Video International is raising television advertising prices when the law "On Advertising" comes into force on July 1.
Photo: Sergey Mikheev
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Advertisers Go Off the Air
// Video International announces new rate hikes
Television
Under the new price list that Video International has distributed to advertising agencies, advertising time on the main Russian television channels will cost 10-20 percent more as of July 1 of this year. That will be the second rate increase in six months, for a total increase of more them 40 percent. Advertiser questioned by Kommersant yesterday stated that they are not willing to increase advertising expenses.
Video International's new price hike coincides with the date that the new law “On Advertising” comes into force. That law limits advertising time on the air. Starting July 1, advertising time cannot exceed 20 percent of any hour or 15 percent of any 24-hour period. In 2008, advertising time per hour will also be reduced to 15 percent. After the third reading of the law passed the State Duma, Video International announced that it would suspend all contracts for the purchase of television ad time and develop a new set of prices. The average increase is 17 percent and, depending on the channel, ranges from 5.3 percent (Rossia) to 33.3 percent (the Home channel). The Video International public relations department is pointing out that increases will be greatest in prime time, with ad time on Channel One rising in price 10 percent, and on Ren TV 5 percent.
The ad seller is claiming that the increases reflect the volume of advertising being cut. “The new prices were calculated based on the reductions in ad volume envisaged under the new law limiting ad volume, taking the specifics of every channel into account,” a member of the Video International PR department said. “We also considered socio-demographic characteristics [i.e., the differing audiences of the channels].” For comparison, the communications research group Aegis Media/OKS compiled data last November that indicated that Channel One showed 20 minutes of excess advertising in 24 hours, while Rossia showed one minute less than the limit. STS and Ren TV each exceeded the 24-hour limit by 56 minutes.
To compensate for such significant losses, Video International raised advertising prices significantly. As a result, STS has exceeded the national Channel One and Rossia channels in cost per rating point for the first time, and ad time on Ren TV now costs as much as on Channel One. Video International explained that the comparatively small price hike for Rossia was due to the fact that the cost of advertising on it increased more quickly on it last year than on the other channels.
Ad agencies say that Video International's price increases will be insignificant to their clients. “Video International issued a very careful, cautious price list,” commented Optimum Media Buying general director Nikolay Anufriev. “With those price increases, the migration to other media that was being talked about probably won't happen. TV remains the cheapest advertising medium. They probably didn't raise the prices any higher so as not to wipe the small advertiser off the air. If they had, Video International would be dependent on of the few remaining large companies on TV.” Aegis Media/OKS president Oleg Polyakov said that some advertisers will go off the air but, on the whole, “such a price hike will not have catastrophic consequences for the channels or for the advertising industry.”
The majority of advertisers questioned by Kommersant yesterday were less optimistic. “Our budget was passed last December. It will be extremely hard to explain to the stockholders now why they should give more money for advertising,” said VimpelCom marketing director Olga Turishcheva. “In this situation, it is possible that we will limit ourselves to optimizing our expenses and simply redistribute advertising between television and other media.” Executive director of the RusBrand association of branded goods manufacturers Jennifer Galenkamp also said that “Business work on annual budget cycles, and company budgets, including advertising budgets were set long ago for this year.”
Advertisers also disagree with Video International's argument when it broke existing contracts that the new law “On Advertising” was a force majeure. “We are ready to begin the negotiation process to conclude new contracts with Video International, but we will include lawyers in the process in order to understand whether or not this is a situation of compelling force,” said VimpelCom's Turishchev.
Lawyers say that the advertisers will be able to support their objections. “This situation, in my view, unambiguously does not come under the definition of force majeure,” Vadim Nechui-Veter, director of the Center for Legal Support for Advertising Activities, said. “Force majeure is a circumstance that is extraordinary and unpreventable under the given conditions, a natural disaster as a rule, and it is only obvious that circumstances have significantly changed.” Nechui-Veter added that the legal consequences of force majeure are an exception to the civil liability of legal entities, but a significant change in circumstances is only the basis “for a reconsideration of agreements with the consent of both sides or through the court.”
Timur Bordyug
All the Article in Russian as of Mar. 30, 2006
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