Earlier this year, Ipp Services, Training and Research (www.ippstar.org) took a look at the reported standalone financial results of a dozen newspaper publishers over the past five years from 1 April 2017 to 31 March 2022. Those numbers showed that the industry was plateauing even in FY 2017-18 and FY 2018-19, and even in FY 2019-20 – as we entered the pandemic year and the full lockdown of March 25, 2020, preceding the start of FY 2020-21 by six days.
Nine of the groups of our more recent sample of 35 newspaper groups suffered losses in FY 2018-19. Their number increased to ten groups suffering losses in FY 2019-20 and in the pandemic year FY 2020-21, to eleven newspaper groups. In FY 2021-22, only four of these newsgroups made losses.
As with our earlier study, the larger sample that covered a longer period indicates that the Indian newspaper industry was actually declining in overall revenues before the onset of the pandemic in FY 2019-20 – with seven consecutive declining quarters in GDP growth. Their combined figures in this worst year yield an EBITDA to operating revenue ratio of 9.8% and a profit to operating revenue ratio of 3.1%.
The pandemic year of FY 2020-21 showed a steeper decline but nevertheless a slight rise in profitability in comparison to the previous year. The combined operational revenues of our sample declined to Rs 15,097 in that year, with the EBITDA to operating revenues rising slightly to 10.8% and profit to operational revenues recovering to 5.5%. The profitability ratio is generally in double digits with the six best years in our review, yielding an average of more than 11%.
The 2.4% rise in profitability in the pandemic year can be ascribed to adaptability and resilience. And more concretely, to the sharp drop in circulations and the consequent reduction in the cost of materials consumed, as well as some operational costs and the retrenchment of a large number of resources. This trend continued in FY 2021-22 with profits recovering considerably on much lower revenues to a ratio of 11.4%. The explanation may be that the steep drop in newsprint prices, combined with the still partial recovery in circulation, kept the costs of materials down in comparison to the recovery in advertising and circulation revenues.
Our current look at 35 newspaper groups over a nine-year period, in the main reinforces the numbers of the smaller sample but going back further reveals that this larger sample representing a substantial part of the industry has neither reached the profit nor profitability levels of even FY 2013-14 or the highest absolute profit achieved by our combined sample in FY 2015-16 – at Rs 3,199 crore. In that year, the combined profitability of our sample was 22.4% as a ratio of EBITDA to revenue from operations; and 13.4%, as a ratio of profit and loss to revenue from operations.
Interestingly, the least variation in costs is shown in the employee benefit expenses throughout the nine-year period. However, as a ratio of employee benefit costs to operational revenues, these vary from 16.9% in FY 2013-14 to 20.8% in FY 2019-20 and a high of 27.4% in FY 2020-21, the pandemic year. In that year, the absolute cost of employee benefit expenses only declined slightly despite considerable retrenchment and pay cuts. As publishers and industry insiders suggest, this may be because of the added compensation settlements to employees made redundant.
Other industry insiders suggest that the retrenchments tended to generally affect the most vulnerable and lower-paid employees. In effect, employee costs in comparison to operational revenues rose to 23.7% in FY 2021-22 and are expected to fall back to around the 20% level as revenues rise further in FY 2023-24 and 2024-25.
One inference or observation that can be seen from our review of the financial data of the 35 newspaper groups is that there are groups with structural financial issues over time and surprising losses on high operational revenues. Another observation is that the Business Standard group has emerged from continuous losses over the years into a healthy profit in FY 2021-22.
Most of the newspaper industry does not expect a full recovery in circulation for the foreseeable future but with the decline in the price of newsprint and improvements in the supply chain, profitability is likely to come back to the FY 2015-16 levels in FY 2023-24 and FY 2024-25. Keep in mind that our sample includes a substantial portion of the entire industry (over 80%) and an even more extensive and difficult survey is needed to ascertain the recovery or otherwise of the greater number of newspapers that comprise the entire industry.
From the recent Wan-Ifra and INMA conferences, one gathers that the leading newspaper groups still see headroom for growth in print revenues in coming years but mainly because they have caught on to the digital transformation. Right from raising print circulation revenues, to multi-channel and multi-format adaptations within those realms, they are starting to get into analytics and slicing and dicing their audiences. Many are also now serious about digital subscription revenues.