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Print media: A look at circulation revenues - Views on News from Equitymaster
 
 
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  • Sep 21, 2007

    Print media: A look at circulation revenues

    The primary source of revenues for a newspaper company is advertising and subscription. The other sources include providing news to other agencies and sale of scrap paper. The subscription revenues formed nearly 39% of the total print media revenues of Rs 128 bn in 2006.

    Circulation revenue is "net paid sales" of a publication as per an ABC certificate. Or in other words, it refers to the cover price of a newspaper recovered from its readers. It is a function of market share and penetration. Rising circulation means higher market share and hence higher penetration. This helps in the increase of ad rates. In India, competitive pressures in the industry have tended to compel newspaper publishers to maintain or reduce cover prices. Therefore, the growth in circulation revenues has stagnated while advertising revenues has become a growing portion of overall revenues.

    Newspaper circulation has a direct correlation to a country's literacy levels. Inspite of 200 m readers, the penetration of print media is estimated at 27%. In recent times however, there has been a rise in the readership. Newspaper circulations worldwide rose by 2.3% YoY in 2006, with Indian sales increasing the most recording a 12.9% YoY growth (Source: World Association of Newspapers). This is due to increasing literacy in the country. Literacy has improved from 69.9% to 71.1% in 2006, while newspaper circulation has also moved up from 59 m in 2001 to 89 m in 2006. Literacy levels are expected to move further northward, and we believe that newspaper circulation will keep increasing in the near term.

    Copies sold daily (m)
    China 98.7
    India 88.9
    Japan 69.1
    US 52.3
    Germany 21.2

    Penetration: With the reach of newspaper in India estimated at 27%, significant scope exists for increase in readership. Further, there are around 359 m people who can read but are not served by any publications. Print in India reaches an urban population of 137 m, which is next only to the population of 188 m reached by television.

    Urban
    SEC Reach (m) % of total Reach
    A1 7.57 95.2
    A2 13.9 90.5
    B1,B2 31.97 81.1
    C 33.78 69.5
    D 29.28 52.6
    E1,E2 20.99 30.1
    Source IRS 2005, Round 2.
    SEC Rural
    Reach (m) % of total Reach
    R1 14.12 67.7
    R2 33.07 55.4
    R3 78.37 36.9
    R4 28.31 11.4
    Source IRS 2005, Round 2.

    As shown in the table above, the print media penetration in India is higher, percentage-wise, among people in the upper socioeconomic classes compared with those in the lower socio-economic classes. However, due to the sheer number of people who fall into the lower socio-economic classes, the number of readers in the lower socio-economic classes still outnumbers those in the upper socio-economic classes on an absolute basis, which indicates that there is much more room to grow readership numbers. We believe that as newspapers push circulation and reduce cover prices, readership growth will continue.

    Readership and circulation drivers going forward:

    • Quality of content: The belief of the reader in the independence and integrity of the reporting and analysis is an important factor in readership and circulation.

    • Width and breadth of content: A mix of national, regional and local news is necessary.

    • Pricing and incentives: Circulation can be influenced by the price of a newspaper and incentive and promotional schemes/campaigns.

    • Brand pull: Brand recognition and brand loyalty, often based on a family history of reading the same newspaper, also drive readership.

    • Capability of distribution network: The availability of a particular newspaper in a timely fashion may also influence readership.

    Share of languages: While English newspaper accounts for 27% of the total subscription revenues, regional newspapers lead the pack with 45%. Hindi and regional newspapers have a multiple of readership to circulation of generally 7 to 9 times, whereas English-language newspapers generally have a multiple of 2 to 4 times. Lower average income of readers of Hindi and regional newspapers leads to the sharing of the newspaper among the family and hence the higher multiple of readership to circulation.

    Further, in English newspapers, circulation contributes only 5% to 15% of the revenues against 35% to 45% for Hindi players. To increase its reach, the newspaper companies need to increase their circulation and hence they reduce the cover prices. The cost of production is higher than the selling price and hence the newspapers companies lose money. This is however compensated by advertising revenues. Hence, higher the readership and circulation, higher the advertising revenues.

    To conclude...
    Subscription revenues for the print industry are expected to grow at a CAGR of 9.6% during 2006 to 2011. Increasing literacy and rising income would aid the growth. However, with increasing competition and existing players looking at newer avenues, the subscription prices could witness pressure going forward. Further, the trend of free dailies too can affect revenues in the future.

     

     

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