to delve into it, but you also need to create a momentum. If the market is about this, everybody wants to be a part of it. We can’t blame the Lebanese companies – they are probably more ready for this and more apt at it than most in the region, but there are other concerns that need to take priority for now.
There is a tendency here to view advertising as an expense rather than an investment. Is this a concern for you?
To consider the cost of advertising as either a CAPEX (capital expenditure) or an OPEX (operational expenditure) depends on what you are advertising and the nature of the advertising job. Any brand investment is a CAPEX. Any sales investment is an OPEX. Most people don’t want to invest right now – they want to keep advertising within operating expenses, and minimal operating expenses at that. Above the line, mass media, brand awareness campaign is a CAPEX that people can’t give priority to at present.
So it is a question of economic necessity rather than a question of understanding on the part of the advertisers?
It is in part a question of understanding, but it is important to note that you will only see a difference once the accounting principles here change. Of course I will benefit from advertisers understanding that what I do for them is an investment. But the real change will come the day advertisers can, in accounting terms, present their balance sheets to the authorities and say that advertising is part of their capital expenditures. This is the trend in the West, especially in the United States. So clients here need to understand advertising as an investment, but the government and other organizations involved, such as the trade lobby groups, need to create a new accounting principle for the country. Therefore, addressing this issue has a conceptual facet to it, as well as an economic and a legislative one.
The advertising industry is characterized by global consolidation. Recently 5the regional tv industry was impacted by the rapprochement of Choueiry Group and Ara Group How do you view the impact of this development on the industry?
In absolute terms one should be against it, but when examining the situation one cannot help but think that it will be beneficial to the industry for now. It will help stabilize it, and establish some rules of competition. Having this market be dominated by a semi-monopoly provides for a good balance until it picks up.
Do you expect business for the advertising industry to be picking up?
Only if and when the political system changes in this country will the advertising industry grow. Otherwise, you are facing further deterioration. The primary engine of economic growth according to George Soros is mood, it is trust. And I really believe in this. If you feel confident in the future, then you will operate well.
You talk a lot about the need for political and economic change, but the advertising industry in Lebanon has been marred by internal conflicts and feuds. Is it fair to place the entire blame for the current situation of the industry on the political system?
Yes it is. The problems you have in this sector are identical to those you have in any other sector – look at the banking industry, the publishing industry…. It’s a plague that has hit all of our houses. Why? Because there is less money to go around, and therefore competition gets nasty. It’s question of survival. The wrongdoings that have marred the advertising industry are a result of a shrinking market. Granted, the ruthlessness may be accentuated when it comes to the advertising industry here in Lebanon, because we are more visible. But at the end of the day this problem has less to do with the industry than with the country.
Are the Lebanese chapter of the International Advertising Association (IAA) and the local industry syndicate making any difference for the industry?
They are nice social clubs. If you are looking to meet new people, or even a husband or a wife, they would be good places to go to. But they have neither made an impact for the industry here, nor have they shown any willingness to do so.
What has come of the project to establish a body to monitor and establish accurate data on the advertising industry in Lebanon?
We would love to get some accurate figures on the industry, but we don’t seem to be any nearer to getting these than we have been in the past. This is one of the reasons why I labeled local syndicate and the IAA as social clubs. We have a lot of dreams: we dream of an advertising ethics code, we dream of data that provides us with the information we require on the market, we dream of having published figures. Will it happen? Frankly, I don’t know. I won’t be getting involved in this until I see a change in the political system.
