Anant’s blog: Of dropped spots and ridiculous thoughts

With the AAAI elections looming large, I’m obviously following all developments very closely. While Nagesh Alai has conducted a low-profile campaign, Sandeep Goyal has been aggressive and in-your-face. Those in the electoral college have been receiving missives from ‘Campaign for Sandeep’ highlighting various issues which, presumably, Sandeep Goyal believes have been handled poorly by the AAAI.

The latest mail has the subject line “Are 'Dropped Spots' Holding up the AAAI-IBF Agreement?– so, AAAI elections or not, I would have read it anyway.
 
I reproduce the content of the mail for those who haven’t seen it:
 
Dear Friend,

You would surely be aware that the AAAI-IBF Agreement expired on 31 March, 2010. It has still not been renewed.

While there may be other issues of disagreement, one critical issue that is holding up the contract is about ‘dropped spots’.

What are ‘dropped spots’ and how do they affect all of us?

When broadcasters receive an RO at a rate higher than a lower priced RO, if they are running full on inventory, they drop the lower priced RO. Invariably, this lower priced RO belongs to a large advertiser who enjoys a lower rate and the RO invariably comes from one of the larger media agencies. In the AAAI-IBF contract some of the larger media agencies are making a big issue out of the ‘dropped spots’. Their issue is that IBF members must guarantee them spots even when their RO is lower priced. IBF members are of the view that when they receive a higher priced RO, they have every right to drop an RO with lower price.

What is the issue?

Normally most lower priced ROs will come from large media buying agencies for their large clients. If they book inventory for such large clients in advance (say for Diwali), they could end up holding bulk bookings at negotiated rates much lower than what smaller agencies would have obtained. When smaller agencies were to then place ROs even at higher prices, if broadcasters do not drop lower priced ROs from the big media agencies, then the smaller advertisers and agencies will not get any inventory despite paying higher rates.

The battle for ‘dropped spots’ is a bilateral matter between some large media agencies and broadcasters. ‘Dropped spots’ are actually good for smaller players. Smaller players today pay higher rates but at least they get the inventory they want. If there were no ‘dropped spots’, the big media agencies would have not only their monopoly over low rates but also would corner all prized inventory by blocking it in advance.

Think about it. It is a very very important matter that needs urgent discussion and debate. Otherwise, smaller buyers of media will just get killed.

This is the most ridiculous argument that one has read, and I’m surprised.

Forget about dropped spots for a  moment, and take the analogy to another world.

An investor with considerable liquidity signs a contract to buy 10 flats in a particular building at Rs 5,000 per square foot.

The builder keeps selling flats in the building till he has no flats left to sell. Another prospective buyer comes along and tells the builder that he is willing to pay Rs 6,000 per square foot. The builder now reneges on his deal with the investor who has already contracted to buy 10 flats and sells the new buyer one of the 10 flats – because he gets a higher rate.

I use the word renege – because that’s what the builder has done in this example. He has signed a contract to deliver 10 flats at an agreed rate – and that’s what he has to do.

Too bad for the small buyer who wanted just one flat and was willing to pay more.

Too bad for the IBF members who want to wriggle out of their commitments and want to drop contracted spots.

The issue here is one that Campaign for Goyal doesn’t seem to understand – inventory. Inventory is finite, not infinite. All media products – TV, Print, Radio, etc – have a clear understanding of their inventory and, if they’re lucky, the finite inventory runs out.

Which means that they cannot sell more – unless they go back on signed contracts – which is the crux of the dispute between the AAAI and the IBF.

And Campaign for Goyal doesn’t understand that the issue that the AAAI is fighting for does not differentiate between small and large agencies and small and large advertisers. All they’re saying is, once you contract to deliver a certain number of spots for a certain amount of money – do so.