Q&A: CEO – GroupM, Fouad Hussain on How to Counter Media Inefficiencies

It is felt that the media industry is in a corrective phase right now where the ‘bubble’ has burst. What is your opinion on this?

Advertising and media are two of the measures that determine the strength of a country’s economy. When the economy is booming, the ad and media industry booms as well.

In Pakistan during the last decade and a half, softer government policies led to a rise in satellite channels; there was freedom of the media, but no checks and balances.

According to the latest census, we are a population of 120 million. We have around 95 television channels of which 35 or so broadcast news.

In which other markets would you find such a phenomenon? India, probably, but their population is about 1.4 billion. And there is a certain mannerism in which those channels come. If they don’t do business, they fold.

The main reason for the bubble bursting in our industry is a poor use of resources. The media industry invested in hiring people but did not go after technical skillsets.

So while the broadcast industry was spreading, the pie of media relative to the economy was not growing as quickly. Organizations became ‘fat’; too many people meant cost per revenue per person came down every year. Then the problem started.

Advertising money committed by both private and government sectors collapsed. In the last six months, all we have heard is that people working in TV channels are losing their jobs or they have not been paid for several months. It is a bad situation.

The bubble had to burst. In some ways it’s good because now, at least, channels are starting to realize; they are gathering their thoughts, restructuring, looking at whereas an industry they can share hardware, equipment, etc. and then perhaps come to terms with how to do business in the coming years in Pakistan.

The government, meanwhile, reduced the rates of advertising on private TV channels.

It is not good if the rates were lowered unilaterally without going through a fair discussion. I do, however, believe that government advertising should never be more expensive than private sector advertising because government advertisements are for the population.

The government should, therefore, get the best benefits, which is the case with the rest of the world.
Whether the rate structure for government advertising is fair or not is for the channels to decide and it also depends on how much the government is committed to spending.

If special rates can be agreed upon for mutual positive benefit, that is certainly better than no advertising.

But looking at how rates are structured in Pakistan, it’s fair to say that if the government wants to pay less, it should do so through a proper process and mutual dialogue.

Along with TV channels, media agencies are also being affected. How has GroupM, one of the biggest media planning and buying agencies in Pakistan, tackled the situation?

A core economic downturn affects every business, ours included. If our clients do not spend, then we cannot earn, right? This is a pool-based buying system; if clients are unable to spend to their potential, then how can we get the best for them?

However, as a multinational company, we have the benefit of being structured very evenly. So firstly, we are not a ‘fat’ organization; we are very lean. Secondly, we have not succeeded in Pakistan simply because we are the biggest.

We have succeeded because of how we drive business solutions. The client is our bread and butter, but the media industry is also part of our success, so we aim for systems, processes, and ways of doing business where both the clients and the industry are taken together as partners. That is important.

Thirdly, we are transparent. It’s a virtue we have maintained since the day we launched in Pakistan. It is necessary to do justice to both the client and the industry, bring learning for both and be accountable to both.

These are some of the reasons why GroupM excelled compared to others and it’s also why in this recessive period we have managed to hold on to our business and even gain a few new businesses in the last year.

GroupM has clout with its clients as well as media vendors that every other agency in the industry would love to have. How were you able to create it for your agency?

First, as a multinational agency, we got global clients due to our international arrangement. 70% of our clientele is multinational. We came into Pakistan with Unilever and then we got other businesses with other GroupM agencies.

As we kept launching those agencies, those businesses started consolidating. For local clients, we have had to go and pitch for business, but those pitches were won because of our credentials.
Then, because of our people, processes and products.

Because of the technology, we bring to the table, the solutions we drive for our clients and the fact that we hold ourselves answerable and accountable.

Our human resource department has been ahead of the curve of the entire industry at any given point in time and our belief in training our people has meant success for the organization.

That is one important edge we have got, because many other players in the agency business have not, or choose not to, utilize their people’s potential the way we have.

You are said to have one of the best advertising spot rates in the market. Is that a reality or perception?

It is a reality. All our TV channel contracts have a clause stating that GroupM will get the best advertising rates in the market. And those rates are justifiable; in 2018, we deployed Rs. 21 billion, which is close to 50% of the total television industry ad spend of Rs. 43 to 44 billion.

One reason we get those rates is because of the goodwill involved; we are good paymasters. Whatever the credit period, we make payments on time. So the rates we get are based not just on our strength, but also on our goodwill and the number of years most of our senior people have put into this market.

The race for the best spot rates has made the market very price-centric. Business margins for channels went down as a consequence and it also affected media buying houses. How can one combat this situation so that it becomes a better market for everyone?

A free market economy, where buyers and sellers come together, is a game of supply and demand. We have been accused of driving the rates down, but we have not actually done that. We have seen smaller agencies drive lower rates.

Some channels — I do not want to name any — have sold airtime at Rs. 500 a minute. This is less than radio or cable advertising. My question to these channels is, why do this? What is the compulsion? How much will they get out of it? There are no secrets in the industry; once any rate becomes common knowledge, everybody will ask for it.

Channel owners have a broadcasting association. Why has not the association set a minimum rate for selling advertising airtime, like the minimum wage? Then there is programming quality. Channels are losing their audiences.

If a channel plowed its revenue into improving its content so that its viewership rises, then it has every reason to charge higher rates.

But the issue is that revenue does not go into production excellence. That’s why the bubble burst in the first place: whatever money was coming in was just spent on hiring more people instead of training or developing skillsets.

The counter-effect was that programming quality failed to rise. The few bigger networks fared slightly well, but even they have not been able to raise programming quality as high as we would like to see.

So why would you give them more money? It’s like buying biscuits; if they don’t taste good, would you buy them again? The same principle applies here.

What is your opinion on knowledge transfer from you, the market leader, to the whole market?

There are two types of knowledge transfers. One is our secret recipe of doing business that — obviously — we will not share. The second is bringing more awareness regarding how global and regional markets work; this we have done at every forum.

Just the fact that I am here talking to you so openly means that I am willing to share what I know.

We conduct training exercises for our clients and the media and for the last three years we have done a digital day-out, for which we are the only company to do so, where we invite clients and the media to see what’s happening in the technological domain, so they can learn how to use technology better.

It is unfortunate that we do not have an association truly reflective and representative of the dilemmas faced by the agencies, but we would support such an initiative. We have no issues in sharing information that can help the industry as a whole.

You are also trying to establish the digital vertical. What are your objectives in the digital domain, and how have you been able to achieve them?

We launched ourselves into the digital domain four years ago through the GroupM platform and today we have Pakistan’s biggest digital agency, M9 Digital. We were able to do so because once again, we are a global company with a number of global clients on board.

So it’s the culture and philosophy that is coming in due to our being a multinational agency.

More importantly, it is because of the human resources we bring to technology. We have two trainings every year with Google and two with Facebook. Last year Facebook picked two case studies from GroupM Pakistan for their global book [on what?].

Google picked one case study from Pakistan, which was again centered on GroupM. All of this is happening virtue of the focus we have set.

Four years ago, digital spend was roughly 1.5% of the budget that was being spent on television — I keep television as a point of reference because it is the one medium that has continued growing.

Since then, over the last four years, the percentage spend on digital has gone up by 6.5-7%. For 2019, our goal is to take this up to 10%.

Digital is an important medium. It is also far more measurable than television because, for television, a rating point just says that X percentage of the target audience has the ability to watch.

Digital can measure exactly how many people watched and how many skipped a piece of advertising in any given period of time.

The media is moving more towards measurements; clients want to know if the money they spend is attracting the right number of views to their message. And when digital and television are combined, you already have those views.

Digital is also a huge business. Take Netflix; it has a hundred thousand subscriptions in Pakistan. At USD 11.5 per subscriber, they are taking roughly USD 14 million a year without investing a single dime in the country.

That’s how big the revenues are. By 2020, e-commerce in Pakistan will touch a billion dollars.

Are we prepared for such things? Right now we are struggling to find the right mix where GroupM can partner with clients on platforms such as Google and Facebook, and local publishing platforms such as Parhlo and UrduPoint, to work out e-commerce potential.

Even, for that matter, Daraz or Alibaba (when it consolidates and comes in).

A lot of work needs to be done for this medium; which we began doing in January last year. I am not sure if other agencies have geared up, but we do know that in 2020, we want a percentage of that billion-dollar business to be handled from our front.

That’s how serious we are about digital and that’s what we want to leverage for our clients as well as the industry.

Advertising on Google and Facebook is causing a flight of capital. How can that be controlled?

It may seem like there is a flight of capital, but that’s not actually true because the government is getting taxes on it. There is a flight of foreign exchange. It is the Government of Pakistan that needs to lay down the policies and speak to platforms like Google and Facebook.

There are areas where no matter what I or anyone else says, it will mean nothing unless the government does what it needs to do. It concerns Google, Facebook, and all other international companies to see how the government lays down policy and how they abide by it.

As far as we are concerned, we are following the procedure: We are going through the State Bank of Pakistan, through the proper banking channels, paying the proper taxes. We are complying with the current model and when the model changes tomorrow, we will comply with whatever it is at the time.

The same is said for GroupM, that because it is a WPP company it is causing a flight of capital.

That is a myth. In Pakistan, GroupM operates on a model of self-sustenance. Yes, it is a WPP company, but there is also a local shareholder, so dividends earned are invested back in the Pakistan business.

We could not have survived for 20 years in this market if money was being continuously pulled out.

It gets reinvested into the business, the people, the processes, the technology and so forth. It is the same process as followed by Unilever and Procter & Gamble; they invest back in the country in which they operate.

What are GroupM’s strategies for recovery?

Recovery has been a problem. In 2018 we saw just that when dealing with clients. We also understand that there is a shortage of cash circulating in the market.

What we do is pay more visits to clients, reminding them to pay their dues. See, if the media gives us timely benefits, fair rates and releases our drafts on time, then it is incumbent upon us to pay them on time.

Although there are always some ups and downs, generally we have managed since we are lucky to have understanding clients.

We have kept the media hand-in-hand; if a media channel calls and says they have not been paid, I check with my finance team to find out the problem. If it is a client problem, in many cases I have visited the client personally.

It’s all about reinforcement. Nothing will happen if you simply sit in your office; sometimes it is necessary to meet the client and explain the situation.

Sometimes they may have a problem, so you must explain the situation to the media. Mainly though, it’s a reiterative process and needs to be managed through personal interaction rather than through emails and phone calls.

How should one combat the situation from the government end? How can television channels and media houses come out of this whole thing?

For us as media, there must be political and economic indicators. When companies start spending again, we will automatically be back in line and the media will follow.

But you must remember that when a bubble bursts in any industry, it leads to mergers, acquisitions, takeovers or shutdowns. That has to happen in our industry also

Once the dust settles and the experts perform the dust control service, new players will emerge, but they will bring tighter controls, which will mean better-managed organizations: less wastage, more productivity, and more focus on the right areas of business.

When there are positive indicators in macroeconomic conditions then we will all recover.

Right now we will just have to make do with more cost-sharing, fewer expenditures, cutting down on wastage, focusing on the big-ticket items, ease up on experimentation for a while and, most importantly, invest in building technical skill sets.

That is the only thing that will keep us in our leadership positions.

What exactly do you mean by technical skills sets?

By that, I mean the ability to use resources properly. Technological developments are taking place in the light, sound, and in set design.

A channel can buy a new camera, but does it have people who know how to operate it to its best potential? Will the channel spend money on sending those people abroad for training?

There is a need for proper collaboration: 20 channels are covering the same event, why cannot one do coverage that can be shared? In order to grow the industry, we need to be unified.

When the industry stabilizes, then each company can focus on individual growth.

Stepping into 2019, how do you see the industry, faring?

The challenges will be to retain our clients and manage their expectations, given that everyone is in cost-cutting mode. The opportunity will be in growing the horizontal side of the business — bringing in new products and streamlining them.

Most of that will come via the digital and technology area. With better targeting and more cost-effective media placements, it will be possible to do so. This is also the time to realize the importance of research.

When the industry begins to focus on the benefits of research, we will be able to step into the future knowing what we are getting into rather than being blindsided. Right now is the time for research, not experimentation.

Regional channels repeatedly point out that comparisons should be apples and apples, not apples and oranges. When all the channels are placed in the same tier list, the regional channels lose out on the correct perception being formed of them by advertisers since they are obviously not able to compete with mass TV channels like Geo, ARY, Hum Network properties, etc.

When the TV audience measurement system was up for bids, the regional channels were concerned, but because the business base for rural is so small, it was decided to keep the tier list totally urban based.

I have spoken to a lot of the regional channels, and there is a system that can still be drawn for them that will give benchmarks and ratings, but for that, they have to work out a solution together.

We can guide, but we cannot lead them by the hand. We have advised them on how to make benchmark studies, but they need to take it from there.