The Indian Media Business and The Indian Newspaper Revolution

1. The Indian Media Business and The Indian Newspaper Revolution Vanita Kohli-Khandekar Robin Jeffrey Sanjay Ranade, Head, DCJ, UoM

2. Why Media Matters • Investors have poured in over Rs 20 billion into the Indian media and entertainment (M&E) industry over 2004 and 2005. • Across the business, in multiplexes, digital theatres, publishing, DTH broadcast services, film production and distribution, television software, and several other areas investors are parking their money and sitting back to wait for the market to deliver. Sanjay Ranade, Head, DCJ, UoM

3. Why will the Indian market deliver? • Democracy • Profits and returns • M&E liberalisation Sanjay Ranade, Head, DCJ, UoM

4. The Indian industry is small by global standards • At Rs 420 odd billion or over $9 billion it is a tiny fraction of the global market that is estimated to touch $ 1,375 billion in 2005. However, India is one of the most important markets for investors within the Asia-Pacific from a growth perspective. Sanjay Ranade, Head, DCJ, UoM

5. What could trip this growth are not limitations of size but haphazard regulation. • There is ad hocism in India’s media policy and policy makers have yet to learn to separate infrastructure from content. • This leads to the constant threat of content regulation by government. • However, as Indian media companies gain in size and power they will be able to lobby better and tackle the bogey of regulation better. Sanjay Ranade, Head, DCJ, UoM

6. Another factor that could trip growth is that all media is booming at the same time. Sanjay Ranade, Head, DCJ, UoM

7. Press Sanjay Ranade, Head, DCJ, UoM

8. In 2005, print seemed to pick up business to the extent that it appeared to beat television.There were three reasons why this happened. Sanjay Ranade, Head, DCJ, UoM

9. In 2004, print actually gained in ad revenues over TV. • Across the country young blood was taking over the print business from Malayala Manorama in Kerala, to Jagran Prakashan in Uttar Pradesh to Bennett, Coleman & Co in Mumbai. • Foreign institutional investment into print was allowed in 2005 making it easier for financial investors to pick up shares in publishing companies – this increased liquidity or tradability of shares of listed print company – this made it easier for private equity investors or others to exit from the company when they wanted to. Sanjay Ranade, Head, DCJ, UoM

10. As a result after decades of inaction over Rs 10 billion of capital came into the sector over 2004-05 Sanjay Ranade, Head, DCJ, UoM

11. Apart from the growth in circulation and therefore a dependable ad-revenue business there was the potential of being in one of the youngest markets in the Asia-Pacific region where newspaper circulation and readership was growing - the other two being China and Singapore. Sanjay Ranade, Head, DCJ, UoM

12. The optimism drove some of the largest media deals of the time….. Sanjay Ranade, Head, DCJ, UoM

13. Henderson Asia Pacific Equity Partners picked up an over 19 per cent stake in HT Media for about Rs One billion. • Business Standard-Financial Times and DainikJagran-Independent followed. • The Hyderabad-based Deccan Chronicle Holdings targeted Rs 1.3-1.5 billion and raised Rs 1.49 billion from an issue that was oversubscribed 9.5 times. • In August 2005, HT Media raised Rs 4 billion and made it to the top ten media IPOs in Asia over 2004 and 2005. It gave HT Media a valuation of Rs 24.95 billion – over 90 times the profit it made in the financial year ending March 2005. Sanjay Ranade, Head, DCJ, UoM

14. From the first newspaper to the newspapers of the pre-independence years, the aim was a cause, a revolt, a message and a tool to counter propaganda or spread some of their own. • Many of the top publications today are the ones that have lived through the freedom struggle- The Times of India, Mumbai Samachar, Malayala Manorama, Ananda Bazaar Patrika and The Hindu. • Many of these newspapers were financed by benevolent or patriotic businessmen or through donations. Sanjay Ranade, Head, DCJ, UoM

15. Indian publishing was always a family owned business that never looked beyond its own general reserves and the owner’s limited vision of growth. • For a long time Indian publishers did not thing of their publications as a business. Sanjay Ranade, Head, DCJ, UoM

16. The First Press Commission report (1953) looked carefully at the capital invested, returns generated and revenues and costs of newspapers. • There is a heavy influence of socialism and the notion of protecting anything small against anything big. • It talks of limiting the growth of large metropolitan newspapers. There is a proposal to make it mandatory for large newspapers to increase their price when they increase their pages – this later morphed into the Newspapers [Price and Page] Act. Sanjay Ranade, Head, DCJ, UoM

17. A comment from the report said • The great advantages possessed by the metropolitan press has tended to draw away from the districts the talent that might have gone into the development of a local press. We do not consider concentration of the press in metropolitan cities a desirable feature, however inevitable it was in the early stages. Sanjay Ranade, Head, DCJ, UoM

18. A sample of 127 dailies had total revenues of Rs 110 million. • The split between circulation and advertising revenues was a healthy 60:40. It showed that the industry was not completely advertising driven and that readers were paying the bulk of the cost of producing and selling a newspaper. Today on an average only 15-20 per cent of the revenue of an English newspaper is recovered from circulation revenue. Advertising is the biggest and only alternative source for most newspapers. Sanjay Ranade, Head, DCJ, UoM

19. Out of 47 companies only the 19 that were more than 15 years old gave a return of more than ten per cent on capital invested. • As a whole the industry generated a profit of Rs 0.6 million or less than one per cent on a capital investment of about Rs 70 million. • The industry was owner-driven, capital intensive, long-gestation business and it remains that way even today. Sanjay Ranade, Head, DCJ, UoM

20. Why then did proprietors remain in the business? – according to the Press Commission report • The rest of the industry was flush with post-second-World War profits which were parked in various businesses – print was one of them. • Money also came in from persons anxious to wield influence in public affairs Sanjay Ranade, Head, DCJ, UoM

21. So why do people continue to be drawn to it? • Many of the things the Press Commission said in its 1953 report remain true today. Newspapers continue to be a capital intensive, long-gestation, low-return business. Sanjay Ranade, Head, DCJ, UoM

22. If a newspaper is at no 1 or 2 or 3 even then it tends to get a disproportionate share of revenues and profits. This is true for every medium. (BCCL, which publishes the TOI generates anywhere between 25-40 per cent in gross margins. In FY 2003-04 its net profit was over 20 per cent, above the average in many industries). • Newspapers are still treated as tools of influence. Sanjay Ranade, Head, DCJ, UoM

23. Yet, newspaper as a business attracted very few entrepreneurs, especially in the 60s and the 70s. This was because it was, and still is to some extent, a difficult business to be in. Sanjay Ranade, Head, DCJ, UoM

24. Reasons • Low returns • High capital investment • Shortage of newsprint – especially in the 60s and 70s - the Newsprint Control Order 1962 fixed quotas on the basis of a CA certificate on proof of circulation. Only 30 per cent of the requirement could be imported through the State Trading Corporation. The rest had to be purchased from domestic producers who sold poor quality newsprint. • Importing printing machinery in the age of duties as high as 100-150 per cent Sanjay Ranade, Head, DCJ, UoM

25. Publishers, on the other hand, were guilty of under invoicing of newsprint and selling off the surplus in the black market. • Newspapers were registered and licences procured to import newsprint and these were sold at exorbitant rates. • Editorially too, there were biases for and against specific politicians and government in general and the media appeared to have an agenda of its own. • There were arbitrary levies on newsprint, a wage tribunal was set up and mandated salaries, curbs on freedom of the press were instituted during the same period. Sanjay Ranade, Head, DCJ, UoM

26. This was the period when the trade unions within the media industry had begun to strengthen themselves both for rights of journalists as well as the employees in the printing presses. Sanjay Ranade, Head, DCJ, UoM

27. The transformation of the publishing industry into a business began post 1977, after the National Emergency declared on June 25, 1975, was lifted. Sanjay Ranade, Head, DCJ, UoM

28. Three factors were responsible for this • Growth of literacy • Rise of capitalism • Spread of technology Sanjay Ranade, Head, DCJ, UoM

29. Eenadu – owned by Ramoji Rao with interests in Margadarsi Chitfunds, Priya Pickles and Hotels • Launched in Hyderabad in 1975. • Competitor was Indian Express’ Andhra Prabha with 74,000 copies. Andhra Patrika, another competitor was losing circulation. • Editions launched – Tirupati 1982, Ananthapur 1991, Karimnagar 1992, Rajamundry 1992. • By 1978 Eenadu surpassed Andhra Prabha in circulation. • By 1995 Eenadu commanded 75 per cent of the audited circulation of Telugu dailies. Sanjay Ranade, Head, DCJ, UoM

30. Mid-day – launched in 1979, an afternoon daily • The paper led to the closure of TOI’s Evening News. • The 16-page tabloid was priced at 25 paise. • Its revenues in March 2005 were Rs 1.02 billion up from Rs 70 million in 1983. • It launched the Sunday Mid-Day, Gujarati Mid-Day and even a Delhi edition, which was sold off later. Sanjay Ranade, Head, DCJ, UoM

31. Magazines launched at the time offered more than just politics, were in colour and made a difference to how much advertisers and readers were willing to pay for the same product • India Today • Sunday • Stardust • Savvy • Debonair • Society • Island • Parade Sanjay Ranade, Head, DCJ, UoM

32. Chitralekha – Gujarati magazine • Shifted to offset printing in the late 70s • Introduced computers for the first time in 1981. • Began to take colour ads and pushed its cover price from 60 paise to Rs 1.80. Sanjay Ranade, Head, DCJ, UoM

33. Newspapers caught up with supplements • TOI came up with the full colour The Sunday Times, The Sunday Review, Brand Equity and a host of supplements that followed. Sanjay Ranade, Head, DCJ, UoM

34. Samir Jain years and the transformation of BCCL • Took over in 1986 • The family business New Central Jute and Rohtas Industries were in decline • Hired people from FMCG background and fixed value targets instead of volume targets for his sales people • Launched colour supplements • Differential pricing • Cross brand advertising packages • Price cutting • Shut down ‘editorial’ brands like the Illustrated Weekly, Dharmayug, Dinman and Vama because they were not making money. Sanjay Ranade, Head, DCJ, UoM

35. Rasna was the first ad that encroached on editorial space in The Saturday Times, a colour supplement from TOI. The notion that there should be a total divorce between a paper’s editorial and its marketing was completely shattered by Jain. Sanjay Ranade, Head, DCJ, UoM

36. By 1992, both newsprint and printing machinery were placed under the open general license, making import easier And • Advertising was changing hands with multinational corporations taking charge of the ad industry. Sanjay Ranade, Head, DCJ, UoM

37. While the publishing industry was busy with discovering the business of publishing it missed the opportunity of the future – television. • Except for BCCL, Living Media and Business India nobody saw an opportunity in broadcasting or cable. • It took a CNN and a Star TV to make publishers realised the potential in broadcasting Sanjay Ranade, Head, DCJ, UoM

38. Between 1976 and 1996, the total daily circulation of all Indian newspapers increased four times, and by 1996 there were five times as many newspapers published as in 1976. • The winners in this newspaper boom were daily papers printed in vernacular languages. By the early 1990s, the circulation of Hindi newspapers was almost three times that of the English press. • The English-language press also grew, but it did so much more modestly. Sanjay Ranade, Head, DCJ, UoM

39. Sustained by advertising, the boom of Indian-language newspapers transformed readers into consumers at the same time as it met their increased desire for information and political participation. Sanjay Ranade, Head, DCJ, UoM

40. Computers made both printing in Indian characters and distribution across the Indian territory easier. For this very reason, in post-Emergency India, computers also became one of the means whereby “locales are thoroughly penetrated by and shaped in terms of social influences quite distant from them” (The Consequences of Modernity, by Anthony Giddens [Stanford, Calif.: Stanford University Press, 1990], p. 18). Sanjay Ranade, Head, DCJ, UoM

41. The Satellite TV years • Came to India in 1991 • Zee, Sony, Home TV, Sun TV launched between 1991 and 1995. • Publishing was dominant with a 70 per cent share of the market. • Television made newspapers less newsy. • Television began to eat into print’s share of audience. • General interest magazines suffered and special interest ones – A&M, Dalal Street Journal, Dataquest, Health & Nutrition – took off. Sanjay Ranade, Head, DCJ, UoM

42. The shape of the Indian print industry today is like no other in the world Sanjay Ranade, Head, DCJ, UoM

43. Reasons • Low literacy – differential in ad rates, dominance of English • Strong sense of the ‘national’ – all brands want to be seen as being ‘national’ brands • Dependence on advertising – cover price, advertising tariffs, cost cutting are only tools available – debate about the mix of advertising and editorial is reduced to one of degree of intrusion, not the right or wrong of it. Sanjay Ranade, Head, DCJ, UoM

44. Possible solutions De-risking the business by • getting into other media, • increasing revenue streams from publishing, • creating a pan-India presence. Sanjay Ranade, Head, DCJ, UoM

45. Living Media spun off a television division, placed equity with financial institutions and took its television business public. • Hathway welcomed Star India into the cable business • Mid-Day took a shot at outdoor media, radio and even a free newspaper, Metro, in Mumbai • TOI successfully entered Internet, TV and popular music, forayed into radio and even into real estate and banking. • Dainik Jagran launched more editions and a television channel. • Dainik Bhaskar launched several Hindi editions, Divya Bhaskar in Gujarati and DNA in English in a joint venture with Zee Telefilms. Sanjay Ranade, Head, DCJ, UoM

46. Hurdles to de-risking • Lack of access to capital • Owner’s love of their stake Sanjay Ranade, Head, DCJ, UoM

47. In June 2002 the government decided to allow 26 per cent FDI into Indian print. The policy was further liberalised in 2005. Sanjay Ranade, Head, DCJ, UoM

48. Rules for FDI in print are • FIIs to be part of the 26 percent investment in print media in the news category • Publication of Indian editions of foreign scientific, technical and specialty magazines, periodicals and journals. • Foreign investment up to 100 per cent in Indian entities publishing scientific, technical and specialty magazines, periodicals or journals. • All registered newspapers (Indian publications) are authorised to make syndication arrangements to procure material including photographs, cartoons, crossword puzzles, articles and features from foreign publications under automatic approval. The total material so procured and actually printed in an issue of an Indian publication cannot exceed 20 per cent of total printed areas of that time. It should not include full of copy of editorial page or the front page or the masthead of the foreign publication. Sanjay Ranade, Head, DCJ, UoM

49. The battle for the Rs 15 billion of total advertising monney spent on reaching Indians in Mumbai is a case to study • The business environment became ‘competitive’ than ‘protective’ • Other ways of raising capital than debt • Problems of liquidity and exit resolved • Expansion and diversification emphasised Sanjay Ranade, Head, DCJ, UoM

50. The Economics of the Publishing Business Sanjay Ranade, Head, DCJ, UoM