“Several other multinationals, especially, American companies, pulled back advertising post 9/11, but it was nothing like what’s happening today,” says Nayak, putting the current crisis facing the Indian media industry in context.
Though 9/11 did not impact the Indian companies’ marketing budgets, they are curtailing their media spends now. Says Ravi Dhariwal, CEO (publishing) at India’s largest print media group Bennett, Coleman & Company: “The media industry has hit a perfect storm — first came the newsprint price hike, and then the advertising downturn.” Broadcasters have been hit by the slowdown too, and NDTV’s group CEO K V L Narayan Rao admits he’s seen nothing like this before.
To be sure, in the last quarter, print has been hit harder than TV and radio with a 25-35 per cent drop in advertising volume, claims Dhariwal. In Mumbai and Delhi the average decline in ad volume is nearly 40 per cent, says Manajit Ghoshal, chief financial officer, Mid-Day Multimedia.
Advertising rates too have plummeted, though newspaper publishers insist they are not discounting more than usual. Off the record, the COO of a media buying agency says the effective rates in print have declined by 50 per cent. K U Rao, CEO of Diligent Media, which publishes DNA, claims there have been rampant advertising rate cuts by media owners. “The ad rates are cheaper than they were in 2005, in spite of India being one of the cheapest countries in the world for advertising,” he laments.
Ad volume decline in print, and slower growth rate in television (14.2 per cent in 2008 compared to 20 per cent earlier) have clearly hurt the last quarter results of media companies. HT Media’s operating profit fell 26 per cent, with a 79 per cent drop in net profit (see table).
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The Prannoy Roy-run NDTV posted a consolidated operating loss of Rs 95.5 crore and a net loss of Rs 118 crore, some of it on account of the launch of new entertainment channels, but revenues from news operations have declined by 10 per cent and news posted a net loss of Rs 16 crore. Rao says that the company’s losses are not unusual and everybody’s in the same boat.
The results for Television 18 were also poor. Its core news broadcast business saw a revenue fall of 32 per cent. Says Nikhil Vora, vice president, IDFC SSKI Securities: “We see a tough time for TV 18 because of the highly competitive environment in the core news broadcasting space, especially in a weak macro-economic situation.
Also, unlike in the past, the competition from ET Now will be severe as it belongs to the Bennett, Coleman group, which owns the biggest newspaper brand in the country.”
The implications of the crisis for print and TV have been alarming. Companies across the board are rationalising costs even if that means rolling back salaries — as is the buzz at several newspaper offices — or downsizing, as is the case at many media organisations.
India’s biggest newspaper company is said to have a plan to rollback salaries by about 20 per cent. NDTV, too, asked its employees to volunteer a 20 per cent cut in remuneration. The head of a Hindi news channel is not surprised. “Salaries had gone up six-fold in the last six years,” he said.
Many companies have restructured operations. Web18 and Infomedia, run by Raghav Bahl’s Network 18 group, let go of people — a couple of hundred — but mostly front-end and temporary staff, the company claims. When the Marathi newspaper group Sakal shut down the Delhi bureau of its English newspaper, 60 people were rendered jobless.
UTV Software got rid of 45 people when it closed down its Delhi office. Rivals would have you believe that Bennett has slashed 1,000 jobs, but Ravi Dhariwal says the figure is a third of that. HT Media has slashed jobs in its Hindi newspaper though the company’s CEO, Rajiv Verma, declined comment.
Put together, in print, TV, radio, outdoor, Internet and other media-related services, at least a 1,00,000 people could lose jobs, says Manajit Ghoshal. Consultants say his figure is highly exaggerated (“this isn’t the IT sector,” says one).
But Ghoshal insists that across media and in media-related services — advertising and design firms, printing presses, et cetera — downsizing will run into thousands of people. “Many Marathi newspapers have asked if we could print their paper while they shut down their own printing units,” he argues. A TV industry veteran insists that the sector will have to slash 50 per cent of its jobs to survive.
The Rs 800 crore radio industry which employs roughly 6,000 professionals in about 250 stations has already seen a 5 per cent job cut in recent months. There’s been a 15 per cent drop in advertising for radio players. Entertainment Network India Limited, which operates 32 Radio Mirchi stations, has completely outsourced its engineering function.
“Earlier, we had 50 engineers. Now we make do with seven or eight as the entire process is outsourced. It’s more cost effective,” says Prashant Panday, CEO, Radio Mirchi. In 2009, radio may grow at about 5 per cent or may remain flat.
Companies are controlling other costs too: Free snacks, cab bills, paper cups and even toilet paper supplies are under scrutiny. Newspapers have cut pages, magazines have shut down add-on magazines and Mid Day newspaper has re-negotiated the rent it pays for its offices in Mumbai, Delhi, Bangalore and Pune. Entry into new cities has been postponed unless “we find a franchise partner”, says Ghoshal.
Among broadcasters, Aaj Tak has shelved its regional foray while NDTV has no plans to launch the city-specific news and current affairs channel Metro Nation in any other city. Delhi Metro Nation is a year old and up for sale.
Mail Today, launched with much fanfare by the India Today group, is shying away from its promised 20-city roll out after Delhi. Metro Now, the city tabloid launched by a joint venture between HT Media and Times Group, is now a community paper for DLF.
Some factors peculiar to the media industry have aggravated the crisis. For a start, newspaper companies had gone into expansion overdrive. Both national and regional newspapers launched more and more editions to cover a larger constituency. Many new products were also born. Jagan Mohan Reddy, the Andhra CM’s son, launched Sakshi in Hyderabad. Sakal launched an English newspaper while HT entered the business newspaper segment two years ago.
Business Standard launched and then quickly shut down a Gujarati business daily, but continues with its new Hindi business daily. India Today launched a daily — Mail Today — last year while Metro Now came from Metropolitan Media. Says Ravi Dhariwal: “We scaled up too much for future growth, putting up additional capacity for new launches. Without doubt, we need to downsize to adjust to current reality.”
The television industry was even more ambitious but without a brick and mortar model. “Broadcasters’ entire business model was based on an excel sheet economy and the projections went haywire,” says a television industry veteran. TV Today Network’s executive director and CEO, G Krishnan, agrees: “The business model was flawed as there were no realistic topline or bottomline growth plans.”
Over-crowding and TV media fragmentation put the channels under pressure. The ensuing price wars to attract advertisers affected channel yields. Every new player tried hard to emulate the market leader and instead of growing the pie they started undercutting one another.
Critics argue that the print and television media model in India is flawed. India’s middle class is its USP. But Indian media has no direct commercial transaction with the great Indian middle class. The reason is the consumer’s disinclination to pay for media consumption. For instance, the DTH ARPUs (average revenue per user) in the US are $75 a month. Even in Malaysia, the ARPU is $20 compared to India’s $3-5.
Agrees K U Rao, CEO, Diligent Media: “The business model is dictated by industry leaders. If ToI decides to price its copy at Rs 4.50 in Mumbai, there is not much any other player can do but price its product around this price point. The business model is unlikely to change given that the readers are used to such low pricing.”
In the television industry, the analogue cable distribution system pushed the broadcasters to the edge. If CAS or the conditional access system (read digitisation) was implemented, it would have ensured that enough spectrum for channels was available. In digital cable, all channels are equal and no “placement fee” would have been required to push one over another.
This “placement” cost is killing the channels. A news channel executive says its monthly wage bill is Rs 1.25 crore while the distribution cost (placement fee) is Rs 2.75 crore!
The broadcasting lobby has no one but itself to blame for the “placement fee” fiasco. TV channels shot themselves in the foot when they opposed the government’s move to push CAS five years ago. Two major channels objected to CAS as they were in the prime bands and ruling the market. Their short-sightedness — they failed to see the revenue from subscription — has cost the industry its viability.
Whatever be the inherent flaws of the media industry, it is plunging headlong into a liquidity crisis as well. “Let’s put it this way, we have not seen the end of the crisis yet,” says Times group’s Dhariwal. Slowly, advertisers are beginning to delay payments or even default. “Individually they are coming and asking for a longer credit period — from 60 days to 120 days,” says a media industry expert.
But what if the cash flow issue snowballs? Well, then the borrowers (read media companies) will default on bank loans they took as working capital. And several TV channels and newspaper editions may need to shut down. Already, nobody is willing to lend to a media company any more. “The days of presenting a business model for the future and borrowing money are over,” says Ashish Bagga, India Today CEO.
Not many media outfits have shut shop yet, though NewsX did manage to find a buyer. The media grapevine has it that some of NDTV’s channels are on the block. With the kind of projections — a 2 per cent growth rate for all media in 2009 — being made by Madison’s COO Punitha Arumugham, many more media businesses may be put to hock. “Ad spends on TV may grow at 7 per cent but print and outdoor growth could be flat or even negative,” says Arumugham.
The Zee News CEO, Barun Das, does not view this as a slowdown but a correction in media. “The sector had shown an irrational exuberance. It will rationalise to an extent. Companies are clearly looking at cost structure efficiencies,” he says.
Despite his prediction, Real Global Broadcating is launching its new Hindi general entertainment channel on March 2. In Andhra, Sakshi TV will go on air on Sunday. And Network 18 is ready to launch the international business magazine Forbes in less than 60 days. India Today launched the American fashion magazine Harper’s Bazaar earlier this week, though with a very small team.
With companies focusing on lean operations, the media schools are also in trouble. Anand Pradhan at Delhi’s prestigious Indian Institute of Mass Communictaion says that in 2008, the school’s roughly 200 students all got placements. However, this year, barely 15 have job offers (of these, 11 have been hired by Business Standard).
Though TV Today’s media academy chief Sona Jha says that the 30 students of the school may be absorbed by the company, the fact is that there is a freeze on recruitment across all news media. And with those laid off by Sakal and others mostly finding it difficult to get jobs, it’s clear that there’s canker behind the headlines.
Under pressure
HOW THEY FARED Quarter ended
December 2008Net sales y-o-y
changeOperating
Profity-o-y
change(%)Operating
Profit MarginNet profit
(loss)y-o-y
changeNetwork 18 (C) 130.5 -47.6 -12.1 - -9.3 -20.3 - Network 18 (SA) - - - -- - - - IBN 18* 74 90.0 -18.1 - -24.5 -25.9 - NDTV 130 26.8 -95.5 - -73.5 -118.4 - Zee Ent 546 5.0 120.0 -24 22.0 82.5 -25 TV Today 65.3 -6.0 - - 21.3 (1380)