The News Business, Part II: We are loving it

Can you hear the babble?

It is the sound of an entire country going jabber, jabber. India has more than 575 million TV watchers, about 302 million newspaper readers, 55 million surfers and 1.2 million bloggers. Look at it another way – as a country, we buy 99 million copies of newspapers every day, making it the second largest newspaper market in the world, after the US.

At 115 million TV sets and 275 million mobile phones, we are among the top five TV and mobile phone markets in the world. We have 67 news channels, arguably more than any other country in the world. If you total up the average across newspapers, news TV and online, Indians spend an average of 50 minutes a day consuming news.

Why do we have so much news?

"There is an influx of funds because news is elastic; there has been no fatigue factor yet. Have you seen any channel close down?" asks Arnab Goswami, editor in chief, Times Now. "The growth in ad spends on the news genre has outpaced the growth of the TV advertising pie," adds Raj Nayak, chief executive officer, NDTV Media. Newspaper advertising has grown below the industry average, but on a base that is 10 times that of TV news.

Size, democracy and innocence make for a seductive cocktail of reasons why the Indian news market rocks. Now stir in a lot of investment (Rs 1,500 crore since January 2007 and still counting), low entry costs, a declining global market for news and you know why we are hot. However, as the rush into news increases, almost everybody has seen a jump in operating costs, though margins haven't declined yet. The level of competition and the state of the economy (oil prices rising, inflation and the threat of GDP growth slowing down) suggest that consolidation is about to happen. There is usually a strong positive correlation between GDP and advertising growth; if one slips, the other will, too. A bulk of the news media in India is advertiser funded, so if GDP slips, expect advertising growth to decline.

A lot of fun

For now though, the fundamentals of the news business on both the supply and the demand side, seem strong. According to IRS data, there are 359 million literate Indians who do not read a publication. Television as yet penetrates only half of India and, at 55 million surfers, websites haven't even scratched the surface. The possibilities for growth in unheard of markets, with, say, a Bhojpuri news channel or a Bengali lifestyle one, are as yet unexplored. To these building blocks, add a couple of qualifiers.

The first and biggest is a functioning democracy. Indians love to debate, argue and generally drive each other crazy. And as they move from having one newspaper and one TV channel, they are discovering the fun of arguing across the country on scores of television channels, newspapers and on the Internet, in about 20 odd languages.

For long, our thirst for information and for an outlet to voice our opinion remained just that – a thirst. Till as recently as 1990, a few newspapers defined both the news agenda and the texture of the news market along with the state owned Doordarshan and All India Radio. When satellite television first hit India in 1991, CNN brought a whiff of what independent news could be, and then came the BBC. By 1995, websites such as Indiaworld.com, Rediff and, later, Indiatimes came into play. India's first private news channel, the Hindi/ English STAR News was launched in 1998. With economic liberalisation, the opening up of news and information, too, had begun.

The big news event, however, happened in 2000 with the coming of Aaj Tak. This spunky little Hindi news channel from Aroon Purie's Living Media changed the rules of the game. Its 24 hour news anchors made news accessible and available to more than 500 million people who understand Hindi or its various forms.

Life after Aaj Tak

Aaj Tak's success (it is still the leading news channel in India) made one very important point. It showed that the language of news, just like the language of entertainment, had to be as local as possible. This coincided with several things.

The first was the loosening of controls over foreign capital in the newspaper business. Two, technology had made it easier to launch more editions in print or more channels with less bandwidth on TV. The third was the growth of several new categories of advertisers who found news suitable for their products. These are advertisers whose products have a higher male skew or need their involvement in the purchase decision. Automobiles, telecom, financial services were (and are) the fastest growing categories of advertising on newspapers, television and on websites, too.

Advertisers such as LG and Tata Motors led to the doubling of the overall ad pie from just under Rs 10,000 crore in 2003 to Rs 22,000 crore in 2007. This, in turn, has meant a tripling of the TV news ad spend and a 60 per cent growth in spends on newspapers during this period.

The money argument

The youngest newspaper on the block, Sakshi, a Telugu newspaper that launched with 23 editions earlier this year, has had a great beginning. Designed by Mario Garcia, the man who designed Mint, among other newspapers, Sakshi aims to be more contemporary and younger than leader Eenadu. It has, for instance, three pages of business against Eenadu's one, every day. This means 32 pages for Sakshi against Eenadu's 30 on most days, says KRP Reddy, director, advertising and marketing, Sakshi.

It takes roughly Rs 100-150 crore to launch a newspaper. The rapidity of launches (Sakshi is one of about a dozen this year) raises obvious questions about the viability of these ventures. "Today, most newspaper investment happens for valuation. I doubt whether they are serious about the business," says Shravan Garg, group editor, Bhaskar Group of Publications.

Besides advertising, there is very little that news media can get from other revenue streams. Except for the Rs 4,000 odd crore that newspapers are estimated to make from circulation revenue, there isn't much coming by way of pay revenue. Internet, mobile or overseas – any of the other sources of revenue – are not yet significant for most companies (except for Bennett, Coleman & Co. Ltd, or BCCL). Then there is the threat of rising newsprint prices slated to touch $1,000 per tonne by the end of the year, up from just under $800 a tonne currently.

It is in television news that investors should start getting concerned. The way the business is structured, there is complete dependence on advertising. "I wonder why new players are coming, what is their proposition, do they have a bottom line or only a topline," quips G Krishnan, executive director and CEO, TV Today Network.

"In TV news right now, people are just taking advantage of the availability of capital," answers Vivek Couto, executive director, Media Partners Asia, a Hong Kong based media consulting firm.

The fact is that operating costs for television news have gone through the roof. Just the cost of distributing a channel went up from Rs 15 crore in 2006 to Rs 30 crore in 2007 because the largest form of distribution, cable, is log jammed with new channels. The only figures available are for the three listed broadcasters, of which two, NDTV and Network18, are now diversified media companies, not pure news broadcasters. "No one is making money from TV news in India," says Couto. (His firm recently did some analysis in this area, though he did not share the figures with us.)

A shakeout, therefore, is imminent, especially if the market slows down. However, unlike many other countries which are homogenous markets, in India, within each genre and each language, two-three channels will survive. The ones to survive will be the ones who enter the maximum number of small Rs 50-100 crore niches the market offers, from city channels to lifestyle or education news.

The immediate issue, however, is not the growth potential of the market, but the threat of regulation. Thanks to news television's wild jump into tabloid news and newspapers' into money for editorial deals, there is a real possibility that a nasty content code will hit the business soon.

That, as the next piece argues, will be more dangerous than a fall in ad spend growth.

Vanita Kohli-Khandekar is an independent media consultant and writer.

The Brand Reporter Special Report on The Future of News is available in pdf format, which can be downloaded here.

afaqs! is also organising an event on The Future of News on Friday, August 1, at The Oberoi in New Delhi. To register, click here.