TV Advertising Market in Bangladesh.

Jiangxi University of Finance and Economics

Term Paper for International Students of IMIB

Subject : Economics

Title : Economic Study of Television Advertising Market

in Bangladesh.

Name : Mohammad Tawhidur Rahman

Student’s ID number : 31540051

Date : February 29, 2016

Grade :

Teacher’s signature :

Mohammad Tawhidur Rahman_31540051 IMIB Term Paper_P # 2

Abstract: Television has many different affects on the economy in both positive and negative

ways. One of the biggest effects television has on the economy is advertisement. More and more people turn to television for advertisement. Advertisement has a huge impact and effect on viewers. After watching an advertisement on television people are heading to the store, looking on the internet, or trying to purchase the product. It only takes a few seconds to convince someone that the product, good or service they are advertising is worth buying and bam people purchase it. Television is unique because it allows people to see the product that is being advertised. Television advertisement affects everyone including children, teens, and adults because they spark the interest of a person instead of pointing out the products features.

Now TV is available at every home in Bangladesh. Today, the product and service manufacturers are spending a lot of money to launch an attractive advertisement; one of the important criteria of TV ad is dependent on sponsor program. Advertisements play a major role in sponsorship program at the same time as manufacturers purchase the time span of television brand paying huge money. Similarly advertisements are also significant for the manufacturers to promote their sales in the competitive business environment. Currently business environment is very much competitive because of globalization. This is why manufacturers are to pay out great deal of money on this function. TV ad is as old as the birth of TV. People like to watch various TV programs because it telecasts various messages to its audiences. But most of the programs (drama, cinema, talk show) are sponsored program. Usually the advertisers’ perception is that the message they send through TV will have extensive coverage and highest reach of any of the media. This is why the manufacturers of products and services are spending large amount of money in this media.

Key Words: Advertising, Television commercial/ TVC, TV advertising, Advertising market, Economical impact of TVC, Advertising Revenue Bangladesh. Introduction:

Bangladesh is a country of 56,977 square miles; the estimated population of the country is 169 million making it the eighth most populous nation in the world. Its nominal per capita GDP is very low, at only $ 1,314. Bangladesh gained its independence from Pakistan in 1971, following a 9-month armed struggle. The country has a deep cultural heritage, including a rich tradition of language. Freedom to use Bangla began as a language movement in 1952, and continued as the cultural-political base for the War of Liberation. With an impulsive response from the mass people, the country has moved away from the dictatorship of the 1990’s towards a more democratic form of political rule.

Regardless of much poverty, corruption and political instability, Bangladesh is the first case in South Asia of the ‘TV media boom’ trend. Phenomenally, 46% of households in Bangladesh own a television, with 76% ownership amongst urban dwellers and 32%


amongst rural people. Above 70% rural and 90% urban people aged 15 and above manage to watch TV at least once a week. This means almost all people, both, rural and urban, have access to television. Despite a huge expansion of print and electronic media in the country, media experts argue that ‘due to lack of a proper broadcasting policy’ there has been deepening commercialization within the media industry and a growing information divide between urban and rural people. There is also a dispute that the TV media boom costs the country of a political disparity, and a market orientation trend has undercut the independence and impartiality of the media. Moreover, the escalating commercialization is creating a divide between the actual role of television channels and the role it could playing a progressive society. Growth of the television industry in Bangladesh:

In the last decade, a great deal of support of local and transnational corporations in the way of advertising revenues and investment endorsement has encouraged the political and business tycoons of Bangladesh to expand their television outlets, leading to media conglomeration. Consequently, ‘the diagonal concentrations of ownership’ are being resulted in the development of a political monopoly and the growth of business lobbying powerhouses. This power network led market-liberalization has made an impact on the content and process of program and news production within every TV channels, more or less.

There are currently three terrestrial television station in Bangladesh, Bangladesh Television (BTV), Bangladesh Television World and Sangsad TV. BTV has emerged as a powerful and effective mass medium since its inception in 1964 as it is the first ever TV station of the country. At present, BTV is the only television station that the overwhelming majority of Bangladeshis can watch. Advertising on BTV is the most expensive television ad space in Bangladesh (because the station has by far the greatest reach) – up to 75,000 Taka (1088 USD) per minute.

Bangladesh entered the era of satellite broadcasting in 1992, by giving access to CNN and the BBC to broadcast on the government-regulated channel – BTV. In the context of a dominance of foreign satellite channels in the country, ATN Bangla came into being on July 15, 1997. The first Bangla private satellite channel, ATN Bangla aimed at telecasting programs in Bangla for viewers in more than a hundred countries across the world. Channel-i, established in 1999, is the first-ever digital Bangla television channel. At present in Bangladesh there are more then 35 private television channels are broadcasting. Increase of Advertising:

Growth in the cable and satellite television industry has been in turn driven by massive growth in the telecommunications sector. Television viewership is growing at a rate of 15-20% a year. Because of the huge spending by telecom companies and some local and multinational companies, the advertisement market has also doubled in five years. According to the Advertising Agencies Association of Bangladesh (AAB), the advertising market in Bangladesh is of about 154 billion USD and the market is growing in volume by 10% a year.


The Katalyst survey found that television commercials are largely dominated by multinational companies’ consumer products, mobile telecom services and products of leading local business houses (Figure 1). Multinational company Unilever (33%) topped the list of top 10 advertisers in television, followed by local corporate houses–Square, Kohinoor, Partex, Pran-RFL, Basundhora, Transcom and Meghna Group–with 56% together, and then mobile phone operators (11%). Private television channels earn most of their revenue from the peak time commercials. Figure 1: Top 10 multinational and local advertisers of Bangladeshi TV channels

Advertisements or commercials are lifeline of the media industry. It is one of the

continuing financial sources of running the media organizations. There are about 500 advertising agencies in Bangladesh; this sector employs more then 10 thousand people. Among the leading players are Unitrend Ltd, Asiatic MCL, AdCom Ltd, Grey Advertising Bangladesh Ltd, Interspeed, Bitopi Advertising, Matra, Creative Media Ltd, Expressions and Bindu. Most of the commercials in Bangladesh media, both print and broadcasting, are on mobile phone companies, real estate, private universities, perfumery and toiletries industries, home appliance selling organizations, government and private banks, and beverages.

Ad agencies usually have some fixed clients. New clients need to come to them with their proposals. Ad agencies conduct promotional as well as publicity campaign on behalf of their clients. Different ad agencies take commissions at various rates from the media organizations in exchange of giving advertisements on behalf of their clients. Clients give money to ad agencies for putting up the advertisement. Ad agencies also take money from the client for any publicity campaign. As part of the publicity campaign, ad agencies also get commission from the media (newspaper or television or radio). Most of the ad agencies get 15% commission from the media. Through this process, a pact has developed between the media and ad agencies.


Commercial or Private TV advertising has existed in the Bangladesh since the launch of ATN Bangla in 1997. Over the past two decades the TV advertising market has been through numerous structural changes as it is going to be matured as an advertising medium and the number of commercial TV broadcasters has increased. In order to analyze the economic impact of advertising market of Bangladesh we require a realistic model of how this advertising market works - which must be based on sound economic theory and be calibrated to match the dynamics we have witnessed in the past. The supply of TV advertising:

Private TV channels create advertising opportunities for advertisers by broadcasting advertisements at regular intervals during their programming schedules. The amount of TV advertising that is supplied by the broadcaster or agencies is defined to be the number of advertising impacts, which is a function of audience viewer-hours and the average number of advertisements per hour. Supply can therefore be boosted by attracting large audiences or broadcasting more advertisements.

In the short to medium term, the traditional commercial broadcasters can do little to affect the supply of TV advertising impacts. The size of audiences is determined by programs scheduling and production decisions often made many months in advance, and cannot be easily changed. We therefore, in the diagrams that follow, draw a vertical short term supply curve, to indicate that supply is fixed.

In the longer term, broadcasters should have some influence on the supply of TV advertising impacts, through their influence on viewer numbers (e.g. through investment in programming).

Competition with other broadcasters may, however, make it difficult for a channel to increase significantly its share of viewers (and hence impacts) even in the long term, although there have been a few cases where broadcasters have been able to change the profile of their viewers over time. In diagrammatic terms, we might expect the long term supply curve to be upward sloping, as higher prices would provide the revenues required to improve program quality and hence attract larger viewers.

One might expect the supply of advertising impacts on multi-channel channels to be more flexible than for traditional channels. Multi-channel is not regulated to the same extent as traditional channels, allowing more control by the multi-channel operators over the number of advertisements per hour (although multi-channel broadcasters do tend to employ all of their available advertising slots). Control over audience numbers is still difficult, however, due to competition with other broadcasters. Other factors outside of the control of the broadcaster will also affect the supply of advertising impacts. Audience numbers are dependent on population size and demographic structure (e.g. young adults tend to watch less TV than older generations), and socioeconomic factors may also affect TV viewing (although broadcasters can commission and schedule programs that appeal to these audiences). The audience for a particular group of channels can be negatively affected by the success of other channels. The demand for TV advertising:

Demand for TV advertising comes primarily from private sector companies selling consumer products, although demand from government and NGOs is also significant. For


companies, advertising is a type of investment in future sales, and therefore the value of advertising (in real terms) is determined by advertisers’ expectations of the future strength of consumer spending (often called “animal spirits” by economists). A strong empirical link between advertising expenditure and corporate profits has also been observed, possibly reflecting the tendency for companies to be more willing to undertake discretionary spending of any sort when profits are strong.

Corporate expenditure on TV advertising is relatively fixed in the short term. Companies usually determine marketing expenditure on an annual basis and contracts are usually agreed one year ahead. In the longer term, however, one would expect companies to be able to shift their marketing expenditure between different forms of marketing (which includes traditional advertising media, such as radio, print and outdoor, and other marketing activities, such as direct mail, interactive and sales promotions). Demand should, therefore, be more flexible in the longer term. Expenditure on TV advertising:

To model the TV advertising market, we need to understand the relationships between supply and demand, both in the short term and the long term, and how these relationships determine expenditure on TV advertising. In this section I set out my approach to modeling the relationships between supply and demand.

In the market for TV advertising, advertisers purchase opportunities to present their products to TV viewers from the commercial broadcasters, often through the use of intermediary media buyers. Typically, advertisers will pay according to the number of impacts that are achieved for their target audience (or, in some cases, expected number to be achieved), and the price negotiations begin at the prices indicated on the relevant advertising ‘rate card’, expressed as ‘cost per thousand’ impacts. But the true price paid is determined through negotiations that determine a discount on the rate card, considering many factors (including deal size, share of expenditure on the channel, nature of the product and timing of the advertisements). The rate card does not strictly dictate the true economic price of TV advertising (i.e. revenue per impact). Ultimately, the price is determined through the relationship between supply and demand, as with most other products in the commercial environment.

Importantly, TV channels tend to sell all of their available advertising slots, and therefore all of their available advertising impacts to advertisers. As the supply of impacts is relatively fixed in the short term, the price of TV advertising impacts is therefore determined by the highest price that will just clear the market, so that all advertising impacts are sold. We might characterize this as being similar to price setting in an auction process in which “everything must go”.

As we suspect that total expenditure on TV advertising is also relatively fixed in the short term, we might expect to find that the price shifts in the opposite direction to short term changes in quantity so that total expenditure remains broadly unchanged. This would suggest that the price elasticity of demand for TV advertising should be close to minus one in the short term. Consequently, a change in the supply of impacts would have little overall impact on TV advertising revenues in the short term (as it would result in a roughly equal but opposite shift in the price).


In the longer term, the TV advertising budgets of companies will be flexible and we might expect companies to increase their advertising budgets (or sign new contracts) if TV advertising becomes more effective. Therefore we might expect a rise in viewers (and therefore the quantity of advertising) to result in an increase in advertising revenue in the longer term – implying a long term price elasticity of demand in excess of minus one. Consequently, a change in the supply of impacts would have a larger impact on advertising revenues in the longer term, compared to the short term.

For example, in Figure 2 below, an increase in viewers results in the supply of

advertising impacts rising from q1 to q2, which results in the price falling from p1 to p2 in the short term.

But in the longer term, the demand curve may shift from D1 to D2 (as advertisers increase their advertising budgets), resulting in the price rising to p3. Consequently, the supply increase would have little effect on advertising revenue in the short term, but a larger positive impact in the longer term.

Figure 2: Demand and supply of TV advertising revenue

Audience fragmentation and changes in viewing patterns:

In this analysis I separate the TV advertising market into two sections defined by two types of commercial channel: ‘State owned/ terrestrial/ traditional’ and ‘Private/ satellite/ multi-channel’. As satellite TV captures an increasing share of audiences, the terrestrial channels will face increasing competition in the TV advertising market, and they will be less able to supply the large audiences that they have previously been able to do. Consequently, one might expect to find that satellite TV channel viewing is a negative


driver of the price of terrestrial channel advertising, and I have therefore included this variable in my analysis.

As depicted in Figure 3, an increase in multi-channel TV viewer’s results in a drop in traditional channel viewers, that reduces the supply of traditional channel impacts from q1 to q2. All other things being equal, this would result in a short term rise in the price of traditional channel advertising from p1 to p2. But the multi-channel channels are now able to offer a greater supply of impacts to advertisers, and therefore are better able to compete with the traditional channels. We would expect this to reduce demand for traditional channel impacts from D1 to D2. This pushes the price of traditional channel advertisements down, to p3. Price p3 could be above or below the original price p1, depending on the extent of competition between traditional and multi-channel TV advertising markets.

Figure 3: Impact of multi-channel audiences on traditional channel TV advertising

References:

1. https://en.wikipedia.org/wiki/Bangladesh 2. Advertising Agencies Association of Bangladesh (AAB) 3. Electronic Media Marketing Association (EMMA) 4. ATN Bangla 5. Brand Forum, Bangladesh 6. Social science research network 7. Management study guide 8. a2i.pmo.gov.bd 9. Ministry of Information, Bangladesh

TV Advertising Market in Bangladesh.

Economy & Finance

Transcript of TV Advertising Market in Bangladesh.