As experts evaluate the fallout from the Competition Commission of India’s (CCI) probe into India’s leading ad firms, they find a silver lining: the entire exercise is expected to promote greater transparency and fair competition.
The investigations, launched on March 18 at 10 offices including that of GroupM, Publicis, dentsu, Madison, and IPG, are the culmination of a months-long covert investigation into allegations that top ad agencies conspired to fix advertisement rates, eliminating fair discounts and rigging the market. The CCI had been silently gathering intelligence, monitoring irregularities, and waiting for the right moment to strike. The tip-off connected the dots from a GST probe at a leading media agency.
Read more: India AdEx set for short-term hit if CCI probe and seizures continue at top ad firms
Executives of industry bodies Indian Broadcasting and Digital Foundation (IBDF), the Advertising Agencies Association of India (AAAI), and the Indian Society of Advertisers (ISA) were also caught off guard as investigators swiftly sealed office premises, confiscated mobile phones, and began combing through emails, financial records, and internal communications.
Founder of a homegrown ad agency highlights that the whole exercise and probe will eventually lead to greater transparency and data sharing among clients and agencies, going forward. According to him, 80% of media is controlled by the top advertising agencies, thereby controlling the rates and spots, which leads to a lack of transparency, data sharing, and inflated costs being shared with the clients.
Read more: CCI raids at top firms could leave media agencies grappling with massive trust deficit, feel experts
Rahul Vengalil, CEO and co-founder, tgthr remarks that the big agencies control a significant part of the adex in India. With such large volume of trade, it is but natural for them to get really competitive pricing. That’s how this industry and any industry works and everyone has accepted it. The larger the buy is, the better the pricing.
“…however, things get blurry if and only if they willing dictate terms to publishers on what rates they should sell to other agencies. At the moment, everything is speculation and nothings proven. However, if such practice existed then it is detrimental to the industry and more importantly for young agencies and young clients,” he adds.
Reflecting on his personal experience with price fixing, Rikki Agarwal, co-founder, Blink Digital shares, “I’ve witnessed top agencies charging 30% more than what we were offering to our clients. A publisher once informed us that the rate they were providing was exclusively for us—on the condition that we didn’t seek a parallel quote from any of the top five agencies clients. The frustrating part is that when we relay this to the client, they either refuse to believe us or the agency claims there was a typo in the media sheet they sent.”
“… because the agencies control so much of the media, they get arm twisted on, giving favorable deals. And the whole business has been structured in such a way… the actual truth is coming out and this will impact everyone,” adds another media executive.
Experts believe that the advertising as an industry in the country needs a big restructuring where the force needs to be decentralised and independent agencies need to be promoted because they come from a transparent background.
“…it is also good for India because all this might give a chance to all the home-grown advertising agencies to flourish,” adds a media analyst.
CCI raid, which reportedly ended on Wednesday morning (March 19), with CEOs of the firm also being questioned for two days straight, focused on unearthing emails, pricing agreements, internal meeting records, and coordinated rate cards that suggested anti-competitive behavior.
Read more: CCI raids at dentsu, GroupM, IPG, Madison, Publicis fuel unrest; stakeholders demand fair probe
The competition watchdog’s actions come amid growing scrutiny of advertising industry practices, especially in the context of media buying, pricing transparency, and the role of intermediary bodies. The raid is believed to stem from a formal complaint filed in early 2024, with officials probing into potential collusion, unfair practices, and the transparency of transactions within the media and advertising sectors.
KV Sridhar, also known as Pops, Global Chief Creative Officer at Nihilent, highlights a significant industry trend: “Transparency in business has completely disappeared.”
He explains, “Dynamic pricing is now pervasive. Around 30-35 years ago, the advertising industry operated under clear rules and regulations, with a standard 15% commission and accreditation as the norm. Over time, the industry moved away from the 15% commission model, introducing discounts and eventually shifting to a project-to-project basis. Today, there is no standard commission.”
While the probe could lead to more transparent negotiations, Sridhar remarks that prima facie, there appears nothing wrong with advertising agencies blocking deals on behalf of clients.
“It’s important to remember that advertising agencies act as intermediaries for broadcasters, facilitating and placing advertisements on behalf of clients. Clients can’t handle this themselves because they lack the necessary resources, knowledge, technology, and expertise. There’s nothing wrong with protecting a client’s interests by negotiating discounts. Similarly, it’s perfectly reasonable for a broadcasting company to offer discounts to those purchasing larger volumes of inventory. On the surface, none of this is inherently problematic,” he points out.
Nonetheless, adds a media executive, “CCI is not a big institution. It is not an agency with a lot of teeth, so I don’t foresee any big impact. But the fact that it has happened is a big indicator that someone is too cheesed off.”
Overall, the CCI’s approach, according to Siddharth Chandrashekhar, Advocate, Bombay High Court, highlights a commitment to maintaining a competitive market environment. This serves as a reminder for agencies to adhere strictly to antitrust laws, promoting fair competition and protecting consumer interests.
Deterring Client’s Confidence
According to industry watchers, the recent raids could shake client confidence, particularly regarding transparency and fair pricing.
“Clients might become more vigilant and demand clearer communication and justification of advertising costs, potentially leading to a push for stricter compliance and ethical standards in the industry,” shared an advertiser.
This move reflects a growing concern about fair market practices and the need for transparency in advertising rate settings.
“The CCI’s actions signal a push for greater transparency and accountability in a sector that has long operated on unwritten rules, legacy practices, and opaque financial structures. While fair competition is essential, I think it’s equally important to ensure the regulatory framework keeps pace with the evolving nature of modern advertising,” concluded a brand manager.