The stocks of major print media companies including DB Corp and Jagran Prakashan are down over 40 per cent in the last year primarily due to the economic slowdown resulting in weak demand and tepid consumer spending. Further, the rise of digital and social media platforms — eating into readership and advertisements — has largely impacted the financial health of these companies.
On the bright side, in the recent Budget, the Centre’s announcements on corporate rate tax cuts and reduction in customs duty (from 10 to 5 per cent) on newsprint and lightweight coated paper was a relief to print media players. The corporate tax cuts along with companies’ steps to rationalise costs have aided the margins in the last nine months ended in December 2019.
While these benefits help improve the bottomline, competitive landscape both within the newspaper industry and from online news media, and lack of ad spends from corporates will be the key challenges that could put pressure on the growth of print media companies going forward.
Here is look on how the print media companies have fared and what’s in store.
Ad revenues under pressure
In the past few years, factors such as GST (goods and service tax) roll out and implementation of RERA (Real Estate Regulatory Authority) coupled with macro-economic slowdown has reduced the ad spends from companies and institutions alike. The government too has reduced its ad spends. This has led to a continuous decline in ad revenue for the print media companies in the last three-four quarters.
DB Corp, one of the largest newspapers in the industry that derives 90 per cent of income from its regional newspaper business and has presence in nearly 13 states, reported revenue decline of about 8 per cent y-o-y to ₹1,746 crore with ad revenue falling 9 per cent y-o-y in the last nine months ended in December 2019. This fall is mainly attributed to a fall in ads from auto companies and the government. While ad revenue from real estate and education had remained flat, it was not enough to offset the overall fall. For DB Corp, ad revenue from auto companies, education and real estate contributes 50-60 per cent of ad revenue.
Similarly, Jagran Prakashan too reported a fall in ad revenue to 7 per cent y-o-y during the same period. Its overall revenue declined 7 per cent y-o-y to ₹1,770 crore. HT media too reported a decline of 12 per cent y-o-y in its ad revenue in 3Q FY20.
Though the economic slowdown has taken a toll on ad revenues for several leading print players so far in FY20, some trends such as increase in local advertising have been helping growth amidst the slowdown. For instance, for Jagran Prakashan in 3QFY20, the contribution (ad volume) of local advertisers increased to 66 per cent from 56 per cent same period last year. This is a continuation of the trend seen in the industry in FY19.
On an industry level, the print industry reported a single digit growth of 5 per cent in FY19 over FY18, according to a KPMG report. Print ad revenues during the year had been buoyant largely due to regional advertising revenues. Given the decline in English circulation growth on the back of faster digital adoption, particularly in urban areas, regional audiences and their demand for content in local languages has been one of the key reasons for the increase in local advertisements.
On the circulation front, circulation revenue, which contributes to nearly 30 per cent of print media revenue, witnessed marginal improvement. For DB Corp, the circulation revenue increased 1.6 per cent y-o-y in 3QFY20. This is mainly due to expansion to newer markets in the last nine months along with the selective cover price hike taken by the company in markets like Madhya Pradesh. But Jagran Prakashan reported circulation revenue decline of 1.5 per cent y-o-y in 3QFY20.
Low costs
In the last two years, the newsprint costs (raw material for print media companies) had been volatile. The prices peaked during 3QFY19 to over ₹45,000 a tonne but cooled off since then (around ₹30,000-32,000 per tonne) due to low demand in the global market, particularly from China, giving relief to domestic players. This, in addition to cost rationalising measures adopted by the companies has helped improve the bottomline.
DB Corp’s reported profit growth of 14 per cent y-o-y in the nine months ended December 2019 to ₹251 crore. The company’s operating margins improved from 22 per cent in 9MFY19 to 24 per cent this year, while the newsprint costs, during the same period, fell 9.2 per cent.
Jagran Prakashan too registered a profit growth of about 34 per cent y-o-y to ₹273 crore and margins improved to 23 per cent in 9MFY20 from 22 per cent same period last year. This is largely on account of improvement in per copy realisation and decline in newsprint costs to about 13 per cent y-o-y. The company’s reduction in other operating expenses and lower spend on discretionary items also helped.
Further, the recent Budget slashed import duty to 5 per cent from 10 per cent. This will also aid the margins of these companies.
Outlook
The print media is the second largest in the media and entertainment industry in terms of revenue generation. Challenges remain for the companies going ahead.
One, though newsprint prices have moderated in the last few quarters, print media companies are open to risks of high raw material costs once the global demand for newsprint picks up or if there is any supply shock in the market. Two, improvement in advertisement revenue is key for print media players, as a large portion of the revenue is dependent on the ad spend made by companies and corporates. Third, unless companies such as DB Corp and Jagran Prakashan ramp up their digital media presence, print circulation would continue to be under pressure. Though both companies have established their digital news platform, it is yet to significantly contribute to the companies’ revenues.