Looking For Money In All The Ad Places

Michael Hedges September 14, 2010 Follow on Twitter

Advertising has long been a target of scorn by the well-meaning, looking to cure all walks of evil. Laws keep bad ads from good people. But advertising has great potential for good. And governments want a piece of it.

Back in May the Greek government proposed restoring an excise tax on advertising. The stated purpose was “to broaden the tax base.” A law was passed as part of “stability” measures to raise revenue for the State. The law specifically targets television: “an excise tax on ads on television.”

Needless to say, Greek broadcasters howled. A similar tax on advertising in Greece was abolished gradually from 2005, entirely by 2009.  The tax is set to come into effect October 1st, postponed three months. Broadcasters will pay the 20% surcharge on advertising revenues monthly on billing. A proposal to tax internet advertising was withdrawn in July.

The French government – yes, there they go again – proposed a tax on internet advertising to support French culture. Dubbed the “Google tax,” it’s still in the planning stages. Other taxes on broadcasters and telecoms revenue to subsidize French public broadcasting have cause the European commission to hold its collective nose.

Local lobbying efforts proved fruitless and now Greek broadcasters, through the Brussels-based trade group Association of Commercial Television Europe (ACT), have taken their concerns to the European Commission (EC) (September 8). The ACT formally requested that “compatibility with European law of the newly introduced tax…be considered as a matter of urgency.” (See ACT statement here)

”Despite unprecedented economic shocks to the Greek economy, the imposition of this tax would not only prove counterproductive for the Greek industry, but  contrary to the EU strategy on many key points,” said Antenna Group CEO Spilios Charamis in a statement. “Furthermore, it raises the question whether such a tax is consistent with the requirements and spirit of several provisions of EU law.” Charamis is also vice president of ACT.

ACT and Greek commercial broadcasters contend the tax on advertising, reducing broadcasters incomes, will negatively affect digital television switch-over, a hot button for the European Commission.  The ad tax, they say, may affect trade between Member States as foreign advertisers will limit market positions. And, too, the ad tax is, they contend, “covert” State aid to public broadcaster ERT. Revenue from the TV ad tax is estimated at about €100 million per year, a grain of sand compared to the €45 billion in aid to Greece from the European Union and the International Monetary Fund.

ACT questions the “proportionality” of a law imposed on only one medium. A similar tax on newspaper revenues, obviously, would bring out the long-knives of press freedom defenders. Newspaper publishers and public broadcasters have been silent.

Television broadcasters and advertising people have not, though there are differing views on the tax’s potential impact. Television is the dominant advertising medium in Greece. Some see the tax as effectively raising the rates for television advertising, thus pushing advertisers to other less expensive media. Others predict the opposite effect: television advertising being not only dominant but cost effective, advertisers will cut spending in other media.

"If you impose this surcharge, the Greek television market will bear 64.5% total tax, since they are already paying 23% VAT and an additional 21.5 % for journalists pensions funds,” said Alpha Group CEO Christoph Mainusch.  “If we add another 20% it would reduce our revenues more than in any other country in Europe.” Alpha Group operates Alpha TV and is owned by RTL Group.

“The question of who should bear the burden of the tax is not an answer to the dilemma,” said media buyer Tempo OMD Hellas managing partner Theophilus Kotsidis, quoted by Greek media blog Allismedia (September 13). “Any additional tax squeezes the market and suspends the quest for recovery. Since the amount of total investment has been getting smaller, this is simply transfering funds to the State instead of creating dynamic products and companies to carry out that purpose.”

“My basic belief is that the television market will suffer smaller losses from this tax,” the ad guy continued. “The impact will be greater in other media, which inevitably will be chosen by advertisers to reduce the proportion of expenditure to cover the cost of the tax. Obviously the least dynamic media will be challenged and probably suffer substantial reductions.”

Another media buyer, United Media CEO Costas Svigos, painted a picture even more stark. “Now more than ever we face a period of unprecedented change: changes in consumer habits changes in market dynamics, changes in consumer psychology, changes in media consumption,” he reflected, broadly and a bit philosophical.

“Let us note here that (since) the onset of the economic crisis in October 2008 there has been a significant reduction in promotional activity by 35% and especially in television advertising by 25%…€118 million for television. It is mathematically certain that you will see a domino effect as reduced television station revenue will reduce the turnover of the advertising companies, which will shrink.  Television production will decrease and a new cycle of unemployment will lead to a deeper recession in the industry.”

European commercial television appears to have reversed the declines since October 2008. The European Audiovisual Observatory released revenue figures on 12 leading commercial broadcasters comparing the first half 2010 with the same period 2009 (September 13), showing “a significant rise in activity levels.”

For the 12 broadcasters, revenues rose “exactly 10%.” BSkyB, the UK pay-TV broadcaster principally controlled by News Corporation, leads the pack with first half 2010 revenues of €3.72 billion, up 15%. Fastest growing was Poland’s TVN, increasing its revenue 28.0%. The only loser was Spain’s Prisa, off 12.8%.

Economics, clearly, affects media advertising. With the taxing Greek situation, said ad man Thanasis Papathanasiou, ”no one will be left unaffected.”

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