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Imagine you are watching a national television channel during prime-time in Mumbai and your friend is doing the same in Pune. While you are greeted with a particular set of commercials in Mumbai, your friend sees a completely different set in Pune. Surprised? Common abroad, this concept - targeted television advertising - is slowly catching on in India.
After three technology entrepreneurs from Coimbatore - K A Srinivasan, Baskar Subramanian and Srividhya Srinivasan - sold their first start-up, Impulsesoft, in 2005, they were fishing for new ideas. After the mandatory hand-holding period that lasted two years, the three friends who had worked for Texas Instruments, Bangalore, before turning entrepreneurs in 1999, began scouting for their next big venture.
"The year was 2008 and digitisation was beginning to gain ground in television," says Srinivasan, 39. We thought, why don't we leverage our skills in technology in a medium such as television?"
This was easier said than done. Television has various sides - production, distribution and advertising. The question was which part of the value chain were the three looking to leverage. They zeroed on advertising - targeted advertising on TV. And, Amagi Media Labs was born.
The venture began commercial rollout in 2009.
The concept
For technology entrepreneurs, targeted advertising isn't a new concept. It is, in fact, a tried and tested model on the internet. Thanks to the ability of websites to gauge the number of people visiting a page, advertisers seeking to place their ads online can determine their targets. For television, however, this isn't the case. The ability to pick and choose audience down to the last person is hardly possible on television networks, especially national TV channels, which are beamed to a large number of households on a daily basis.
There are 210 million TV households in India. Of these, the cable and satellite universe encompasses about 155 million. The rest is accounted for by terrestrial TV homes - channels received via television antennae or overhead aerials. Amagi doesn't work with terrestrial channels such as Doordarshan; it focuses on cable and satellite homes, which include both analog and digital cable.
How does Amagi work?
The Bangalore-based firm acts as an intermediary between the broadcaster, the advertiser and the multi-system operator (MSO) or the master cable operator receiving satellite signals from broadcasters and sending these to its network of last-mile operators.
What Amagi does is intercept the feed provided by the broadcaster at the MSO's end and replace it with its own (the ads of those it represents). Such advertisers could be national-level players seeking to target people in a certain city or a regional advertiser looking to target a specific audience in a particular area. Based on the requirement, Amagi buys ad time on satellite channels, be it national or regional, and creates ads, inserting these creatives at the scheduled time, in the same channels, with the help of MSOs. "So, the ads would appear at the appointed time at the appointed location. If the advertiser wants more than one location, we will appropriately intercept the feed at the head-end (the MSO's end), so that the ads are beamed based on the brief given by the client, at the last mile," says Srinivasan. "The creatives would vary at different locations."
Angshu Mallick, chief operating officer, Adani Wilmar, maker of brands such as Fortune Cooking Oil and Raag Vanaspati, says, "This is a cost-effective way of reaching people. If you want to target people in a region or town, why spend money for spots that are beamed nationally? Instead, you could pay a fraction of that for spots beamed in that particular city."
Ajit Balakrishnan, chairman and chief executive officer, Rediff.com,which has a subsidiary firm, Vubites, that is a rival to Amagi, says, "Targeting can help improve results in TV advertising by ensuring your message is put in front of only those for whom it is relevant. Targeting can also be done in a finer way, for example, only at people who live in Cuffe Parade and Malabar Hill in Bombay, not elsewhere."
Revenues
Amagi generates revenues by selling space to advertisers which wish to insert their ads into a particular channel. A proportion of this is shared with MSOs. Currently Amagi's yearly revenues are less than Rs 50 crore, Srinivasan says. He, however, declines to give the exact numbers. About Rs 70 crore has been invested in the firm; this has been funded by external backers. Initial capital to the tune of Rs 2.5 crore was brought in by the three partners. Srinivasan says his firm is likely to break-even by 2014-15. "In the next two years, we have set a target of reaching Rs 100 crore in revenues," he adds.
Is the road ahead likely to be easy? Not at all, say experts. This is because of the unwillingness of broadcasters, especially, national players, to part with their inventory for local advertising. The chief executive of a Hindi general entertainment channel puts it bluntly. "I have heard of this concept, but I don't think it will work because inventory is hard to come by. And, now that the Telecom Regulatory Authority of India has capped advertising to 12 minutes an hour, this would put further pressure on channels," he says.
Experts say in India, a major problem with targeted TV advertising is the discomfort experienced by broadcasters in dealing with multiple regional or local advertisers, as opposed to a few national companies. Experts say broadcasters have a better grip on matters when the inventory is brought for national-level advertising, as opposed to dealing with intermediaries who sell the ad space to small and medium advertisers. Srinivasan, however, counters this, saying his firm is in discussions with mainline Hindi general entertainment channels - major players in the television business - for targeted advertising. "We should have something to announce soon," he says.
Currently, Amagi works with 15 channels, including regional networks such as the MAA Group and Udaya (from Sun), niche channels such as Zoom, sports channels such as Ten, news channels such as Zee News, IBN7, Times Now and CNN-IBN and UTV Movies. Of the 350 advertisers on its rolls, national names include brands such as Dalda, Honda, Chevrolet and Skoda.
Co-founder and former joint managing director of Infosys, N S Raghavan, who has backed Amagi since its initial days, investing Rs 37.5 crore between 2008 and 2012, says, "Targeted TV advertising has the potential to significantly expand the TV advertising pie in India. Currently, region-focused advertising spends stand at more than Rs 4,500 crore and Amagi is targeting this large market."
Vikram Godse, managing partner, Mayfield India Advisors, which accounted for most of the Rs 31.25 crore raised last month by Amagi, says, "The firm's technology brings efficiency to the value chain by not only reducing costs for advertisers, but also expanding the number of companies that can now advertise on TV."
EXPERT TAKE: Mahesh Murthy
Amagi and Vubites seek to offer affordable TV advertising to local businesses by inserting ads into local cable networks. While this is good in theory, the business has to overcome three problems:
First is the availability of inventory on key channels. Leading channels wouldn't let someone re-sell their audiences at lower rates; nor would they let you place local ads on top of national ads. So, these folks are restricted to an MSO's own inventory. Also, these channels don't have great programming or viewership, as they are run by cable operators. Often, MSO channels carry pirated content and Amagi/Vubites seek to replace streaming text ads at the bottom of screens with slightly higher quality advertising.
The second hurdle is the readiness of local advertisers to create quality advertising. A TV commercial costs the same, whether you're shooting for broadcast across India or in a city. These players would need to find local advertisers and actually create TV commercials for them at low prices or for free so that these ads can be run on MSO channels. This is the same problem radio faced - doing ads for local players is non-scalable; there are no efficiencies involved. Radio is now reverting to large, national-scale advertisers. I believe Amagi/Vubites would have to do the same. This begs the question why local in the first place?
The third issue is these players are unlikely to reach the cost per 1,000 levels of national TV channels. While big channels have highly paid salespeople in Mumbai and Delhi, Amagi/Vubites would need people selling TV ad spots in Rajahmundry and Bhilai for much smaller targets than those for a national salesperson. Put these together and you'll see they would need much more money to hit much lower revenue levels than a national TV channel. I heard Amagi raised Rs 25 crore for local ad sales; a national channel can start with just Rs 10 crore and make more money. This brings up the issue of valuation and exit. If you've spent a lot of money building a small business, where would investors find an exit? Therefore, these would be funded less by rational venture capital funds and more by individuals and corporates.
Mahesh Murthy, the author, is founder of digital brand management firm Pinstorm and co-founder of Seedfund
AMAGI'S WORLD OF TARGETED ADVERTISING
|Amagi Media Labs uses the concept of targeted advertising on television. This concept is new to TV
|Basically, Amagi intercepts the feed provided by the broadcaster at the MSO's end and replaces it with the ad for the advertiser it is representing
|To be able to do this, Amagi buys ad slots from the broadcaster in question much like a media buyer would
|The ads that are inserted in the given time slot could be different for different locations, depending on the brief given by the client
|While the business shows promise, the key challenge for players is to get big broadcasters to part with their inventory for local-level advertising
|Competitors are few at the moment with the main one being Vubites from Rediff.com
