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HT Media - A little too diversified?

Feb 28, 2012

In this digital age, people are rapidly switching from print to online e-newspapers. As the industry goes through this paradigm shift, an increasing number of newspaper companies are filing for bankruptcy globally.

In India, this industry faces one more problem. The share of advertising revenue relative to overall revenue is increasing. This means an unhealthy growing dependence on advertising for revenues.

In response to losing customers to online e-newspapers and related content; and to augment their falling revenues, the Print Media companies have started increasing their subscription prices, and are getting into alternate media and "related" businesses. The strategy of getting into new businesses is also to diversify their risk long term.

HT Media seems to have taken this "alternative to print" strategy a bit too far. They have got into alternate media businesses, including an altogether different business of education. A review of their new diversification efforts follow.

Internet Media via Firefly-e-Ventures - India's internet user base is currently the fourth largest in the world and continuing to grow fast. To capitalize on this rising demand for internet services, HT Media got into the internet business via its 100% subsidiary Firefly-e-Ventures. This includes popular ventures including shine.com (recruiting), htcampus.com (education search engine) and desimartini.com (Hollywood and Bollywood content). The rapid growth in this segment is primarily due to its nascent stage, and its small revenue base. The development of the necessary nationwide internet infrastructure support this business is still highly inadequate, and will be a major roadblock to sustainable growth for these e-Ventures.

Radio Fever 104- HT Media is also present in the radio entertainment space through its FM radio "Fever 104". "Fever 104" has four radio stations located in Delhi, Mumbai, Bengaluru and Kolkata. With Phase 3 (expansion of radio services via auctions of frequencies) of radio industry reforms, a larger number of players enter this radio business. And this competition will further hurt HT Media's margins.

Mobile Advertising Solutions - For the India market, HT Media has a partnership with Velti Plc, a leading global mobile advertising solution provider. However, mobile advertising still has to develop in India, and this situation is not expected to improve in the near future. Efficient mobile networks, which are a requisite for mobile advertising, still do not support wide spread use of internet in India.

Education - HT Media ventured into the Education business through two joint ventures. These are with MT Educare Pvt. Ltd. which runs Mahesh Tutorials, and the other with Apollo Global of the USA. The education sector in India is growing due to better infrastructure, increased Government investment and higher literacy levels. With more disposable income, people are realizing the personal and business value of education. These fundamentals will drive the growth of this Education sector over the next few years.

HT Media's investment in these various businesses is summarized in the table below.

Investment in other businesses
Name of the Subsidiary/ JV Investment as on March 31, 2011
(in Rs millions)
HT Digital Media Holdings 1341
HT Music and Entertainment 8
HT Education 36
HT Burda Media (magazine and catalogue printing) 515
Metropolitan Media Company (JV) 275
Source: Company Annual Report

We believe that HT Media's strategy was to focus on their core competency, the Print Media business; and enter into related new businesses for growth and diversification. However, given the challenges and distractions of getting into new ventures, HT Media seems to have lost its Print Media focus. This is evident from the fact that the media company missed the opportunity to grow its highly promising English print business even though it is the only listed company in the English space. The newer businesses may generate better revenues in the long term, but it will take them a while to break even. Till then, the new businesses will continue to divert resources and attention from the core business, and so will continue to exert pressure on profits. HT Media's profit margins (both at operating level and PAT level) are the lowest in the industry. Start-up and continuing investments into newer businesses also impact the company's cash flows. In our view, HT Media will be better off focussing on a few high potential opportunities, rather than spreading themselves thin exploring many options.

Clearly the paradigm shift towards online readership has taken its toll on the Print Media Industry. In response, companies in this sector are seeking alternative viable business alternatives. In this process of adding new businesses, HT Media seems to have lost focus and opportunities in its core Print Media business. While the newer businesses may lead to higher revenues in the long term, the investment and gestation period will continue to exert profit margin pressures. If the new businesses do not grow as anticipated, ultimately shareholder wealth can be destroyed.

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