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.
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.
More Views on News
Aug 14, 2017
The management believes that GST will aid the advertising spends in the long-run.
Apr 26, 2017
Should you subscribe to the IPO of S Chand and Company Limited?
Jun 21, 2017
Should one subscribe to the IPO of GTPL Hathway Ltd?
Aug 1, 2016
Zee Entertainment has announced its results for the first quarter of the financial year 2016-17 (1QFY17). The company has reported 18.5% YoY growth in sales and a 13.7% YoY growth in profit after tax.
Feb 3, 2016
Zee Entertainment has announced the third quarter results of financial year 2015-2016 (3QFY16). While the topline grew by 17% YoY, bottomline fell 11% YoY during the quarter.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407