Banning Liquor Surrogate Advertising

"It's difficult to digest that an industry which is allowed to sell its products, is banned
from advertising the same products, despite the fact that the commercials carry health
warning, advising the customers to use the product in temperance."

- Prof. Atul Tandan, Director, Mudra Institute of Communications, in July 2002.

Banning Liquor Advertisements – Again

In June 2002, the Information and Broadcasting (I&B) Ministry of India ordered leading
television (TV) broadcasters to ban the telecast of two surrogate ads1 of liquor brands,
McDowell's No. 1 and Gilbey's Green Label. The Ministry also put some other brands –
Smirnoff Vodka, Hayward's 5000, Royal Challenge Whiskey and Kingfisher beer – on a
'watch list.' The surrogates used by these advertisements ranged from audiocassettes, CDs
and perfumes to golf accessories and mineral water. By August 2002, the I&B Ministry
had banned 12 advertisements. Leading satellite TV channels, including Zee, Sony,
STAR and Aaj Tak were issued show-cause notices asking them to explain their reason
for carrying surrogate liquor advertisements. The channels were asked to adhere strictly
to the Cable Television Regulation Act 1995 (Cable TV Act, 1995).2

As a result, Zee and STAR stopped telecasting the

advertisements; Aaj Tak and Sony soon followed suit. In
addition, the I&B Ministry hired a private monitoring agency
to keep a watch on all advertisements for violations of the Act.
These developments led to heated debates over the issue of
surrogate advertising by liquor companies.

Though the liquor companies involved protested strongly

against the I&B Ministry's decision, they had no choice, but to
comply with the regulations. Analysts remarked that the
government's policy was hypocritical. One said, "On the one
hand they allow these 'socially bad' products to be
manufactured and sold (in order to garner revenues) and then
they deny the manufacturers the right to propagate knowledge
of their products in order to drive sales.

Banning Liquor Advertisements – Again Contd...

If something is bad and cannot be advertised, why allow it to be sold at all?" Meanwhile,
the government also seemed to be in dilemma. On the one hand, it had to encourage the
sales of liquor and tobacco because they were the highest taxed sectors of the Indian
economy. On the other hand, there was also the need to take the high moral ground and
reduce the consumption of such products.
 The Indian Liquor Industry
The Indian liquor industry can be divided into two broad
segments: Indian Made Foreign Liquor (IMFL) and country-
made liquor. IMFL comprises alcoholic beverages that were
developed abroad but are being made in India (whisky, rum,
vodka, beer, gin and wine), while country-made liquor
comprises alcoholic beverages made by local breweries. While
many players were present in the IMFL segment, breweries in
the unorganized sector accounted for almost 100% of the
country-made liquor segment. During 1999-00, the Rs3 60
billion Indian liquor industry grew at the rate of 10-12%.
While IMFL was consumed by the middle and upper classes of
society, country-made liquor was consumed by the
economically backward classes.

In India, 40-50% of all males and 1% of all females consumed alcohol. Almost 62% of
the drinkers could be classified as light drinkers (i.e. social drinkers), 29% percent as
moderate drinkers, and about 9% as hard drinkers. The organized industry was dominated
by Shaw Wallace and United Breweries, which together accounted for around 53% of the
total market (Refer Table I, Exhibit I and Exhibit II). The liquor industry was heavily
regulated by the government.

Companies were not allowed to expand capacity without prior approval from the
concerned state government. The distribution of liquor was also controlled in many states
through auction system, the open-market system and the government-controlled system.
Under the auction system, the government fixed a floor price for the shops and the
bidders had to quote prices. The license was given to the highest bidder.

The Indian Liquor Industry Contd...

States following the open-market system gave companies freedom to choose their
distributor and to determine the price and the discounts. In the government-controlled
system, liquor was distributed by state agencies such as BEVCO (in Kerala) and the
Andhra Pradesh Beverage Corporation (in Andhra Pradesh). There were around 25,000-
27,000 licensed retail sales outlets in the country, in addition to the bars, pubs, hotels and
restaurants serving liquor. There were restrictions on the location of these outlets and
their business hours.

Liquor producers spent heavily on advertising on the

electronic media because of the reach of satellite and cable
TV. Though the broadcasters were bound by a 30-year old
advertising code which banned them from airing
advertisements that related to or promoted cigarettes and
tobacco products, liquor, wines and other intoxicants, the
 telecast of such advertisements continued blatantly over the
years. This was because the code was only a code of conduct,
not a legally enforcing code.

Doordarshan, the state-owned TV channel, was the only one

that adhered to it. The broadcasters were also bound by the
Cable TV Act, 1995. However, as most of the channels were
uplinked from outside India, the Act did not apply to them.

Moreover, satellite channels did not want to follow this code because they garnered about
50% of their advertisement revenues from liquor. In the peak seasons for the sale of
liquor, this revenue almost doubled. In the first half of 1998, STAR reported revenues of
Rs 127.9 million from liquor advertisements while Zee reported revenues of Rs 40
million4. The regional channels managed to get about Rs 0.70 million in revenues. Since
liquor ads generated such high revenues, Doordarshan also planned to air such ads in
2000. With a reach of 70 million homes, it expected to acquire a significant share of
liquor advertisement revenues. Doordarshan estimated that its revenues would increase
three times from cricket matches alone if it were permitted to air liquor advertisements.
Even as Doordarshan was considering the above option, the I&B Ministry barred TV
channels from telecasting liquor and cigarette advertisements in September 2000.

Banning Liquor Surrogate Advertising - Next Page >>>

4] Zee could air liquor ads only after 9.30 pm as it was ai

he Indian Liquor Industry Contd...

With pressure increasing from public interest groups to ban liquor advertisements, the
government had to make amendments to the Cable TV Act 1995 (Refer Exhibit III).
While the Indian government could not take action on most of the channels for violating
the codes, as they did not uplink from India, the cable operators were punishable under
Indian law. The I&B Ministry also took steps to monitor the advertisements broadcast by
these companies.

Due to the ban, liquor companies focused more on promotions

for brand building. They started sponsoring events that
projected the 'glamour' of the brands, like track racing, car
rallies etc. for instance Shaw Wallace Co. (SWC), one of the
leading liquor companies in India, conducted the Royal
Challenge Invitation Golf tournament, which became an
annual event.

Some companies also promoted their products through

 corporate advertising, distributing free gifts like caps and T-
shirts with the brand name and using glow-signs outside the
retail outlets. However, as the TV was the most effective
medium of advertising, surrogate advertising on TV became
more popular.

About Surrogate Brands

Even after the ban, liquor companies continued to advertise their drinks in the form of
surrogate advertisements. In this type of advertisement, a product other than the banned
one is promoted using an already established brand name. Such advertisements or
sponsorships help in brand building and contribute to brand recall.

The product shown in the advertisement is called the 'surrogate.' The surrogate could
either resemble the original product or could be a different product altogether, but using
the established brand of the original product.

The sponsoring of sports/cultural/leisure events and activities using a liquor brand name
also falls in the category of surrogate advertising. In late 2000, a group of broadcasters,
who were members of the Indian Broadcasting Foundation (IBF),5 submitted their
recommendations on surrogate advertising to the I&B Ministry.

Banning Liquor Surrogate Advertising - Next Page >>>

5] The IBF is a non-profit national organization of television broadcasters, airtime sellers

and other entities in the field
of television broadcasting, set up to promote the television industry. It has about 27
members including Sony, Zee, Star,
Sahara, Discovery, MTV etc. In October 2001, the IBF also included radio companies as
its members.

About Surrogate Brands Contd...

Under the recommendation, surrogate advertising would comprise 'the products of the
liquor companies, which do not have a minimum turnover of Rs 10 million and where the
products are not manufactured in bulk quantity.' The broadcasters also urged the
government to allow them to telecast socially responsible advertisements sponsored by
liquor companies. They requested permission to telecast such advertisements because the
Indian television industry's revenues had reportedly decreased by about 7-11% (about Rs
1 billion per annum) after liquor and tobacco ads were banned. After more than six
months, in mid-2001, the I&B ministry accepted the recommendations of the
broadcasters. However, this decision was not formally announced because there was
same dispute over the issue of hoardings of these ads at sports events being broadcast on
television.
 The I&B Minister Sushma Swaraj said, "We have sought the
sports ministry's comments on the issue and are awaiting their
response before announcing the norms. If a company makes a
product other than liquor (or tobacco), which has a turnover of
Rs 1 crore (Rs 10 million), then the firm is entitled to use the
same brand for that product." She announced that a formal
decision would be made after the sports ministry's comments
were received.

In the mean time, some liquor producers entered new segments

under the liquor brand or advertised these products under the
liquor brand. Most of liquor producers entered into the
packaged water segment, such as Kingfisher Mineral water.
Some companies seemed to be using the ban to their
advantage.

McDowell's mineral water and soda brands served as surrogates for their liquor brand and
also generated additional revenues for the company. To expand this segment, the
company franchised its bottling and sale of purified drinking water and soda and made
them available in more than 75 cities in the country. In early 2001, SWC started
marketing its range of golf accessories under the liquor brand Royal Challenge. It also
launched a new range of golf accessories, including graphite shafted golf sets (with
lifetime warranty), golf bags, caps, and gloves. SWC also started a quarterly golf
publication that which provided information on the latest happenings on golf. The
company also entered into agreements with the Indian Golf Union and the International
Management Group to promote the game in India.

us

About Surrogate Brands Contd...

It also announced that India's flagship Golfing Event – the Indian Open – would be
sponsored by the company till 2006. In late 2001, SWC announced its decision to enter
the packaged water market, under its well-known beer brands Hi-Five and Lal Toofan. In
2002, it named it soda water Royal Challenge Premium Sparkling Water6 to leverage the
company's flagship liquor brand Royal Challenge. According to industry watchers, SWC
was launching Sparkling Water to use it as a surrogate for its liquor brand. They were of
the view that, following the ban on advertising, liquor companies were forced to look at
innovative ways of building their brands.

The number and range of surrogate advertisements increased

as liquor producers started sponsoring movies, music shows,
and other programs attracting youth. For instance, Seagram's
Royal Stag was promoted by sponsoring movie-related
activities and Indian pop music under the banners Royal Stag
Mega Movies and Royal Stag Mega Music. It promoted its 100
 Pipers brand by sponsoring a series of performances by fusion
music artists under the name 100 Pipers Pure Music. Blenders'
Pride sponsored a series of performances by troop dancers and
artists under the banner of Blenders' Pride Magical Nites.
Seagram also sponsored events such as the Chivas Regal Polo
Championships and the Chivas Regal Invitational Golf
Challenge for corporates.

In late 2001, television broadcasters began airing socially responsible advertisements

sponsored by liquor companies, even though the government had not issued any
notification permitting the airing of socially responsible ads on TV. Star TV and Sony
were among the leading broadcasters telecasting such advertisements included STAR TV
and Sony. The advertisements were telecast during Christmas and New Year's Eve. One
of these ads by Seagram wished the viewers with 'Season's Greetings.' Another
advertisement of Seagram read, "Tonight, when it's one for the road, it's got to be coffee."
L.S.Nayak, Vice President (Sales and Marketing), STAR TV said, "It's not a liquor
advertisement at all. It's just another corporate advertisement through a social message.

Banning Liquor Surrogate Advertising - Next Page >>>

6] Sparkling water is a milder form of soda.

About Surrogate Brands Contd...

It cannot be classified as a liquor advertisement because Seagram is not a liquor brand.
One must see the spirit behind an advertisement to find out whether it's promoting liquor
or not." Some of the broadcasters said that because the I&B Ministry was taking a long
time deciding about the use of socially responsible advertisements by liquor companies,
they had started using them without the Ministry's consent. IBF's Executive Director,
Bhuvan Lal, reportedly argued that there was nothing wrong with airing such
advertisements because they did not violate the government's guidelines restricting the
telecast of direct/indirect liquor ads. The government's guidelines stated that
'advertisements which lead to sale, consumption and promotion of liquor should not be
allowed.' According to Bhuvan Lal, these advertisements were perfectly legal as they did
not lead to sale, consumption and promotion of liquor.

Soon, liquor companies that had not entered into any

agreements with satellite channels for airing socially
responsible and for surrogate advertisements started
processing such agreements. For instance, Whyte & Mackay
began negotiating agreements with various TV channels,
including Star TV.
 Amar Sinha, CEO, Whyte & Mackay, said, "As long as there
was no ban, companies were not interested in showing liquor
advertisements in the garb of social messages. But with the
government imposing restrictions, social messages are a route
to liquor advertising for many." By early 2002, there were
many surrogate advertisements of liquor brands on satellite TV
channels. These advertisements attracted a lot of criticism.

According to an analyst,7 "We see a brown liquid poured into a glass under a well-known
brand name, and we are told the man is drinking apple juice! The girl who is avidly
watching him immediately rewards him with a kiss. In the same sort of way, water, soda
and other harmless liquors stand in for hard liquor and beat the ban." (Refer Exhibit IV
and V for sample surrogate advertisements).

There were numerous other advertisements selling music cassettes, CDs, water, clothing,
fashion accessories and sports goods – many of them accused of being sexually
provocative and offensive. The I&B Ministry's decision to ban such advertisements was
thus viewed as a logical and necessary step by their critics. As the authorities were
finding it difficult to track down the increasing number of violations, especially at the
regional level, the Ministry hired a private monitoring agency.

About Surrogate Brands Contd...

The agency – Time Monitoring (Delhi-based) – was responsible for scanning all
advertisements on all private satellite channels including regional channels. At the same
time, the Confederation of Indian Alcoholic Beverage Companies (CIABC), in a self-
disciplinary move, asked all TV channels to stop telecasting surrogate liquor
advertisements.

The Debate
The banning of surrogate advertisements for liquor brands became a very controversial
and sensitive issue. Liquor producers felt that while the government allowed them to do
business, it did not allow them to do so in a profitable manner. Liquor companies argued
that the ban would severely affect the sales.

The said that TV was the most effective medium of advertising

for these products and thus the restriction would hamper brand
building.

However, some analysts were of the opinion that the ban could
turn out to be advantageous for domestic players.

According to a WTO agreement signed in March 2001, MNCs

had unrestricted license to sell their products. After the ban,
 these MNCs would not have access to the quickest and most
effective form of advertising – the TV.

Thus MNCs who had recently entered the Indian industry were
expected to face difficulties in building their brands.

The ban would also affect the entry decisions of MNCs that were planning to enter the
Indian liquor industry. Moreover, some analysts argued that the ban would not affect the
established domestic players severely. It would only affect new launches and new brand
building activities of these companies.

Players who already had very strong brands (E.g. McDowell No. 1, KingFisher,
Hayward's and Royal Challenge) would not be affected by the ban. Apart from reducing
foreign competition, the ban was also expected to improve margins for these players, as
these companies had already spent heavily on advertising and other promotional
activities. (Refer Table II).

The Debate Contd...

On an average, liquor companies spent about 10-12% of sales revenue on advertising,
including direct consumer promotions programs; sponsorships; and print and electronic
media advertisements. On TV alone, companies reportedly spent about 3-4% of sales
revenue. This meant that after the ban, companies could save 3-4% sales or gain in
margins. For instance, McDowell's operating margins ranged between 5-7% and after the
ban, were expected to increase by 50%. The smaller companies in the domestic market
also seemed to have an advantage. Industry watchers felt that since distribution and reach
would become more vital after the ban, smaller companies might be acquired by the
larger ones for their distribution network, if not for their brands.

The restrictions on the liquor industry were viewed by many

critics as attempts by the government to disassociate itself
from the social evils associated with alcohol consumption.

However, some critics observed that while the government

imposed many restrictions on the liquor company; it also
earned a significant portion of its revenues (Rs 200 billion in
2000 for the whole country) through levies on liquor sales.

The issue of surrogate advertising involved even media

companies, as they had to forego substantial revenues as a
result of the ban. According to broadcasters, the government
should put in place a 'reasonable' policy, which somehow
struck a balance between the social and monetary aspects of
the business of alcohol.
What Lies Ahead?
In August 2002, broadcasting industry sources revealed plans to put in place measures for
self-regulation and monitoring, even before the I&B Ministry took concrete steps in this
regard. The broadcasters who were members of the IBF, announced that they would
come up with an advertising code specific to surrogate advertising.

IBF set up a sub-committee that included among others, with L. S. Nayak (Executive
Vice President, Star TV), G Krishnan (CEO, TV Today) and Manu Sawhaney (MD,
ESPN-Star Sports). Apart from formulating the advertising code, the committee would
monitor the advertisements that appeared on the TV channels.

What Lies Ahead? Contd...

Bhuvan Lal said, "We would like to clear any such advertisement with the committee and
nip any offending advertisements at the drawing table." Around the same time, apart from
the 12 ads banned earlier, the I&B Ministry was in the process of issuing show-cause
notices to AXN and Zee for two advertisements promoting Aristocrat Apple Juice and
Whytehall. The controversy surrounding debate surrounding surrogate advertising was
undoubtedly the result of the government's and liquor industry's age-old tussle of
revenues versus morality.

Ashoke Bijapurkar, President, B-MRP Communications8 said,

"This brings us to the question being debated: should surrogate
advertisements be banned? I feel the real question to be asked
is: should liquor and tobacco advertising be banned?"
Following the ban, most liquor companies again explored
alternative promotional activities.

Industry watchers remarked that the ban would affect the

channels more than the liquor companies themselves. The
companies might actively resort to sponsorships of sports
events, dance and music programs, and other fun-filled
activities. Some of the major domestic companies were
considering the use of the Internet as an effective marketing
medium.

Exhibits
Exhibit I: Sales of Wines, Spirits & Liquor Companies

Exhibit II: Sales of Beer Companies

Exhibit III: Cable TV Act 1995: 2000 Amendments Related to Liquor Ads
Exhibit IV: Surrogate Television Advertisements - I (Apple Juice using the Aristocrat
Brand)

Exhibit V: Surrogate Television Advertisements – II (Mineral Water using the Green

Label Brand)

Banning Liquor Surr

Ba