The Boom Times Are Just Beginning For India’s Media But For Those Thinking Of Outsourcing, Beware – Salaries Are Skyrocketing And Inflation Is Soaring

Philip Stone February 26, 2007

The reaction by Hutchison Telecom shareholders to the company’s sale of Hutchison Essar, its mobile business in India, for a $9.6 billion profit tells the story of India’s media today. Most analysts agree Hutchison received a premium price yet its shares fell 15% on the Hong Kong market on news it was out of India.

One might think the shareholders would be very happy with their $9.6 billion, $4.1 billion of which they are going to receive as a special dividend, but the shares slumped because no matter how good that $9.6 billion looks today if the company had held on shareholders believe they would have done far better in the future.

And that is India’s story. The media future looks very very bright and foreign companies are rushing to invest. Vodaphone, for instance, paid $11.1 billion for Hutchison Essar and it could afford that kind of money because it has been busy selling its stakes in more developed parts of the world – Japan, Belgium, Switzerland and Sweden -- and much of that $20 billion is being reinvested in India and Turkey ($4.5 billion).

According to Business Standard, a leading business daily, print and electronic media in India has grown net profit by 82% in the past nine months, with revenue growth up 31%. Production costs grew less than revenue growth indicating, the newspaper said, that there is a premium on advertising rates. It said that the domestic advertising market saw double digit growth and telecommunications became a major advertiser with the domestic mobile phone market expanding by at about five million handsets a month.

Rapid growth is forecast for several years with the multi-channel TV business becoming digital and subscription revenue is expected to grow even faster than advertising revenue.

Indian newspapers, unlike their brethren in the more developed parts of the world, are really on a roll. They receive about 43% of all advertising revenues – the largest of any media channel -- and with Heernet Ventures forecasting in its India Media Market 2007 report that total media revenues are expected to grow from $9.2 billion this year to $17 billion within five years it’s little wonder they are expanding as they are.

Das Munshi, India’s Information and Broadcasting Minister, says the country has 62,000 newspapers – 300 of them daily – and 300 TV channels, expected to reach 400 within a year. According to the National Readership Studies Council, 204 million Indians read daily newspapers, but there are 359 million Indians who can read who not read any publication at all.

Circulations for some newspapers are phenomenal. The two best selling newspapers are published in Hindi with Dainik Jagran and Dainik Bhaskar each with a readership of more than 20 million. The largest circulation English language newspaper is the Times of India with a circulation of 7.4 million. New Delhi alone has 12 English language broadsheets.

Television receives about 35% of the ad spend. Percentages then drop dramatically with magazines next in line at 5%. And online gets 3%.

Heernet predicts that pay TV, online and radio will see the fastest growth. Indeed this year is expected to be radio’s year. FM is expected to expand from 12 cities to 91 cities and the radio market is expected to grow by some 40% a year. Radio now only gets about 2.9% of the ad spend, and this is forecast to grow to 7% over the next 10 years, according the Financial Express. Foreign investment is seen here, too – Richard Branson’s Virgin Radio has joined with huge Indian media conglomerate HT Media to launch Fever 104 FM.

Online has been held back a bit because the infrastructure has not kept pace with demand but eMarketer estimates that there were 25 million Internet users in 2006 with a 32% increase forecast for this year.

Foreign investors are now allowed 26% ownership in Indian media and that has various groups rushing in to invest.  One good reason why is to see how well Ireland’s Independent News and Media, which holds a 20.8% stake in Jagran Prakashan, has done.  The Hindi language group that publishes Dainik Jagran, India's largest read and highest circulated daily newspaper. reported that its Q3 net profit was up 144% over the same period a year earlier and revenues grew by almost 30% -- advertising up 28.5% and circulation up 3.6%. The advertising increase was credited to higher rates and more color ads. Publishers in the developed world must be drooling over such numbers!

But investment is not always easy. The Securities and Exchange Board just turned down the Irish group’s request to increase its stake by up to 3%. The board ruled that a holder of more than 20% of a company that raises its holding has to make an open offer to buy another 20% and the request to waive that rule was refused. London’s Financial Times has been having discussions with the government to see if there are ways around the foreign ownership limits because, it says, it would like to print an Indian edition. It is a minority partner in Business Standard.

The Wall Street Journal found its way into the market by providing four pages of branded international news and analysis to the newly launched Mint, a daily financial Berliner-sized newspaper in full color published by HT Media in New Delhi and Mumbai. The Journal’s name features in Mint’s banner as the newspaper’s exclusive partner, but there is said to be no financial investment by Dow Jones in Mint.

Perhaps not coincidentally, Raju Narisetti left the editorship of the Wall Street Journal Europe at the end of May to become Mint’s managing editor and organize the start-up. Before he left Brussels he wrote to FTM on why he believes India is so dynamic these days.

“What appealed to me about this venture was the significant change in India’s psyche in the last year or so. The country as a whole feels it can compete globally – and not just in outsourcing etc. – and there is a strong attitude now that they can play on a global stage.

“Clearly a FT or a WSJ brings deep international coverage to a market like India, but the equation is changing in the sense that such players are being seen as equals and peers. India’s business elite feel and act in a global manner and don’t feel the need to wake up to a “foreign” newspaper, if you will, given they, too, are as connected with the world via television, internet and other means.”

By western standards salaries are low, although at senior levels they are competitive with what one finds in the more developed world. Those low salaries have attracted several international news organizations to outsource reporting with Reuters, for instance, has more than 100 journalists housed in a new center in Bangalore. Cheap salaries surely were one reason why such a move was seen as a cost saver, but salaries are rising dramatically and what used to be a huge cost savings opportunity grows smaller by the month.

That is probably the biggest dark cloud on the media horizon.  According to Assocham, India’s top chamber of commerce, wage costs for employees in the media sector rose 60% in Q3 last year because the country’s 9% annual growth rate has caused a shortage of skilled labor. Wage competition has grown ferocious.

Those increased salaries are one cause for India’s high inflation, which reached a two-year high this month of 6.73% making the central bank raise its interest rates for the second time in just two weeks. Assocham said that salaries in the media and entertainment sector have risen 184% over a year ago.

Journalists are being offered mid-year increases and loyalty bonuses of around 25% but it is not uncommon for them, even while on their probation period, to be offered increases of up to 50% to work elsewhere.

Obviously it is boom times in India.

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