"The Hindu" rate of growth

I don’t travel to Chennai often. Otherwise there is one person I’d have loved to meet. That’s N Murali of The Hindu. Somehow I have a feeling, at a time when most publishers are reeling under the advertising slowdown, he must be chuckling at the plight of his competitors (and, for that matter, even of some his esteemed contemporaries across the country).

In some of the earlier posts we have tried to examine, how some publishers (new and old) in their quest for super-normal growth have erred on certain fundamentals when the good-times rolled. It is equally important, therefore, to analyze what others did right – even if it’s by the benefit of hindsight.

When competitors came knocking at their door – The Hindu remained steadfast in their strategy refusing to drop cover price or get into a mad race for higher circulation to stay ahead of the new entrants. By all accounts, they didn’t give into advertisement rate-cutting tactics either. Many called this old world arrogance, others attributed it to an overly conservative attitude – both unsuited to today’s age of nimble footed competition. Some rushed to prematurely write an elegy for it – predicting the same fate as what “The Statesman” had met with in Calcutta by refusing to react to new competition.

In the Mint Article referred to in the previous post (read post)– Bagga predicts 3 broad trends in these times of media recession: 1) increase in cover-price, decrease in pagination and curb on circulation; 2) ‘right-sizing’ of operations and 3) consolidation across businesses. By default or otherwise, The Hindu wouldn’t need to do any of the 3. It didn’t drop cover price, increase pagination or pumped up circulation. It was always a tightly run ship with a ‘conservative’ cost structure. So there is little fat to trim in the system. Finally, it has always run its businesses on a ‘consolidated’ model.

Sometime back, another article in MINT had quoted – Farokh Balsara, Head of the Media and Entertainment practice at Ernst and Young saying: “Six months back, it was growth for growth’s sake for publications. Now the focus is on profitable growth as we see companies compelled to take hard decisions due to the liquidity crunch.” (click here to read the piece)

I don’t think The Hindu would have any such problem as they were never afflicted by the malady of chasing “growth for growth’s sake” unlike many others – be it because of pragmatism or innate conservatism – call it what you want. To my mind, the only weak product in their stable, as on date, would be the Frontline (does it still exist ?). Even that – even if they are holding onto for some sentimental reasons – is unlikely to be bleeding heavily. HBL should - by now – also be able to largely fend for itself. And, The Hindu - the main paper - never went over-board on the circulation of their multi-city editions in Bangalore, Hyderabad etc.

And, being the undisputed market-leader they would continue to garner maximum share of advertisement even when the chips are down (literally !!) and not being wholly dependent on ad-revenues - they would be able to tide over the down-turn better than the others.

So, there may be some merit in following “The Hindu” rate of growth, after all.

(Of course, being a distant observer and not close to the scene of action, I could be widely off the mark. For that – I would look up to my friends in the “South of Vindhyas” for validation of the facts. I am sure there are enough detractors of The Hindu – or “Hindu baiters” if I may call them – to blow large holes into my analysis. So it’s E & OE – comments and corrections most welcome)

Say cheese !!

I generally tread clear of the Capital’s lecture and talk-show circuit. But, yesterday I accidentally gate-crashed into one. The occasion was the launch of the Business Standard India 2009 – a collection of essays on contemporary economic issues facing the country.

In a gathering of very distinguished economists and policy makers, as a part of the panel chaired Montek Singh Ahluwalia and T N Ninan as moderator - Bimal Jalan, the former RBI Governor, was at his provocative best. He was reveling in baiting the media, who he accused of over-selling the India Inc Rising story. He argued that, it wasn’t that the Indian economy that was running too fast but the Indian Stock Market that was being driven recklessly. When the real economic growth was at 13% - fuelled by tax arbitrage, the stock market was giving returns of 80% - but no one questioned the disconnect. We can excuse a Sarah Palin – who had never seen India on the map – wanting to invest in India because she saw India all over the media but we should have known better, he joked. He also had a dig at the “entrepreneur” (no prizes for guessing) known to run a half-marathon every morning, who had raised Rs 20,000 crores from the market even before he finished his morning jog. When you run that fast there is always a risk of tripping and a correction was just waiting to happen. He chided the media for, having created euphoria earlier, now going to the other extreme predicting a dismal doomsday scenario.

Listening to Dr Jalan’s, I wondered if the media itself had fallen prey to the tales of its own creation. Over the last few days – everyone I have met from the print industry – be it from editorial or marketing - have been complaining how bad things are. And till the other day, media houses – new and old – were going about their business like there was no tomorrow.

This adventurism was not just restricted to starting new editions or jacking up circulation. There was actually serious money being put on the block in the form of investments in Fixed Assets (expensive high-speed printing presses) most of it funded by borrowings (except perhaps ToI who have always been known to sit on a mountain of cash reserves).

Add to that, the increase in pagination, internecine circulation wars (my ‘pet peeve’ of deep discounted - gift subscription offers), rampant under-cutting of ad-rates, over-the-top salaries of the new ‘whiz-kids’ on the block, across the board salary hikes and increased over-heads – you have the perfect story of cost-structure and business model going awry. And, if all this was being done with an eye on increasing company valuations for potential PE investors – someone got the math wrong – just as Dr Jalan said last evening.

The crash of the ad markets have really turned the screws on (even with softening of news-print prices), especially for the newbies and also some of the oldies who had taken a quick shot of viagra to feel young. By one account two of the new entrants in the Mumbai market were losing anything between Rs 50 to 100 crores per annum (depending on whose estimate you chose to believe). Despite drop in pagination and cutting down on print-order, thru’ non renewal of subscriptions etc they would find it difficult to sustain such high levels of “investments” (read ‘losses’) without big-time value-destruction, if the mother ship itself is under pressure. While those in it for the long-haul would definitely weather the storm – it’s those who were in the short term “valuation” game who would face the real heat.

So what’s the way forward? On the flight back from Delhi, I was reading in the TIME magazine how the Italian government has thrown a bail-out package for the cheese industry in the country. The government is buying 200,000 wheels of Parmigiano – Reggiano Grana Padano to be donated to charity. Possibly Mr Ahluwalia can take a leaf out of that book and devise a similar scheme for the Indian newspaper industry. It might make perfect economic sense – giving away free newspapers with free ads – to boost consumer demand. But, there’s just one glitch – thanks to the freebie offers very few people in India pay for newspapers anyway!!

Post-Script: Hopefully, after this crisis the Indian newspaper companies would find renewed merit in the age-old wisdom of having a more 'balanced' adverisement to circultion revenues ratio, which had historically helped them cushion the effects of cyclical downturns in advertisement. Till then, of course, the big consulting firms (Mckinsey, E & Y, PwC, Accenture etc) would make their pile doing 'cost-restructuring' exercises for the industry. Some I'm told are already on the job.