TV news channels in India regularly feature what they call “Breaking News” at the bottom of their screens. It’s news that is developing, a sort of teaser flashing on the screen while the reporters and anchors put together more detailed coverage. Today, the channels are not just breaking news, they are also making news. Many are losing money. They are laying off people. If the hard times continue, some could even close down.
At print publications, things are looking equally gloomy. The industry is downsizing. The launches of new editions and titles — of both newspapers and magazines — are being postponed. Many listed media companies (the only ones that have to reveal their numbers) have drifted into losses. Says Prakash Iyer, until recently CEO of specialized publication house Infomedia 18: “Marginal players will shut down. The non-serious players will go away. A lot of new launches will also get pushed out. Surviving in these times will require not just deep pockets, but commitment — to the product, the audience and the business.” Amit Mookerjee, a marketing professor and chairman of the working managers program at the Indian Institute of Management, Lucknow (IIML), notes: “Many will fall by the wayside.” He believes that magazines will take the first hit because, unlike newspapers, several are shoestring operations and don’t belong to groups with deep pockets.
Television may have more glamor, but the prospects are scarcely better. “There isn’t room for 100 plus channels,” says Iyer. According to K. Raman, practice head (telecom, media & technology) at the Tata Strategic Management Group (TSMG), “Given the current situation there will certainly be a slowdown in new TV channels coming up. There is room for multiple channels, but the challenge is that there are too many ‘me-too’ channels. Players need to come up with sharply differentiated offerings.”
Consider these facts:
- Print advertising volume is down 25% to 35% and publishers are being forced to give up to 50% price discounts.
- Media firms are asking employees to accept voluntary pay cuts up to 25%. Some are delaying salary payments as working capital has dried up.
- Bennett, Coleman & Company Ltd (BCCL), which publishes The Times of India, The Economic Times and other publications, has laid off several hundred staff. Network 18, HT Media and UTV Software have been shedding jobs.
- Newspapers have discontinued editions. They have merged supplements — such as real estate and business — with the main paper, thinning down in the process. Some magazines are down to half their peak sizes.
- Several senior editors and heads of TV channels have been let go. While the managements say this has nothing to do with the downturn, some of the replacements (mainly existing in-house talent) earn less than one-fourth their predecessors’ salaries.
“The media industry has hit a perfect storm — first came the newsprint price hike, and then the advertising downturn,” Ravi Dhariwal, CEO (publishing) of BCCL, told business daily Business Standard recently. “We scaled up too much for future growth, putting up additional capacity for new launches. Without doubt, we need to downsize to adjust to the current reality…. We have not seen the end of the crisis yet.”
At the FICCI-Frames 2009 meeting in Mumbai in February, the euphoria of earlier years was missing. This is the tenth such bash of the media and entertainment (M&E) industry. It took place a couple of days before India-centered movie, Slumdog Millionaire, won several Oscar awards. Without that as a morale booster, the atmosphere was one of gloom. “FICCI Frames 2009 gets underway with [a] call to brave tough times ahead,” reported exchange4media.com, a portal for the broadcasting, media, advertising and marketing domains. “If one thought that the Indian M&E industry is going through a bad patch, the FICCI Frames 2009 forum was all about ‘just how bad’ it is. Experts from the industry were not only candid in stating that this was one of the worst recessions to have hit the global economy and, by extension, the worst slowdown that India has seen in recent years, but they also discussed implications and steps to brave the year ahead.”
“The year 2008 was a testing time for the industry,” says a report on the M&E sector, prepared jointly by FICCI and professional services firm KPMG. The report, released at the convention, continues: “With the global economic slowdown affecting advertising spends, sectors like TV, print, radio and outdoor, which depend on advertising revenues, were affected. Further, the liquidity crunch and the consequent lack of access to funds also affected the capacity expansion plans of players across various M&E segments.”
What does that mean in terms of numbers? The Indian M&E industry stood at Rs. 584 billion (US$12.7 billion) in 2008, a 12.4% increase over the previous year. Over the next five years, the industry is projected to see a CAGR (compounded annual growth rate) of 12.5% to reach Rs. 1,052 billion (US$21.4 billion) by 2013.
Advertising revenues are estimated to have grown at a CAGR of 17.1% over the past three years. “Going forward, the advertising industry is expected to exhibit a lower growth rate owing to the turbulent macroeconomic environment,” says the FICCI-KPMG report. “We estimate that advertising revenues will grow at a CAGR of 12.4% over the next five years.”
The two most affected areas are print and television, with print taking a harder hit. “Advertising revenue continues to be the key growth driver behind the [print] industry as declining readership and increasing competition have led the players to further reduce their cover prices.” According to Iyer, “In India, we have depended almost entirely on advertising revenues for our bread, butter and jam. Cover prices have traditionally been low — led by newspaper pricing perhaps — and we have had to depend on advertising to subsidize the reader. I see this changing.”
In the magazine segment, cover prices were raised in 2008, but this failed to compensate for rising newsprint costs. In newspapers, publishers did not have this luxury as competition has become cutthroat. Advertisement rates were increased several times, but this further drove away advertisers already hurt by the economic slowdown.
“Ad revenues are linked to the economy — and as long as the media industry’s dependence on advertisements for a significant portion of its revenues continues, its health and performance will be linked to the performance of the economy,” says Raman of TSMG. “Since the economy is likely to see challenging times ahead, one can expect that the media industry, too, will see quite a bit of challenge. People will cut down on advertising, cut down on rates and rationalize the media they look at. If these times continue for longer than expected, some of the low-rung media players may find it difficult to continue. Newer investments and expansion plans will slow down.”
But the overdependence on advertising is not likely to change anytime soon. The FICCI-KPMG report notes, “Advertising will increase its dominance as the primary revenue source of the industry and is expected to constitute around 66% of 2013 revenues.” Television’s advertising growth rate is estimated to drop from 16.75% in the 2005-08 period to 13.5% in 2009-13. The figures for print are 16% and 10% respectively.
If the numbers look relatively better for television, there are other problems on the horizon. Print is a relatively placid arena. There have been new launches, particularly in the magazine segment. (Harper’s Bazaar, for one, was launched in the Indian market in early March, following Vogue which came in last year.) But it takes a long time for people to change reading habits. What has been happening with new newspapers and magazines is that people buy them as an add-on. With the cover price of newspapers as low as Rs. 2 (4 cents), it’s no great burden to the household budget. But readers don’t switch until they are used to a paper for several years. Advertisers, too, stay with the leader; a second newspaper is needless duplication, the first to be axed in difficult times.
Change in the Air
It’s not the same with television. A single program can change the fortunes of a channel. Kaun Banega Crorepati (the Hindi version of Who Wants to Be a Millionaire) took Rupert Murdoch’s Star TV from an also-ran to the market leader. “The pecking order is not necessarily well established, and this has led new entrants to believe they can take a shot at the top slot,” says Iyer. “Also, with management flux, there is perceived instability, and again this creates an environment where a new leader could emerge.” (Senior staff at channels appear to have a limited lifespan in India; the latest to be laid off is Kunal Dasgupta of Sony who was ousted last month. The Economic Times reports that close to 60 Sony employees have been let go.) There are other examples of quick changes in the pecking order. Colors, which comes from a Viacom-Network 18 50:50 joint venture, was launched in July last year. A general entertainment channel, in February 2009 it was just one gross rating point (GRP; a measure of viewership) away from leader Star Plus.
How many channels are there in India? “The [information & broadcasting] ministry has allowed 381 private satellite TV channels to uplink from India, out of which 201 are news and current affairs TV channels and 180 are non-news and current affairs TV channels,” Anand Sharma, union minister for information & broadcasting, told the Rajya Sabha, the upper house of Parliament, recently. “Besides this, 67 private satellite TV channels, uplinked from abroad, have also been permitted to downlink in India. Out of this, 14 are news and current affairs channels and 53 are non-news and current affairs channels. The total number of news and current affairs channels is 215 and the number of non-news and current affairs TV channels is 233.” (These numbers include the regional language channels, of course, but almost all are available across India.)
Media companies want to do even more. According to Sharma, “Applications of 97 private satellite news and current affairs channels and 85 private satellite non-news and current affairs channels are at various stages of scrutiny.”
“How many are making a profit? And how many are assured of programming and viewership that sustains revenues?” asks Mookerjee of IIML. “People are starting new channels because television is the newest growth wonder on the block. The huge spend-volumes per advertising campaign are attractions, and so is the ability to create a channel which can build scale without the physical infrastructure and physical reach that other media requires. The potential returns are high and the entry barriers low.”
Low entry barriers affect quality. And when there is a battle for eyeballs, channels can become irresponsible. During the terrorists attacks in Mumbai, some channels were talking to hostages at the hotels and revealing their specific whereabouts while the gunmen were, in turn, being fed that information by their handlers. That may have been an exception in abnormal circumstances. What is raising all sorts of questions now, however, is the independence of the channels, particularly the business channels.
Church and State
Traditionally, in print publications a Chinese wall separates editorial and advertising — or “church and state” — in order to ensure editorial integrity. In hard economic times, however, the distinction between sponsored writing (“advertorials”) and independent editorial coverage is under pressure. Newspapers sometimes run full-page ads on Page one, leaving no room for news.
An even more debatable trend involves so-called private treaties. This was started by BCCL, India’s largest media group. Under this arrangement, BCCL acquires stakes in companies in return for providing advertising space in its publications. “Times Private Treaties invests with potential, emerging or established brands to help further their brand visibility by leveraging the wide reach of the Times Group and its aggregated consumer base,” says a BCCL spokesman. “Our investee companies get to reach their specific audiences in an effective and innovative manner.”
Some experts wonder about the impact of such programs on editorial independence. “If you own a stake in a company, will your publications criticize it?” asks a media consultant. BCCL has now tied up with Mumbai-based public relations (PR) agency Adfactors to set up another PR agency called Tatva, which will handle the companies in which the media firm has taken a stake. After a lot of finger pointing, other media groups have started their own versions of private treaties.
Today, advertising has slowed down, but the private treaty ads, which were once a small portion of any publication’s pie, have to continue and at subsidized rates decided much earlier. Meanwhile, the valuations of these companies, some of which are listed, have plummeted. BCCL once had a portfolio worth more than US$750 million plus at cost in 200 companies or more. It started the private treaties in January 2005. Others came in much later and don’t have so much exposure. But, with the stockmarket crash and valuations of unlisted companies also dropping, the private treaties are no longer as attractive as they might have once appeared to be. A study by investment bankers SMC Capital shows that private equity investments in 93 listed firms in India since 2007 have suffered a loss of US$3.71 billion or 53%. Add the companies that will disappear in this economic slowdown — where the equity will have to be written off — and the picture for private treaties looks shaky.
Bad times need out-of-the-box thinking, and many media firms are exploring new ideas. “Leading media groups are diversifying into newer media, newer revenue vehicles and newer products,” says Mookerjee of IIML. Explains Raman of TSMG: “People need to keep re-thinking revenue models but the challenge is how far the revenue models can be tweaked. For instance multi-platform presence for newspapers is catching up — print media has online editions — but the ability to monetize online presence has continued to remain a challenge. In TV channels, too, people have been talking of looking beyond advertising revenues to subscription sales. But the current ecosystem does not really allow TV channels to look at subscription revenues seriously. Channels don’t have sharply differentiated offerings and there are too many me-too channels forcing players to go the free-to-air route. Also, as long as regulation aspects are not taken care of, the amount of subscription revenue that flows back to the broadcaster will be limited. So while the need is certainly there to look at new revenue models, the challenge really is how far media companies can go.”
New Revenue Models
Rajesh Jain, director, ICE (information, communications and entertainment) at KPMG, is also skeptical. “While people have been talking of re-thinking revenue models, it is not likely to happen — at least, not in the short term,” he says. “What players will look at is market expansion. National players will look at expanding into regional markets. Over time this will also lead to benefits of pricing power. In TV channels, narrowcasting has come to stay. Segmentation of consumers has become important, and therefore segmentation of content has become important. This, in turn, means that the share of the general entertainment channels will go down — this has been the trend for the past 10 years. Segmentation is good initially to expand the market, but later it bleeds players who are not able to sustain [their operations].”
“The key priority will be to manage costs and cash efficiently — be it production, people, sales and administration expenses,” adds Mookerjee of IIML. “A TV channel will look at integrating its backend operations. Print media will look at managing newsprint costs better. Media groups who have a portfolio of offering may streamline their offerings. Newer investments and expansion plans will slow down.”
“In the short run, these will be difficult times,” says Iyer. “There will be a shakeout, some players will drop out, and you will probably see some consolidation. Business models will get re-evaluated and the businesses that survive will emerge stronger. I do believe some good will come out of all this: Unhealthy competition will go away, cost structures — and that includes talent costs — will get real, and businesses will need to redefine their objectives. Making money in the business will hopefully get the attention it deserves.”
Like Iyer, the FICCI-KPMG report is upbeat about the longer term. “Media companies are under pressure to change, innovate and reexamine their existing business models,” the report says. “Players need to draw upon new capabilities to survive in this environment. In the immediate future, media corporates are likely to focus more on operating margins, and assessing opportunities for consolidation, while building on core strengths.
“The market environment has become increasingly challenging…. For an individual player, increased complexities have emerged on account of greater fragmentation of audiences across media and distribution platforms, and greater need for accountability and measurability demanded by advertisers. Notwithstanding this, over a five-year period, we project a 12.5% growth for the sector.” The reasons:
- Favorable demographic composition and strong long-term fundamentals of the Indian economy. Unlike other countries, the Indian economy is still growing, albeit at a lower rate than before. Further, 70% of the Indian population is below 30 years of age, presenting a good opportunity for marketers.
- Advertising-to-GDP ratio in India is still at a low of 0.47%. In the US, it is 1.34%, in the U.K. 0.95% and 0.54% in China.
- Media penetration in the country remains low. India has 359 million people who can read and understand a language but do not read any publication. This represents a significant opportunity for expanding the market.
“Behind every adversity lies an opportunity,” sums up the FICCI-KPMG report: The title of the report is also appropriate: “In the interval, but ready for the next act.”