Andriy Partyka: “Today all TV groups sell advertising below cost"

Photo: UNIAN

General Director of StarLight Sales (sells advertising on TV channels owned by Viktor Pinchuk – Noviy, STB, ICTV, M1, M2, QTV) Andriy Partyka speaks about reactions of the advertising market to the events in the country, the decreased activity of Russian advertisers and pegging of prices to the hryvnia instead of the U.S. dollar.

- It is no secret that because of the crisis, the war, the loss of territories, as well as devaluation of the national currency, many advertisers have refused to promote their products on television. Which groups of commodities were the first to leave and which remained on the market?

- We may divide the advertisers into two categories: producers of essential goods (medicines, hygiene products, food) and producers of those goods the purchase of which can be postponed. Now, there are noticeably fewer manufacturers from the second category on TV. Many Russian manufacturers have cut their advertising activity as well. Consumers and retail chains have reduced purchases from them and that affected their advertising activity.

Speaking about growing advertisers, those are pharmaceutical companies. Even though prices of some medicinal products were raised by 70%, consumers are still buying them. The situation is not too bad for the sellers of household appliances. Many of them managed to maintain the demand by selling goods at the old rate. Another important factor in this category is displaced persons, who are forced to buy appliances for their new homes. The companies that are leaders in their markets do not neglect advertising either. They have the crisis experience. They can reduce activeness, but not abandon advertising completely. There are clients who say to me: “In 2008 we removed the ads and lost too much. We will not do that again even in the event of war”.

- What is the fill rate in advertising slots of the StarLightMedia’s flagship TV channels – STB, ICTV, Noviy?

- The average fill rate of advertising slots is 75%. This is a good rate, given the growth in viewership. As a theoretical example, last year we sold 80 out of every 100 ratings. Now over the same period we produced 120 GRP (marketing indicator of the scale of advertising exposure – Capital), and still sell 80. The thing is more people started watching TV to keep abreast of the latest events in the country.

- Rumor has it that the 1+1 media group sells advertising at much lower prices than other TV groups. Is it possible to call this step of your competitors a case of predatory pricing?

- Currently, all TV groups sell advertising below cost. Roughly speaking, we are all involved in predatory pricing. But speaking of dumping, it is a fact that they sell advertising at lower prices. I understand that their shareholder has other sufficient sources of income, which allow them to live not only off advertising. At the same time, as you may know no Ukrainian TV channel lives solely off advertising these days. For example, all over the world TV channels, in addition to advertising, profit from subscription and broadcasting in networks of different providers. Ukraine’s legal system does not allow taking money from cable providers for broadcasting of TV channels, but it would be a decent source of revenues. Therefore, we only profit from advertising, which forces investors to cover the difference between revenues and expenses. For each group the amount of such a difference is unique.

- What is your attitude towards the government's initiative to ban sponsorship advertising of alcohol brands?

- I have repeatedly expressed a negative attitude to such a step. The ban on TV sponsorship of alcohol brands may lead to annual losses of the television industry in the amount of UAH 200 mn. This could give a boost to the wave of layoffs in the broadcasting companies. At first I thought such an initiative was lobbied by the largest vodka producers, but after talking with them I realized that this was not true – brands cannot simply give up promotion. Representatives of vodka companies told me that the bill was lobbied by the largest retail chains, which want to profit from promotions of alcoholic beverages. They really want to share the aforementioned UAH 200 mn.

But the question is: how much will the ban protect children from seeing advertising of alcohol in supermarkets instead of TV? I believe, not much. Moreover, in countries where such measures have been taken, no reduction of alcohol consumption was observed. Such bans simply establish the leaders and do not allow competition, while the launch of new brands becomes so expensive that it is meaningless.

- Do you plan to change the system of payment for advertising next year?

- We have already decided that next year the company will receive payments for advertising in hryvnia. Hopefully, nothing will stop us, neither the war, nor the currency fluctuations.

- What do you expect to achieve by such a measure?

- TV channels would gladly use index-linking to the U.S. dollar, for example, by setting it at the rate of +50 – 60%. If sales could grow proportionally, the economy of TV channels would cease to be in recession. But, unfortunately, it does not work that way. There is a certain elasticity of the market and it will certainly react and activity will decrease. Now we do not want to be an instrument of a market slowdown. We are ready to suffer for some time and allow our advertisers to communicate with their consumers to the maximum.

- What rate do you use to sell advertising at 2014?

- This year we sell it for UAH 8.20/USD and we plan to sell it at the same rate in the future. Even though our pricing policy is pegged to the U.S. dollar, it has not changed. We understand that the current situation is difficult for advertisers. TV channels feel the pressure from the currency share of expenditures as well as advertisers. But they are willing to tolerate such reality in order to mitigate the crisis.

- How will the media market develop in 2015?

- In our view, the market trends will persist: the Internet will be growing, the press will be less popular, TV will take away an extra 1% from other media, the share of which will be in decline. We have every reason to believe that the TV advertising market will finish 2015 just as it will 2014 or it will grow by 5 – 7%, if there is no new wave of the military conflict or the loss of territories.