GroupM, IPG, Publicis, Dentsu, Madison may face penalties up to 10% of annual turnover if found guilty in CCI investigation
The agencies allegedly colluded with broadcasters to fix advertising rates, thereby limiting the ability of advertisers to negotiate competitive pricing. If proven, this would mean that large advertisers, who depend on these agencies for media planning and buying, were systematically overcharged through a coordinated manipulation of discounts, commissions, or bidding processes.
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As the Competition Commission of India (CCI) investigation unfolds at the country's top advertising agencies' headquarters including GroupM, Publicis, Madison, dentsu, IPG, and also at the Indian Broadcasting and Digital Foundation (IBDF) office, industry experts estimate that each may face penalties up to 10% of annual turnover if found guilty.
As per multiple sources, the reason behind the raid is the potential cartelisation and price-fixing in the advertising and media industry. It has been reported that authorities have blocked the entries and exits of the offices of media agencies and seized the phones and laptops of employees. Despite repeated attempts, none of the CEOs or senior executives of the agencies involved have been picking up their phones, with some even having their lines switched off. In certain agencies, officials are still present and being questioned, casting uncertainty over the extent of the ongoing investigation.
Read more: CCI raids at dentsu, GroupM, IPG, Madison, Publicis fuel unrest; stakeholders demand fair probe
A senior media veteran told Storyboard18, "It looks like there is a bit of understanding between media agencies and media owners. This has been alluded to often but has never been proven."
Sharing his reaction, Naresh Gupta, co-founder, Bang In The Middle added, "I don’t remember the industry being raided enmass before. The last time there was strife was when BARC was under investigation."
Under Section 3(3) of the Competition Act, 2002, any agreement between players in the same industry that directly or indirectly determines prices or restricts competition is illegal.
The suspicion here, according to Sonam Chandwani, Managing Partner at KS Legal & Associates, is that these agencies colluded with broadcasters to fix advertising rates, thereby limiting the ability of advertisers to negotiate competitive pricing. If proven, this would mean that large advertisers, who depend on these agencies for media planning and buying, were systematically overcharged through a coordinated manipulation of discounts, commissions, or bidding processes.
"The CCI’s search and seizure operations under Section 41 suggest that there was prima facie evidence of wrongdoing, possibly through internal communications or financial transactions that indicate collusion," she added.
The investigation now will focus on unearthing emails, pricing agreements, internal meeting records, or coordinated rate cards that suggest anti-competitive behavior.
Read more: CCI raids at top firms could leave media agencies grappling with massive trust deficit, feel experts
If these firms are found guilty, the penalties could be severe fines up to 10% of their average annual turnover under Section 27, possible debarment from working with certain broadcasters, and mandatory corrective measures like greater transparency in pricing.
According to the legal experts, this case could set a strong precedent for the advertising industry, forcing agencies and broadcasters to rethink their pricing structures and ensure fair competition in media buying.
According to Sandeep Goyal, chairman, Rediffusion, this was going to happen sooner or later.
"...it is about colluding with broadcasters but the CCI would be perhaps more interested in figuring out Group M's monopoly of the media buying business. They easily enjoy 50% or more market share and the market share such as that is nothing short of predatory," he added.
