Days before the official adoption of the Advertising Industry Standard of Practice (AISOP), economist and founder of ValueFronteria, a research institute based on business data, Professor Martin Ike-Muonso, urged the Council of Advertising Practitioners of Nigeria (APCON) to step back and reconsider “the dangerous measures it is taking in these early stages by interfering with the free functioning of the market”,
In a special review of advertising spending on various platforms over the past few years and the likely consequence of pricing behavior in the Nigerian advertising market due to APCON’s new regulatory position, Professor Ike- Muonso, admitted that the industry will do much better “ceteris paribus”, if it follows through on some of the measures put in place by APCON, but observed that for this expectation of result to be a full reality, the regulator will have to maybe pay attention to three elements of the AISOP document.
According to his review, which was made available to THISDAY, those three factors include: the horizontal pricing of pitch fees, which he says has huge anti-competitive consequences and a downsizing of the market. Another concern raised was the double billing of advertisers using a system of primary presentation fees and secondary rejection fees which, when combined into a single transaction, exceed inflated advertising transaction costs. Finally, the expert also expressed his concern at the interference envisaged by APCON in the implementation of the terms and conditions defining the contracts between the market players.
“To demonstrate the detrimental effects of horizontal pricing behavior in the advertising industry, we used a simple model that captures the size of the overhead at the main pitch fee level. The model shows, albeit in retrospect, how much damage the volume of ad spend above the line would have suffered over the past seven years had this policy been applied.
The review also looked at data and performance of media monitoring services since 2014, which showed that the total above the line [ATL] spending topped 100 billion naira in 2020. “The closest to that benchmark in the past seven years was in 2015. ATL’s advertising spending that year was around 97.9 billion naira . However, it fell steadily thereafter, to 79.9 billion naira in 2019.
See Figure 1. Perhaps the troubling persistent half-decade decline in the volume of ATL’s ad spending may have contributed to the regulator’s decision to inject chunks of market clean-up measures. to improve its efficiency. Second, it is quite clear from the data that the potentials of the advertising industry are under-optimized and justify recent actions by the regulator ”,
He referred to the distribution of media channels, which shows that the media television remains dominant and accounts for more than 50% of spending in 2020. The average share of the TV channel in ATL’s overall spending was around 37% up to ‘in 2019. The sudden jump to 52% in 2020 may have been due to the COVID-19 pandemic which appears to have dramatically improved people’s choice of television more than radio, outdoor advertising and the press.
Under a caption “Advertising, National Economic Growth and Diversification,” the expert said that by expanding consumer choices, advertising pushes the boundaries of aggregate demand and production in an economy. “But this role is mutually reinforcing as economic growth propels new advertising activities. The exact process leads to economic diversification as the advertising industry becomes more competitive and innovative. Increased competition and hence innovation and growth lead to lower advertising costs and prices, leading to increased consumption of advertising services. This is one of the areas where the regulator intervenes. Its role in this process beyond the regulation of fraudulent and misleading messages is to promote better functioning of the market. This expectation is incompatible with any regulatory attempt to alter the determination of market prices and the contractual understanding between market participants ”,
While examining the simplified model of price fixing damage, Ike-Muonso said, “Economists, development experts and competition scholars have long recognized the destructive effects of price fixing in the marketplace. To demonstrate this, we asked a fundamental question: What damage would have been done to ATL’s advertising spending since 2014 if APCON had implemented the horizontal pricing agreement currently suggested during those years. To make this simplified estimate, we collected data on the average pitch fees paid by the top twenty companies in five industries since 2013.
These prices constitute our reference prices or site fees. The heart of the estimate is determining the amount of overcharge, which is essentially the difference between the fees paid minus the benchmark fees. This difference is then multiplied by the quantity requested. For the sake of simplicity and to determine the effect on the size of ad spend, we assumed that every billion naira of ad spend equals 500 ad service units consumed. To keep the model as simple as possible, we refrained from calculating windfall effects based on consumer surplus and the additional negative impact of double billing. Table 2 summarizes the minimum size of the damage caused to the consumption of ATL advertising services ”,
He also pointed out that if the land charge of N 2 million were in effect in 2014, the ATL segment of the industry would have lost N 58.1 billion in damaged value. The size of the damage would also have been 67 billion naira in 2020. It would also have been 13.4 billion naira if the land costs were 1 million naira in the same year. Imagine the size of these Naira losses if we include the double load recommended by APCON for pitch rejection in this simplistic model.
Making his point, he explained that regulators in all progressive societies and markets view this offense as regressive. “Rather, the emphasis is on ensuring that the market system enjoys enormous availability of data for rapid and robust decision making by market participants. This path of market promotion is the path that we suggest to the regulator to take as a matter of urgency, ”he declared.