CHIP, unabridged: Part II

By , agencyfaqs! | In | May 22, 2001
The first part of this story (published yesterday) looked at the rise of the CHIP brand in India, and the early successes of JDM. The second part shows how the CHIP cookie crumbled

(Continued from yesterday)

Just when CHIP was savouring its success in 1999, the Internet was making its presence felt in India. CHIP's promise of being 'the best guide to computing' was felt inadequate to address it. "We needed to change the editorial content to bring it into the Internet domain," says Maulik. "The contract says that local editions have to suit local conditions. We have correspondence going all the way back to April 1999 suggesting changes in the contents of the contract, but nothing happened." The reason may have something to do with CHIP's global positioning. A Vogel press release citing conflicts of opinion hints at "the hitherto positioning of the Indian licensed edition within the international CHIP magazine network, which is currently present in the market with 14 national editions in Europe and Asia."

To strengthen its grip in the Net space, the JS Group went ahead and secured a tie-up with Vogel's international rival, Ziff-Davis, in April 2000. This happened in the form of ZDNetIndia, a technology portal that used content licensed from ZDNet, owned by Ziff-Davis of the US. Alongside, expansionist urges of JDM had also seen it launch Computer Reseller News and Network Computing, which did not augur well for Vogel's future plans in India. Maulik defends it saying the company has a policy of striking deals with the "best of the breed". "We signed the partnership with Ziff-Davis in 1999 and in 2001 these guys come and tell us that there is a problem," he argues.

A press release issued by Vogel Burda on May 9 states the contrary. "For a long time there have been serious conflicts of interest due to the intensive business relations between the licensee and competitors of Vogel Burda to the point where the basis of trust required for cooperation, for further developing activities on the Indian market and in fundamental matters has ceased to exist." It may actually have been in mid 2000 that the realisation hit Vogel hard. That is when CNET Networks, a technology-content company, acquired its biggest rival, ZDNet, and its parent, Ziff-Davis Inc, in a stock deal valued at $1.6 billion.

Back in Germany, Vogel was getting ready for the action on the Net. Two months later, Vogel Media Group and Hubert Burda Media announced a strategic alliance with a one-point agenda of "developing CHIP into an internationally leading brand in print and online". Within the joint company, all Vogel Computer Press' print media to-date, as well as the Vogel Media Group's international computer publishing companies (including the Indian licencee) were to be actively involved in the "development of the brand CHIP to global market leader as well as intensifying its international presence".

JS Group's CNET tie-up came in the way very strongly now. It is the direct competitor of CHIP-Online. Ziff-Davis is one of Vogel's main competitors in the print publishing business with PC Magazine. "And also further titles of JDM like CRM make problems by competing with Vogel," admits Pitz. But the JS Group was keen on the CNET tie-up. On the other side, CHIP's Hindi launch in late 1999 had come a cropper, the ad market was running on heavy discounts, and JDM had to keep paying royalties to Vogel for what it perceived as "inadequate amount of value for our investments". "In terms of investments, there were none," says Maulik. "Not one single naya paisa."

CHIP Hindi became more of a loss-making machine than anything. Launched in late 1999, it was priced at a cheap Rs 30, did not carry free CDs and was less than half the size of CHIP English. But no one bought it; neither the advertiser, nor the reader, recalls a former JDM ad-sales executive. "It would not have sold more than 5,000-10,000 copies. There were barely 3-4 ads, at very cheap rates, or mostly free."

Things weren't too cushy on the English front either. The magazine was kicking, but magazines as a category was receiving a lower share of ad revenue. Discounting was rampant. "The IT industry, per se, is tough," explains the executive. "Hardware margins are not more than 3-5 per cent, and that is what the bulk of advertisers are. Most hardware companies operate from abroad and distributors release ads from here. They want more ads in limited money. With so many IT magazines, the market becomes competitive and the fragmentation results in discounting, howsoever big you may be." Add to it the free software (in the form of two CDs per issue) that CHIP had to dole out on nearly one lakh copies every month.

CHIP's performance on ad revenues was far from satisfactory, says an observer. In such a scenario, carrying on with the royalty fee may not have been a very good idea for JDM. The success of CHIP had taught JDM practical lessons in brand launch. What if the CHIP brand was removed and the same material repackaged for the Net economy? So JDM began distancing itself from the Vogel tie-up and even defaulting on the royalty payment, suggests an insider. "There are crucial reasons for that. CHIP India was no more participating at the end," writes Pitz. It was building Digit. But it happened in phases. In January this year, JDM relaunched CHIP as the "navigator in the digital age" forcing Vogel to take recourse to legal action.

CHIP apart, Vogel has also terminated the license agreement on MM (MachinenMarkt), a magazine covering technology management issues, which was selling about 12,000 copies. Considering the brand recall of CHIP, and the importance of MM as a B2B magazine, Vogel is on a keen lookout for prospective licensees.

For its part, JDM is gung-ho on Digit and Smart Computing. "The relaunch in January was very well received," says Maulik. "Sales jumped from 80,000 to 1,20,000 copies." That is what makes him optimistic that his team can pull off Digit. As for Smart Computing, nothing much is known as of now. Maulik says JDM is also readying a new avatar of MM, which should be out in the market "within 30 days".

© 2001 agencyfaqs!

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© 2001 agencyfaqs!