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Print media: A look at the risks - Views on News from Equitymaster
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  • Nov 30, 2007

    Print media: A look at the risks

    The Indian print industry is witnessing strong growth led by rising literacy, robust economy growth and increasing income. Despite this, there are certain risks that cannot be ignored. In this article, we shall list the various risks faced by the print companies.

    Newsprint prices: Newsprint is the single most important cost item for the publishing business accounting for 50% to 70% of a newspaper company's cost. As about 70% of Indian newsprint requirements are imported, the price of Indian newsprint tends to be import parity linked and the price of Indian newsprint has likewise increased. Cost pressures and demand-supply mismatch leads to rise in newsprint prices. Cost pressures owing to rise in energy prices and the appreciation of the Canadian dollar led to the price of newsprint from Canada/Scandinavia to increase from an average rate of US$ 400 per m tonne for the period January to March 2003 to US$ 643 per m tonne for the period April to June 2006. However, newsprint prices have corrected in recent times.

    Slowdown in the economy: Historically, the advertising industry has had a strong correlation with the growth in the economy. Between 1996 and 2006, the advertising industry grew at a CAGR of 11%, while the economy grew at an average 6%. While, circulation revenues for newspaper companies are recession-resistant, 61% of their revenues come from advertising, which is very sensitive to the overall trends in the economy. Any slowdown in the Indian economy and the consequent impact on disposable income could adversely affect advertising income. Further, ad-spend is influenced by a number of factors including the Indian economy, the performance of particular industry sectors, shifts in consumer spending patterns and changes in consumer sentiments and tastes. For e.g. in 2QFY08, the print companies faced pressure on the ad revenues as a slowdown was witnessed in the retail and real estate sectors.

    Decline in subscription prices: The common feature of the newspaper industry is that inspite of circulation revenue being an important source of revenue, it still does even manage to cover the newsprint costs. This is known in the industry as newsprint loss. Also, in spite of increase in circulation and newsprint prices, Indian print players have not been able to pass on the same to readers. Indian readership continues to be highly subsidised by advertisers. In recent times, the new launches led the subscription prices to dip to Rs 99 for one-year subscription of DNA and Rs 150 for a two-year subscription for HT Media. Further, the trend of the free dailies as seen in the West is catching up in India. Any increase in circulation of the newspapers without an increase in the advertisement revenue to at least offset the increased newsprint loss would adversely affect operations. Also entry of new players can increase the pressure.

    Competition: The print industry is highly competitive. In each of the markets, competition from other newspapers for circulation, readership and advertising is being witnessed. In case of an entry in new markets, competitors often reduce the cover prices of their newspapers along with the advertising rates. For e.g., Deccan Chronicle entered the Chennai market (strong hold of The Hindu) with a very low pricing of Rs 1 per copy against The Hindu (cover price of Rs 3). It has proved itself in the first two years of operations by capturing strong circulation and ad revenues.

    The print companies not only face competition from its peers but also from other media forms. They face competition from television broadcasters, magazines, radio broadcasters and websites. With many news channels recently launched, the competition has increased. The Internet has many inherent advantages over print due to its search, sort and organising functions. Global trends also suggest that the newspaper industry has been losing share in the advertising pie to electronic media like television and the Internet. However, the penetration still remains low in India. Though there is still time, the threat is inevitable, as is evident from the increasing Internet penetration (Internet users are expected to increase from the current 40 m to 100 m by 2010) and the fact that Internet is gaining relevance in the models of print media plays like HT Media.

    Looking aheadů
    With the Indian economy likely to witness strong growth in the coming few years, we expect the ad revenues to be robust going forward. Further, with the rise in literacy levels and income, newspapers are likely to benefit. Also, an appreciating rupee and new supply in China would help the newsprint prices to remain stable. Further, most of the print companies are changing their business models from a pure play newspaper company to a complete media house. They have ventured into radio, Internet, out of home divisions and the like. This would help them to diversify the revenues going forward.



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