The new unified tax system bodes well for newspaper advertising revenues

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The new unified tax system bodes well for newspaper advertising revenues

The Indian economy faced two historic disruptions in less than a year. It came in the shape of demonetization in November, when high denomination currency notes were sucked out of circulation overnight and then again in July when the goods and services tax (GST), which subsumed a plethora of taxes that were in place for decades into uniform rates for the whole nation, came into force.

Demonetization had a severe impact on newspaper advertisement revenues as companies drastically cut down on their promotional activities given that business activities came to a grinding halt across industries. Analysts say that the impact was most severe during November and December. Television and print were the most affected as compared to below the line (BTL) media. The revenue growth rates of print continued to witness slowdown as English newspapers remained under pressure. Regional language papers demonstrated strong growth, but were adversely affected by demonetization given their high dependence on local advertisers. Recovery began in January and by April things were mostly back to normal.

On the other hand, there is a consensus on GST having a positive impact on the economy, which will in turn boost advertising spends and consequently add to newspapers’ revenue.

“I don’t think GST will have any near-term impact on print media advertising revenues, especially for newspapers. The new system is not impacting the decision on ad spending. The rate is 5% and most clients have been able to take it as an input. On the other hand, the introduction of GST will have a positive impact given that the new tax system will drive the GDP and result in better tax collections and greater transparency. As a rule of thumb, whenever GDP grows by 1%, advertising grows by 1.5%. So, there is a direct positive correlation,” says Ashish Bhasin, chairman –and chief executive officer – South Asia, Dentsu Aegis Network.

Other experts also hold similar views. Suresh Rohira of Grant Thornton says that it will be very hard to assess the immediate impact of GST on advertising business but in the long run, the new tax structure will have a positive impact on the sector. “Overall, GST is a very positive development as it assimilates all taxes under one roof.”

Mohit Joshi, managing director, Havas Media further elaborates on the positive impact of GST but remains cautious about the near term. “The industries that have benefited from the new tax regime have been spending more on campaigns. This includes sectors like FMCG, consumer durables and auto. On the whole, GST is seeing a positive impact on the economy, which also reflects positively on our industry. It will surely deliver some great news for the industry in the long run; however, in the short run, there is extreme caution towards spending among the clients.”

Increased digitalization
The traditional paper-and-ink format has been facing a stiff competition from the new age digital media, especially among millennials. Traditional media houses in India have embraced the change although some were early starters. Even though growth in digital media advertisement has been extremely strong, the traditional media has been resilient. However, going forward, growth rates of digital media advertisement will continue to outpace the growth seen in traditional media.

“Rise in digital consumption is driving tremendous growth for the industry. Advancement in infrastructure, evolving audience measurement technology leading to better content, and lowering data costs is driving user habits towards greater digital consumption. Publications that are ready with their digital platforms have an upper hand. Once a person reads a newspaper or magazine on digital for a month, they might get a habit of continuing to do that, since they have possibly become comfortable with screen reading. Same is the case with TV; with the emergence of OTT platforms, consumers are gradually shifting preferences to digital viewership,” argues Joshi.

Bhasin too feels that digital is a trend that is here to stay and will only grow. “Ad spends is growing the fastest in the digital media. The players who can monetize their digital assets will succeed in the long run. This is the only way forward and even regional media entities have realized this.”