The new advertising regulation has united the entire industry against it. The companies affirm that the law has been made and say that its approval will slow down business and even give “a shot in the foot to the Mexican economy.”
Despite this, the Chamber of Deputies approved on Friday the Law for Transparency, Prevention and Combat of Improper Practices in the Area of Advertising Hiring. With 339 votes in favor, 92 against and nine abstentions, the initiative presented in November by Ricardo Monreal, senator from Morena, was sent to the Executive Branch for publication in the Official Gazette of the Federation (DOF).
While the initiative was being discussed in the Senate parliament last week, associations from the advertising sector came together to call for an in-depth discussion in an open parliament exercise. But it was not granted. Now, the union, which must abide by the regulation, is already working on a strategy to define positions.
for advertisements on your own account and then resell them to advertisers. Nor may they provide simultaneous services to companies and media, nor may they receive commissions from the latter for the provision of services to brands.
Currently, the process begins when a client approaches an advertising agency to hire its services, it designs a creative and commercial strategy, develops and implements it. For this last step, you need to buy advertising space in the media to reach the target audience. Of the amount that the ad pays to the medium, the agency receives a percentage.
According to Monreal’s proposal, the agencies receive a double payment for their services, which is an improper commercial practice in favor of certain groups and to the detriment of advertisers. Their argument is that the agencies have taken advantage of the lack of regulation in the industry to increase their revenues.
“The behaviors of advertising agencies in Mexico have generated strong distortions in the market, which have reported extraordinary and unjustified profits, with high costs and inefficiencies for advertisers, media and, finally, consumers,” the ruling details.
He even gives as an example that of the Tourist Promotion Council in the administration of Enrique Peña Nieto, denounced by the Financial Intelligence Unit (UIF), in which government advertising contracts were found with agencies where prices were altered and carried out. double charges.
Now, “the media must send the invoice for the sale of the advertising space directly to the advertiser, even when the agency makes the payment on their behalf, in accordance with the applicable tax regulations. The agencies will be obliged to inform the advertiser of the financial relationships they have with the media or media they intend to contract, ”reads the project presented by Monreal.
If they do not comply, they will be credited with fines equivalent to 2% of their income. While agencies that acquire advertising space on their own will have to be penalized with 4% of their income. In case of recurrence, the charge will be up to double these percentages
For the advertising industry, pointing out that it is not very transparent and of resorting to bad practices to ensure its profits, shows “the ignorance that legislators” have of the industry and its operation.
“We absolutely and profoundly reject the disqualification of the sector, an industry that generates so much economic and social value to the country cannot be accused of having improper processes,” says Sergio López, executive president of the Alliance for the Strategic Value of Brands (AVE ), the association that brings together agencies and consultancies in the sector, which issued a statement along with other associations to express their rejection
The AVE executive points out that everyone in all sectors, “even in that of legislators”, there are those who act with improper practices. “But his statements disqualify all of us who generate progress, innovation and well-being for society. As an ecosystem we follow efficient business practices and we are highly productive,” he adds.
Monreal’s project presents as a reference the situation in different parts of the world to conclude that Mexico falls into the same bad practices. Cases like that of 2016, when several clients of the Dentsu holding company in Europe complained that they had overpaid that advertising provider in exchange for few digital ads. The fraud reached a million dollars.
For Gabriel Richaud, general director of IAB Mexico, the body that also signed the joint statement, the ruling is a great opportunity for legislators to get to know the industry. He even assures that it is not a bad idea to join forces to promote it. The problem is that there is not the necessary knowledge of the union to issue a regulation.
“It is about working collaboratively, not using examples from other countries as a reference when clearly we are not in the same conditions. There must be a balance between regulation and the incentive to innovation and free competition, that when something deviates then there are sanctions, but this initiative does not give certainty “, says the manager. “You have to do an analysis by company and then propose something, it cannot be done lightly,” he adds.
Serious consequences
In the statement signed by the AVE, the IAB Mexico, the Mexican Internet Association MX (AIMX) and the Media Research Council (CIM), the industry organizations point out five specific consequences that would trigger the approval of the Law for the Transparency, Prevention and Combat of Improper Practices in Advertising Contracting.
The first has to do with the impact on the almost 2,500 national communications media (including more than 1,700 radio stations) that survive with small investments. The second is that there will be a negative impact on the Mexican economy, since each peso invested in advertising generates 17.7 pesos to the Gross Domestic Product (GDP) and 11.37 pesos to private consumption.
“It is to shoot the Mexican economy in the foot,” says Claudio Flores, president of the Board of Directors of the AVE. In 2019, 94,115 million pesos were invested in advertising, so the industry becomes a key factor to encourage the development of the domestic market and, consequently, greater competition and investment.
The third consequence identified by the associations is the impact on the media, since advertising allows free access to content, for which the only affected would be consumers.
The fourth is the job instability that would be generated for industrial workers, since movements would be generated that would trigger the loss of specialized employment that, as it is no longer active, it is likely that there are no adequate strategies to generate connection with consumers. Sergio López says that the cost is severe and that the reduction in income hurts both the business and the people in general.
The fifth falls on placing the Mexican industry at a competitive disadvantage in the face of global chains that operate outside the country.
“We are a global power in strategic planning and media buying, we export services from abroad, this initiative closes that door for us because we will not be able to compete globally. There will be a significant leakage of income, let us remember that the world is global, not local ”, adds the executive president of the AVE.
The draft decree was sent to the AVE in November 2020, when it was presented by Senator Monreal. At that time they created a committee together with the media agencies to analyze the initiative and understand the impact it could have on them.
“We sent more than 200 communications to the players in the industry,” says López. Subsequently, other associations began to join under a common demand: do not rush the approval of the opinion and, instead, generate a deep and detailed discussion in an exercise of open parliament in which the industry actively participates.
“The exchange of opinions is essential for any exercise of transparency. This initiative deserves to be discussed, that the actors involved in the industry take part and give their points of view because it can clearly affect the entire economy of the country, “says Sissi de la Peña, regional manager of digital commerce and international organizations of the Association. Latin American Internet (ALAI).
With this request, the ALAI, the Internet MX Association and the International Chamber of Commerce sent a statement to Cruz Pérez, president of the Radio, Television and Cinematography Commission – who endorsed the opinion in conjunction with the Legislative Studies Commission, Second -, to show your disagreement.
“This bill is born from the ignorance and ignorance of the senators who propose it,” says Claudio Flores. The president of the AVE board of directors assures that a good part of the terms of transparency that the opinion requires is already fulfilled in the union, so it seems that it is an action to put pressure on the ecosystem and control it.
For now, the initiative was approved amid accusations of defects in the legislative process just one day before the end of the second regular session of the Senate. And now it is waiting to be voted in the Chamber of Deputies.
