x Abu Dhabi, UAESunday 23 July 2017

Advertising is not a business for the patient

Analysis With the global financial crisis into its third quarter, the UAE's advertising industry is finding it is having to wait, often for months, for payments

Advertising is not a business for the patient. From the caffeinated bounce of the creative director's knee under the boardroom table to the late-night rush to meet an early morning deadline, the industry thrives on the adrenalin of a quick turnaround. But with the global financial crisis into its third quarter, the UAE's advertising industry is finding it is having to wait, often for months, for payments that used to arrive within weeks. The pressure is weighing especially heavily on the media buying end of the business, which often has little flexibility about when it pays for media and therefore must carry the payment gap on its balance sheets. "My poor finance guys are in literally a 24-hour clock on collection," says Kevin Rapose, the regional managing director of Initiative, a media buying unit. "It's everything from the biggest company in Dubai to the smallest company. I'm grateful to have my multinational clients who still follow their payment schedules, as per the contract, but payment is a big issue." Late payments have become such a big issue that the UAE chapter of the International Advertising Association (IAA) has begun holding discussions with a number of media owners and agencies to work out what can be done. "It is proper to conclude that, based on its experience around the world, the IAA does not act as either an enforcer or legal body," says Dr Lance de Masi, the UAE president of the IAA. "The IAA should act as a facilitator, helping to bring parties together for purposeful and constructive dialogue. When the IAA sits at the table to discuss the various issues involved, as it is doing in the UAE, it helps in the articulation of realistic goals and alternative courses of action." The IAA is trying, among other things, to determine the scale of the problem. Ghassan Harfouche, the treasurer of the UAE chapter, told Media Week last month that the IAA's best estimate of the amount owed to the industry in the country was "almost certainly as high as US$150 million (Dh550.8m)". But Mr Harfouche admits an accurate estimate is hard to come by. "Clearly the scale of the issue is significant, both on the micro level for the industry and on the macro level for the regional economy," he says. "Estimating the full impact of the problem of unpaid receivables is both difficult and in some ways a little premature, because all parties - clients, agencies, media companies and the Government - continue to look for appropriate solutions for settling the outstanding bills." What is clear is that property clients figure prominently in late payments, Mr Harfouche says, as well as the need to take action. "Margins within the advertising supply chain are very small and there is little cushion to absorb any default in the process," he says. "At the extreme end, this means businesses folding or downsizing and, consequently, a loss of talent from the industry and region that we can ill afford to lose. "This change of business climate promotes less risk-taking, more pre-payment, the possible loss of business because of less attractive commercial terms and, ultimately, reduced advertising spend." Already, lower advertising spending has forced Initiative, like many other companies in the UAE, to freeze salaries and shed staff at the start of the year. Now the late payment issue is creating a new round of problems. As a member of the Middle East Communications Networks, which is majority owned by the Interpublic Group (IPG), Initiative has limited flexibility in how long it can wait for payment. "I'm used to 45 to 60 [days]," Mr Rapose says. "I'm not trying to get used to 90 to 180, and am being asked to get used to more than 180, which I'm resisting very actively. "As an IPG company, after more than 90 days, alarm bells ring and provisions for bad debts [begin]. It's no longer about what I think, it's what I have to do." IPG is one of the "big four" advertising holding companies, along with WPP, Omnicom and Publicis. Initiative has already taken some clients to court, Mr Rapose says. In other cases, he has simply tried to "wield a big stick". "To some extent it's worked, and we've whittled it down to manageable figures," he says. "Where it didn't work, we sought legal action." BPG Group, another major player in media buying, has legal teams working with its clients with overdue accounts. "We are ready to take appropriate stops, including legal ones," says Avi Bhojani, the chief executive of BPG Group. Typically, his company never waited more than 60 days for a payment, but now some of his clients are four or five months behind in paying, Mr Bhojani says. "Maybe 5 per cent of our 2008 received is receivable." Mr Bhojani believes the IAA should be involved in the issue because advertising and media buying agencies are carrying the debt on their books. "We haven't defaulted on a single payment to a single media," he says. "Our cash flow is taking the brunt." Mr Rapose is in a similar position. "The problem is we are bound to pay the media. If I stopped paying Gulf News or Abu Dhabi Media Company [the publisher of The National], they would stop my advertising for other clients." Duleep George, the executive director of marketing and sales of Al Nisr Publishing, the publisher of Gulf News, says the newspaper typically offers 30 days of credit to advertising agencies, but cannot offer more. "The advertising agencies have requested additional credit periods, which we have not been able to provide," he says. "We have no choice because we have to pay the people who supply us materials. It's a chain. There's no point in doing business without getting paid." While the newspaper has turned away a few advertising agencies' clients because of previous late payments, he feels that late payments are a big problem from the company's perspective. "All the major advertising agencies have been paying," he says. Dr de Masi stresses the need for co-operation between media and agencies to find a way out of an economic crisis that stretches far beyond their respective industries. "In the final analysis, however, meaningful solutions will only be derived if there is unfettered co-operation among agencies and co-ordinated action by the media, both with a view to the communications industry's long-term benefit," he says. "As soon as willingness is compromised by actions that reflect greed and opportunism, the effects of concerted effort come to naught. The IAA stands ready to assume an expanded role, but only given the boundaries and with the understanding I have outlined here." Mr Harfouche says: "An important business factor is trust and once this is eroded it is very difficult to have the optimum business model. "Whatever we can do to foster and restore that trust is at the top of our agenda. We are involved in discussions with a number of key media owners and agencies to determine the best future course to try to get the industry on a stable footing. "We can only do this in a unified manner with actions that benefit all. We are positive that we can make progress in this way." khagey@thenational.ae