India's media companies could get into financial trouble, allowing stronger international media groups to step in.
Changing picture for India's media
When Ronnie Screwvala, the legendary Bollywood producer and media mogul, announced last week that he was slashing staff and costs at two of his television channels, it was the first sign of slackening growth seen in India's media in a decade. Mr Screwvala plans to close down the Delhi broadcast centre of his UTV group, laying off 60 people and cutting costs by about 30 per cent. UTV is not alone. The axe also has been wielded with 9x, the other major new channel in India, shedding up to 50 staff. In an industry where the greatest challenge in recent years has been finding enough high-quality journalists, newsreaders and producers, the change has taken many by surprise.
"We are in a difficult time," says Arun Anant, who ran UTV's news channel until June. "It's difficult to make money in TV in any case - it was never a cakewalk - but in the past year, acquisition costs and programming costs have both pushed up through the roof." Sanjay Salil, the founder of the Mediaguru consultancy, says channels that have failed to gain a strong following are likely to suffer when the expected advertising slump kicks in. He expects that to happen at the start of next year. "Two things will really affect our media," he says. "One is the cut in advertising. Players who don't have a strong brand, they will not be the preferred channel in terms of advertising. Second is that the cost of distributing a TV channel in India is very high. So if operational costs keep going up and they don't get advertising, they're bound to be in trouble."
Since ZEE TV launched the first Hindi satellite channel back in 1993, India has been adding television networks, newspapers and magazines at a pace unthinkable in the developed world. "The growth has been really phenomenal," says Mr Salil. "This year alone, the number of new TV channels will be not less than 70." The highest-profile launch this year was Colors, unveiled in June by Viacom 18 - a joint venture between the US-based Viacom and India's Network 18. Less than six months after launch, Colors is India's second most popular channel after Star Plus. Last year, India's television industry grew by 18 per cent, according to PricewaterhouseCoopers (PwC).
Print media has also been growing at a pace, expanding 15 per cent in the same period, the highest rate of any country in the world. High-profile launches have included Mail Today, a joint venture between the India Today group and the UK's Associated Newspapers, which own the Daily Mail of London, the Indian edition of GQ magazine and Indian Vogue. But there are signs that the latest mastheads are struggling. Dainik Bhaskar, published by the Bhaskar Group, recently dropped advanced plans to launch a major channel, and the Hindi venture planned by Turner - a division of Time Warner - and Miditech has also been delayed.
A new financial channel from Bennett & Coleman, the publishers of Times of India, looks unlikely until next year. Proposals for new channels from ABP, the publishers of Kolkata's Telegraph newspaper, and Outlook Group, which owns Outlook magazine, both failed to get funding this summer. Newspaper and magazine launches are also being delayed. Jagran 18, the Hindi business newspaper planned as a joint venture by Jagran Prakashan and TV 18, was deferred in September, owing to "market conditions". Dainik Bhaskar also postponed the launch in Bangalore of its popular English-language newspaper, DNA - a joint venture with Essel Group.
The Indian version of Forbes, which was expected to hit the news stands last month, is now not expected to arrive until early next year. Market Mantra, a financial tabloid planned by Bennett & Coleman, has also been put on hold. Talk, an English-language magazine being developed by RPG Group, was supposed to go on sale in September. Again, it is unlikely to hit the streets until well into next year.
Finally, the financial newspaper planned as a joint venture between the UK's Financial Times and India's TV 18 Group, which created a great deal of media buzz in February, is still in the blueprint stage. India's two leading weekly news magazines, Outlook and India Today, meanwhile, have both been culling their less successful magazine supplements, which depend on advertising. "People who thought that magazines would be the next big thing in India have been proved wrong," says Mr Salil. The Indian Readership Survey, carried out by the Media Research Users Council last month, reported that both India Today and Outlook's readership had fallen since last year.
Costs are also rising substantially. In the past year, the cost of newsprint soared by almost 100 per cent. It now costs 420 million rupees (Dh30.9m) a month to print 1.5 million copies of a newspaper. But the slowdown certainly will not mean an end to growth in the sector. Rajesh Jain, a consultant at KPMG, says: "From a media and entertainment perspective, we see annual growth of 17 per cent over the next five years."
First, there is the continuing rise in literacy, which is boosting the size of the potential readership. And then there is the fact that spending on advertising as a percentage of national income is still tiny in India, at some 0.4 per cent of GDP, compared with 3 per cent in the US. "Even if GDP growth fell to 6 per cent, we would still get a low double-digit growth in advertising," says Smita Jha, an entertainment analyst at PwC. "And 10 per cent advertising growth in these times is still phenomenal. Which other economies are showing those kinds of growth rates in advertising?"
Even so, the share prices of some of India's media companies show the market is in trouble. UTV's shares have slumped 75 per cent since last year's peak, and Sun TV, ZEE and IBN are all down more than 50 per cent. Mr Salil expects India's media companies to get into financial trouble, and stronger international media groups to step in. "Definitely there will be a consolidation, but not that many Indian media players have any money to buy others. You will see a string of foreign players playing this game in India."