Newspapers must find new revenue streams to stay healthy

Interview: George Jacob, Malayala Manorama

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“The floods have hurt the profitability of newspapers across Kerala. They devastated the state last year just around Onam – a time of the year when advertisement inflows are usually at their peak in the coastal state,” says George Jacob, executive director of Malayala Manorama, Kerala’s largest media group.

Ad spends usually go up along with higher consumer spending during festivals. Ganesh Chaturthi in September marks the beginning of the festival season across the country – the momentum builds up with Onam, Dussehra, Diwali, Eid, Christmas, New Year and thereafter Basant Panchmi, Holi and Baisakhi in April, which marks the beginning of the solar year.

Not only regional but also national advertisers focus their advertising spends on these events aimed at the region and consumers who are celebrating and spending. The floods in Kerala last year not only upset the state’s economy but also the flow of advertisement revenue to the state’s media from all over the country.

The drop in advertisement revenue along with the rise in newsprint prices sent print media profitability into a nosedive. Newsprint, particularly the low cost recycled variety on which Indian dailies are dependent, is itself heavily dependent on the availability and price of waste paper. In 2016, China recycled 63.3 million tons of waste paper as per the China Paper Association.

A quarter of its waste paper was imported. However, in 2017 China decided to ban imports of waste including waste paper to combat environmental pollution. As a result, the mix of waste paper in newsprint produced by China witnessed a change and the price of newsprint shot up by nearly 40% in six months.

The global price rise of newsprint for nearly nine months of the last financial year delivered a double whammy to print media and newspapers such as Malayala Manorama. “Our profits could be down by nearly Rs 80 crore (US$ 11.5 million) in the financial year 2018-19,” says Jacob, who heads the technical and digital divisions of Manorama, one of the largest newspaper groups in the country.

Media houses lack a back-up revenue model

When I asked Jacob if the rapid rise of digital advertising would help in compensating for the losses, he replied in negative. “Digital ad revenue for most newspapers in India is lower than 10% of the total revenue and cannot compensate for losses in the print business. Newspapers in India are still profitable, but must quickly find new revenue streams to stay healthy. Only digital growth will not do,” he says. This is despite the fact that digital advertisement revenue has been around 21% to 24% of the total advertisement spend as per ABC and was the fastest growing segment last year at 32.8%.

The problem is acute because newspapers have failed to garner a large chunk of the digital ad spend. Firstly, there are too many players in the digital space due to low investment cost to enter the arena. Secondly, the bulk of the revenue is apportioned by the digital giants, primarily Google and Facebook, leaving very little for the content producers. As a result, traditional content producers like newspapers and magazines have to compete with newbie websites by the thousands to pick up the crumbs offered by the pay per click models of the giants.

Consequently, they do not invest sufficiently to produce good content. Unable to break the stranglehold that Google and Facebook have over digital ad spends, they need alternate revenue streams.

One way was to diversify into broadcasting business. All the big media groups like Times of India, India Today, Manorama, Eenadu, ABP and Bhaskar have entered broadcasting by investing in both television as well as radio. In spite of ramped up investments and content, these channels only get 20% of the overall revenues generated. The service providers including the direct to home (DTH) and the cable operators take the bigger chunk of the revenue pie. Digital TV and streaming video are increasingly delivered by the telecom companies, who provide the pipelines or the pipe to broadcasting services. Thus, the situation looks likely to deteriorate.

Beaming and streaming into homes through the internet and telephone cables puts all the eggs in the service provider’s basket. For lack of clear convergence laws today, a pipeline company can buy content producers. The data and voice pipeline owners can choose to carry programs of their own at a much lower rate than that of others who are dependent on their network.

In 2014, Reliance snapped up 42 major media properties such as CNN-IBN, Network 18, CNBC Awaz, entertainment channels Colors, MTV, ETV and Homeshop Entertainment and the news and financial web platforms of Firstpost and Moneycontrol. Media companies who do not own their pipes such as Jio will never be able to call the shots as Reliance and its freshly acquired content companies can.

Print newspapers need higher margin revenue streams

“I do not see any growth of print publications in India during the next decade,” says Jacob. “The age group below 40 is largely digital readers and this trend is likely to persist. As in the West, the readers of print newspapers are bound to decline.” The situation is however not likely to worsen immediately.

ABC reported a low CAGR +1.9% growth in the Indian print news delivery business during the last five years. Newsprint prices have receded from their peak last year and the political ad spending during the 2019 elections is expected to give a temporary boost to the newspaper industry. However, the long-term outlook is bleak. Printed newspapers could stop growing in the next decade despite India’s growing literacy rates.

Another weakness of the Indian newspaper is the unrealistically low subscription of per copy price attributed to the competitive (some would say predatory) benchmarks set by Bennett-Coleman, which is the market leader. A combo package of the Times of India for 7 days and the Economic Times for 5 days a week costs just Rs 1193 (US$ 17.25) annually. Thus, for less than Rs 100 ($1.45) per month we can read India’s largest selling English daily (usually 32 to 72 broadsheet pages) and the largest selling business daily (usually 24 pages).

In the other South Asian countries such as Sri Lanka, Bangladesh or Pakistan, the combo offer would easily cost Rs 25 per day or Rs 750 (US$ 11) per month. The leaders of the Indian newspaper industry in both regional and English languages have lowered newspaper prices artificially to keep competitors at bay. But this has hurt the entire industry every time newsprint, waste paper or oil prices go north.

Diversification could even be to packaging

With print volumes likely to decline, newspapers need to find an alternate and profitable revenue stream to stay in the black. Although digital and broadcasting have synergy with print, the margins are too thin to give relief to the newspaper industry. An alternative may even be packaging. “The newspaper industry must look at packaging as a viable diversification avenue. It is perhaps one of the few industries not suffering from shrinking volumes,” says Jacob. The raw material, the machinery, the technology and manpower of the two industries have inherent synergies and he is probably right in saying that it is time for the newspaper industry to look at such diversifications.