No longer a stumbling block to economic growth, India’s population of one billion is beginning to look more like a building block. Whether it’s the large labor force or the potentially gigantic market of consumers, global businesses are reaching out to the second most populous country in the world. So when the New Delhi-based Hindustan Times Media Group wanted to start a daily business newspaper, it zeroed in on Raju Narisetti, former editor of The Wall Street Journal’s European operations. Narisetti, who was with the Journal for 13 years, also helped forge an editorial content sharing agreement between the Journal and HT Media.

Mint, as the new publication — and India’s fifth daily business newspaper — is called, was launched last month in Mumbai and New Delhi, which comprise 70% of the country’s business newspaper readership. Its print order is 80,000 (35,000 in Mumbai, 45,000 in New Delhi); over time, HT Media plans to launch the newspaper in other cities. Asked how Mint has been received, Narisetti replies, “Just 41 days into its life, it is too early to give research data. But anecdotally, and based on reader interaction with the paper, the response has been positive — with high marks for its size, design, writing style and mix of business/economy and business of life.” Narisetti adds that “of the 506 letters and emails we have received in the first month, 59% are in the category of appreciation, 9% are requests for more stocks information (which led us to launch Market Watch, a comprehensive stock and mutual funds section), 4% were complaints and the rest were about story pitches, job candidates, etc. We have had more than 30 different advertisers run ads in the paper in the first 41 days.”

Mint is shaking up India’s media scene — and it is hardly alone. In October 2005, 23 publishers and CEOs from the German Magazine Publishers Association (VDZ) were touring India to explore potential joint ventures and alliances. Others have already done so. Hearst’s Marie Claire tied up with the Outlook Group, an Indian publishing house, to launch its Indian operations in 2006. Hearst had earlier partnered with the India Today Group to launch Indian versions of Cosmopolitan and Good Housekeeping magazines. London-based Dennis Publishing tied up with Media Transasia last year in India to launch the 30th international edition of Maxim.

With the relaxation of the country’s foreign direct investment (FDI) rules, publications as diverse as Newsweek, Fortune, Time Out, Men’s Health and Auto Car have set up Indian operations in recent months. The Conde Nast group has come in through a 100% privately held subsidiary, and will launch its flagship Vogue next year. On the newspaper front, there is now company for the International Herald Tribune, which had come in two years ago to launch an identical locally printed version of its international edition (called a “facsimile edition”). The Independent of the U.K. tied up with Dainik Jagran, a leading Hindi-language newspaper publisher. These are just some of the new arrivals.  

New Face of the Indian Reader

Why this sudden interest in Indian print media?

First, in contrast to the West, where in recent years the print media have been left bloodied by declining circulation and staff layoffs, India is adding millions of readers. The National Readership Survey 2006, an annual review by an autonomous division of the Audit Bureau of Circulations, said the entire Indian press had added seven million new readers in the year leading up to June 2006. The number of readers of dailies and magazines grew from 212 million to 216 million in the three years leading up to June 2006. The survey did not cover the string of niche titles that are regularly launched and whose collective readership estimates are unlisted, but considered sizeable. “There is still significant scope for growth, as 359 million people who can read and understand any language do not read any publication,” the report stated.

The second and more important driver is the conditional lowering of the drawbridge around FDI in print media by the government. In 2002, foreign direct investors (FDI) and foreign institutional investors (FIIs) were allowed to invest in newspapers subject to an equity cap of 26%, while 76% FDI was approved in non-news publications, such as lifestyle and special interest magazines. In 2004, the government removed the cap on foreign investment in non-news magazines, and increased the cap on foreign syndicated content in newspapers to 20%.

“We are encouraged to see growth in readership. It has always been our endeavor to innovate and explore opportunities to enter new markets within India,” says Arun Arora, president of Bennett Coleman & Co., India’s largest media group, which publishes The Times of India, The Economic Times, and several other publications. “Recently The Times of India has launched new editions in Nagpur, Mangalore and Surat. The Economic Times was launched a few months ago in Lucknow, followed by the paper’s first foray in the language segment with the launch of a Gujarati edition of The Economic Times in Ahmedabad. The Economic Times also has an arrangement with [the Tamil daily] Dina Thanthi, wherein The Economic Times provides a page with its masthead.”

As competition from emerging players such as HT Media’s Mint as well as international media companies heats up, Bennett Coleman & Co. is moving aggressively to protect its market dominance. According to Arora, the company is “constantly looking at innovative means to engage our readers and grow its readership and circulation base through content, packaging and pricing initiatives. For example, The Economic Times has recently increased its pagination and strengthened its coverage of small and medium enterprises, international news, and policy, among other areas. Also, we have made the pricing of The Economic Times more accessible to young and new readers.”  

Still, the fact that the print market as a whole is growing helps media companies across the board. “The steady economic growth in India is coupled with the steady decline in values and valuations of media assets in the Western world. That has now given added momentum to the print media,” says Narisetti. The addition of seven million new readers in one year is more than six times the circulation figures of the New York Times (which was 1.1 million on weekdays as of September 2006), one among several mainstream U.S. publications with falling circulation figures.

Buoyant economic growth of 8% to 9% naturally translates into higher ad spends. “The corporate sector is growing at close to 20% year-on-year, and ad spends are likely to grow in the region of 15% annually for the next few years,” says Aroon Purie, editor-in-chief and chief executive of the India Today Group. “This is helped by the fact that the ad-to-GDP ratio in India, at around 0.34%, is still quite low compared to other developing countries, leaving aside developed countries.” The ad-to-GDP ratio is 1.34% for the U.S. and 1% for the U.K.

“The Indian economy went from being an agricultural one to a consumer one and then to a brand-driven economy,” notes Rajesh Jain, national industry director of the information, communications and entertainment group at consulting firm KPMG. “This has connotations for the entire industry, and significantly so for the media and entertainment industry.” A PricewaterhouseCoopers study forecasts the total size of the Indian print media at $2.4 billion by 2008.

New categories of advertisers have arrived in recent years, such as luxury brands, real estate, financial services, mutual funds and technology companies. Now, with organized retail at a take-off stage and featuring such additions as Wal-Mart, advertisers are expected to significantly step up their spending.

Some of these new advertisers will look for targeted audiences, thus creating a market for niche publications. The Indian media market is at the threshold of a more sophisticated segmentation, says Jain. Brand-driven advertisers will look for profile rather than volume. In short, growing literacy rates and a growth-driven economy have expanded the print market at both ends of the pyramid. “Every day, you read of a new millionaire or of someone who is buying a jet in India,” says Alex Kuruvilla, managing director of Conde Nast in India. “We will largely operate in a premium space. We will be a very tightly defined brand in a very tightly defined market.”

Guilt-free Consumption

Nearly half of India’s population is under 25, a demographic that appeals to premium brands entering a new market. “Our readers must grow with our brands. There is no point selling to people who have already made up their minds,” says Kuruvilla. “We want to invest in the 20-somethings of today who will be rich tomorrow. Their mental construct is about guilt-free consumption.” As he sees it, those in their 40s and 50s may have money but still think twice about dropping $200 for a watch. But a young person with Rs. 5,000 ($112) happily changes her mobile phone every six months. “It is the latter’s mindset that is relevant to us and our advertisers,” says Kuruvilla. “Today’s young are used to wealth; they have not seen want. They [exist] even in middle-market cities.”

The developing print media sector in India clearly understands the benefits of such growth. “Today, the print media is at a happy confluence of demographics that are skewed toward a young population, slow penetration of digital technologies, a boom in consumer spending, and rising income and literacy levels,” says Narisetti. “It won’t necessarily last forever, but the trends are heading north so smart money is trying to keep up.”

It’s not just international publishers that are rushing to find media partners in India. Private equity, too, is eager to join the race. “Mind you, it is not just strategic players internationally who are looking at this sector,” says Jain. “Very large private equity funds are looking very seriously [there as well]. Money is pouring in like never before.”

In recent years, global equity fund Warburg Pincus bought a 7% equity in the country’s largest media group, Dainik Bhaskar; Independent News and Media of the U.K. bought 26% of India’s largest-selling newspaper, Dainik Jagran; the Pearson-owned Financial Times sliced out a 20% stake in Business Standard; Henderson Global Investors of the U.K. bought 20% of HT Media; and BBC Magazines bought half of the magazine holding division of Bennett Coleman & Co. and later launched BBC World Wide Media to kick off the Indian editions of several of its British titles as well as some new ones. Jain says the investments in Indian media by private equity investors and institutions that typically look for 20% to 25% returns are an affirmation of the growth potential in this area.

Bennett Coleman & Co. historically was opposed to “allowing foreign capital into the sensitive segment of news publishing,” says Arora. “Having said that, we also believe that being in the publishing business, we should stay a step ahead of the competition. Once the government took a considered decision to partly open up the segment [to international competition], we have done a joint venture each with BBC Worldwide and Reuters respectively.” Arora adds that the company believes in “working closely with people to give best value to our readers and advertisers,” and that he sees lots of potential for growth. “On the one hand, India is a growing economy with opportunities not only in general news readership but specific vertical segments like auto, fashion etc,” he says. “These readers are also living in a borderless world. With media becoming all-pervasive and travel becoming cheaper, it makes sense to collaborate with like-minded partners whose knowledge of such segments will complement Bennett Coleman’s strengths in delivering advertiser value.”

While non-news magazines with foreign investment have the choice of striking out on their own, newspapers must go the joint-venture route because of the 26% cap on foreign equity. This is clearly comforting to entrenched domestic publishers worried about losing advertising share. However, many new publications recognize the need for strong distribution networks and they enter into strategic alliances with existing players.

Purie’s India Today Group has several titles in different partnership patterns — such as joint ventures and franchisees — apart from launching new titles. It is what he calls “a healthy mix of all arrangements to maximize business potential.” These include exclusive marketing and distribution rights for Fortune and Time magazines in India, and licensing rights to publish Golf Digest India, Cosmopolitan and Reader’s Digest India.

The success of media joint ventures will depend on shared editorial values, brand reputation, distribution networks and the ability of the partners to invest. The average investment horizon of a foreign partner is said to be between four and six years, while breakeven could come much earlier. It also helps if the local partner carries out beta testing and shows the ability to bring in advertising.

In the case of the joint venture between Jagran Private Ltd. (JPL) and Independent News & Media, each partner stands to benefit in different ways. Jagran CEO M. M. Gupta says his group gets “on-site exposure to global best practices and standards in the international media industry.” The publisher of India’s largest selling daily with a circulation of 22.1 million — the Hindi language Dainik Jagran — also felt emboldened to enter the market for out-of-home advertising, such as billboards. As for The Independent, the launch of its facsimile edition will create brand visibility and give it inside knowledge of the Indian media industry.

Niche Tribes

Current print media reaches only 23% of the population, points out Jain, a number that is bound to rise given the shifts in demographic profiles. Part of that expansion will come through niche magazines. “Contrary to what the media [seems to be] saying, there is significant growth in niche magazines. Internationally, the ratio of magazines to newspapers in developed countries has been much higher than in India today. Therefore, you will see growth.” He says the ad market is estimated to grow at 12% to 15% for non-news magazines.

Raising the 76% cap on foreign investment to 100% in non-news products two years ago was the single largest push for Conde Nast to enter India. “We tend to operate on our own in most markets because it allows us complete control over our products and marketing,” says Kuruvilla. “We are able to invest substantially if we have full control, unlike a licensee model where you are literally handing over your family jewels to someone else.”

Advertisers are also drawn to niche magazines addressing special interest communities that television currently does not reach. Indeed, advertisers of top-line brands have apparently been waiting for just such specialized magazines. “Our category of advertisers wants a touchy-feely product,” says Kuruvilla. “Readers read our magazines for the ads. They luxuriate in them, spend time staring at the ads. TV and newspapers are mass medium, and are very different from what we deliver.” Analysts put the overall revenues from niche magazines at nearly Rs. 40 crores ($9 million).

Fresh market penetration will also occur through strategic tie-ups between national players in the English-speaking space, including reliance on distribution networks of existing publishers. Such expansion hopes to tap into the interests of many first-generation newspaper subscribers. “The aspirational value of English is very high, so anything to do with English is important,” says Jain. “Since English is clustered around many cities, expansion will happen beyond the obvious.”

Interestingly, readership figures have actually shrunk for urban readership and magazines. If it still continues to draw investors, it is because the market is now maturing. The arrival of the brand economy also signals targeted, niche audiences, which means that advertisers no longer have to function on the basis of mass circulation.

Purie points out that the print media has outperformed electronic media in the last two to three years in terms of annual growth, a fact he attributes to two factors. First, the kind of advertising that goes into print is different from that in electronic media, and hence the two media are not competing but are complementary. Second, he says the electronic media — at least in their current state — offer a national rather than region-specific footprint of the print media.

Publishers bank on market expansion with every new product, says Jain. Last year alone, publishers launched three new English newspapers in Mumbai. The India Today Group is planning a newspaper, the Hindi-led Jagran may launch an English newspaper, and Rupert Murdoch’s Star Group is expected to launch lifestyle and consumer magazines in India.

One format of international media partnerships that doesn’t appear promising is the facsimile edition. Purie, for one, is anxious about commercial viability for facsimile editions without local advertising. Adds Narisetti: “It is unclear if a facsimile edition of a foreign paper will gain large readership in India given the economics of the business where readers have — unfortunately — been conditioned to believe that their newspaper is worth less than a roadside cup of tea.”

The Outlook group, which is partnering with U.S.-based Newsweek in India, currently sells the magazine at Rs 80. The magazine is printed in Singapore and, under existing norms, is not allowed to carry local content or advertising. It therefore takes advantage of an increasingly seamless world and targets India-specific ads from overseas. Advertising is obviously essential for the survival of such publications: A newspaper that typically costs Rs 8.50 to produce is sold at Rs. 2 or even less, according to market estimates. Purie believes that for a newspaper to succeed, it should look at a market share of not less than 25% to 30% in four to five years in terms of circulation and advertising.  

The Shape of Things to Come

Going forward, the Indian media industry can expect to see increased participation from international companies, some consolidation, robust growth of the regional-language press, subscription-driven publishing revenues — especially for niche publications — and cross media synergies. Jain believes the regional-language press is the big story waiting to happen, and says that sector has grown “more than anyone expected” in the past five years.

Jain is convinced that interest from international players in this space will also increase. More private equity print media deals are likely to be announced in the next 12 months, he says, with investors looking at a three-to-five year horizon for returns. “They are in for the long term. All the big boys who are looking at this space have investment plans of $500 million to $1 billion.” In new publication launches, adds Purie, established players look for break-even at EBITDA (earnings before interest, tax, depreciation and amortization) levels in two-to-three years for newspapers and general interest magazines, while niche publications have shorter gestation periods.

Finally, editorial quality is one area where the pundits agree there is room for improvement. “In India, news is a lot about gossip,” says Jain. “We have to … go beyond news to analyzing news content, and get expert comments rather than space fillers. There will be space for international magazines or newspapers to provide that editorial quality. People are willing to pay for premium content.”