Bhupesh Bhandari: Why do businessmen invest in media?

With low entry barriers, mushrooming publications and channels, and poor prospects for traditional media, it's a mystery

The Aditya Birla group had, earlier in the year, bought 27.5 per cent in Living Media, the holding company of the India Today group, for an undisclosed sum. The two companies had told the Competition Commission that the stake of IGH Holdings, an investment arm of the Kumar Mangalam Birla-led group, could go up to 49 per cent. (The Competition Commission had in August given its nod to the stake acquisition.)

Birla is not the first businessman to invest in the media, nor will he be the last. The question that bothers me is that rarely will you find private equity funds investing in a traditional media product: offline newspaper and magazine or television channel. These funds are sharply focused on financial performance in the short and medium run, so that they can book profits as quickly as possible. They avoid any sector that doesn’t offer handsome returns. That they have not found the media a worthwhile investment tells the stark truth: the prospects aren’t good enough. So, why are businessmen ready to rush in?

In fact, the traditional media has all the trappings of a sunset sector. Engagement with the consumer is on the decline. The newer generation wants to access news as well as analysis on the web. The number of people who are well-informed and do not read newspapers or magazines is alarmingly high. They get their daily dose of news and analysis on the web. It is a fact of life in the developed world and is bound to catch up in India one day – the signals are the improving connectivity and falling prices of smartphones. In the West, any company that invests in the traditional media gets hammered by the shareholders in no time. Private equity, therefore, is more than happy to put its money into the online media.

At the same time, low entry barriers has meant a large, and ever-increasing, number of publications and channels – way beyond what the market can sustain. After the leaders, there is a long, financially unsound, tail. As a result, most media companies are grossly under-capitalised. Intense competition means laxity of quality control. Journalistic ethics are often the casualty. Several cases have come to light in the last few years where the sacred line between marketing and editorial has been wiped out. This does not augur well for the media.

The old argument has been that businessmen invest in the media to gain access to the power centres. But a casual walk in the corridors of power will tell you that businessmen don’t need the media to build bridges. Most large businessmen get networked even before they can learn to walk. So, is it the glamour? Maybe. But owning a publication, and having an independent-minded editor, can also become a headache for a businessman, as Vinod Mehta recounts in his memoirs, Lucknow Boy. (He worked first for Vijaypat Singhania at Indian Post and then for Lalit Mohan Thapar at The Pioneer.) Businessmen’s fixation with the media remains a mystery to me.