Alokananda Chakraborty
News

"Signal of Intent": FDI in the print media

Though the decision to allow FDI marks a major change in government policy, it is unlikely to have an impact at once

In a move expected to roil media waters, the Indian Government yesterday opened the doors to foreign direct investment (FDI) in the print medium. The Tuesday, June 25, decision allows 26 per cent FDI in news and current affairs print media and 74 per cent in other print media - non-news and non-current affairs - with "safeguards" to ensure that the editorial and management control remain in Indian hands. For the record, the non-news and non-current affairs sector include technical, medical and specialised journals while business publications fall in the news and current affairs sector.

The decision, which reverses the 1955 Cabinet resolution against foreign participation in news media, was taken in the face of stiff opposition from powerful members of the ruling coalition NDA, the Indian Newspaper Society, and strong media houses such as The Malayala Manorama Group, The Times of India Group, and The Hindu. A Parliamentary Standing Committee on Information Technology had also shot down the proposal in February.

FDI in the media has, however, been supported by several powerful media groups, most notably The India Today Group and the Indian Express Group. Some media investment managers have also welcomed the decision. "It is an extremely positive decision that puts the industry on the same level as the communications industry, and there are no reasons for it to be a problem. However, at this point of time, it all depends on whether there are companies who are willing to come in, and Indian companies who are looking to sell. Mid Day has no such plans," says Somesh Kapai, head of business development and investment, Mid Day Multi-Media Ltd.

Right now, the decision may not see a flood of investment into the country. One major reason for foreign investors to be wary, other than a natural wait and watch policy, is the stagnation in the advertising market. The last three years have been the slowest growth years in advertising history. In 2001, the ad industry growth stood at 4 per cent, while in 1998, that figure stood at 17 per cent. Paradoxically, in the Indian newspaper industry, especially after the price wars of the 1990s, advertising has been the single most important source of revenue.

Given the stagnation in the advertising market, and with many major media houses abroad seeing subscription as a key source of revenue, it may take a while for investments to start flowing in. "Right now, investing would be more of a signal of intent," says Ashutosh Srivastava, managing director, MindShare India. On the other hand, Bharat Kapadia, managing editor and associate publisher, Chitralekha Group, points out, "It may not be an attractive proposition for foreign media houses right now, but the recession is not going to last forever. And the market is huge, and that should attract investors, even if they do not make major profits at first."

Industry sources also say that as things stand now only a few publications are likely to actually attract FDI. Ironically, the wariness of foreign investors stems from the very same reasons that led to the bitter opposition to FDI in print in the first place.

The bottomline simply was money - and who would make it and how much journalists and other professionals had to be paid. Much of this has to do with the peculiar nature of the Indian newspaper industry. Unlike other industries, in the newspaper industry the cost of production is much more than the sales price of the product, a shortfall that is made up by advertising. As N Murali, joint managing director of Hindu Group, lamented during a recent interview to agencyfaqs!, "The low price charged by Indian newspapers - basically dictated by the policies of the largest group in the country … creates a distortion in newspaper economics and they have to, willy-nilly, depend too heavily on advertising."

Adds a Delhi-based senior media planner, "Such cutthroat sales tactics effectively ensured that the bulk of the advertising revenue came to a handful of papers, making things difficult for new entrants who, without access to capital to improve their newspaper quality, could not profit. FDI in the Indian print media is not a crisis of the Indian media, it is a crisis of Indian media owners." Thus it is not too difficult to understand why the frantic opposition to FDI in the print media came from the already entrenched players, while the advocates of FDI in print were those that were relatively new and smaller and required heavy financial muscle to undercut the leading players.

While most of such media owners are rejoicing, the Government in its latest decision has struck a cautious note. Briefing reporters about the details of the policy decision, Information & Broadcasting Minister Sushma Swaraj pointed out that certain precautions have also been taken to prevent any misuse of the Indian media by foreign investors. Among such checks and balances are:

  • The Indian shareholding should be significantly higher than the 26 per cent FDI;
  • In case the shareholding pattern was changed by the foreign investor, the I&B ministry had to be compulsorily informed;
  • Apart from that, she said, editorial control will have to remain in Indian hands, and that three-fourths of the editorial posts will have to be filled by Indians;
  • The Cabinet has also decided that the credentials of the foreign investor has to be necessarily verified by the Government before allowing the investment.

Despite this ‘cautious optimism', as a newscaster on Aaj Tak put it, the decision that reverses 47 years of Government policy and one of the pillars of Nehruvian self-reliance, saw share prices of Indian publication and print media companies surging on Tuesday. Navneet Publications, a publisher of educational books, leapt 15 per cent to the day's high of Rs 201 and Macmillan Industries jumped as much as 15.7 per cent to Rs 266.70. Sahara Media, which has interests in media and entertainment business, soared as much as 18.6 per cent to Rs 261, while Sandesh Ltd, which publishes a Gujarati daily, rose 10 per cent to Rs 122.10. Interestingly, the shares of Mid-Day were locked yesterday at the 20 per cent upper circuit at Rs 31.3, up Rs 5.3 backed by hefty volume of around 0.8 million shares with more than 0.1 million buyers in queue. © 2002 agencyfaqs!

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