The Times, the Jains, and BCCL
Decoding BCCL, Part I. If BCCL’s shares are publicly listed it will make the company’s operations far more transparent than they are now, says PARANJOY GUHA THAKURTA. Pix: Company chairperson Indu Jain
Posted/Updated Monday, Nov 19 12:04:13, 2012
Balancing the Sheets of the Most Profitable Media Company
At a time when newspaper companies the world over are struggling to survive, Bennett, Coleman and Company, publishers of theTimes of India and the Economic Times, continues to rake in big bucks despite losing money on its internet and television operations. Its ethics flexible, the company controlled by the Jain family has launched a new Bengali regional daily. Its financial clout makes it disdainful of competition as it mulls a public issues of shares. Paranjoy Guha Thakurta studies the company’s last annual report.
Introduction:
Bennett, Coleman and Company Limited (BCCL), the flagship corporate entity of the group that publishes the Times of India -- the world’s most widely-circulated English daily newspaper which sells as many copies as all other English dailies in India put together -- is not merely one of the biggest media companies in the country. It is arguably one of the most profitable companies of its kind anywhere on the planet at present. While its flexible ethical standards have attracted criticism, BCCL’s aggressive marketing strategies and its financial clout have often been successful in stifling competition.
Although the company’s management has been mulling plans to go public by listing its equity shares in stock exchanges, it hasn’t done so yet. The fact that BCCL, promoted and controlled by the Jain family, is a closely-held public limited company enables it to not legally disclose many of its financial and operational details. Its complex shareholding structure and the presence of a plethora of subsidiary and associate companies make the company’s balance sheet a complicated document to analyze and interpret – the annual report of BCCL for the year that ended on 31 March 2011 runs into 143 pages.
As and when the company decides to undertake an initial public offering (IPO) of its shares, the already-wealthy promoters and directors of BCCL – including Chairperson Indu Jain, Vice Chairman Samir Jain, Managing Director Vineet Jain, Samir Jain and his wife Meera Jain’s daughter Trishla Jain and her husband, Satyan Gajwani, Chief Executive Officer of Times Internet Limited – are certain to become even more rich. (During 2010-11, Trishla Jain took charge of the company’s business development.) If indeed BCCL’s shares are publicly listed, it will perforce make the company’s operations far more transparent than they are at present. For instance, the books of accounts of the company and its 63 subsidiaries would have to be consolidated and more disclosures made.
BCCL’s aggressive stance with respect to its competitors gained momentum after 1987 when Samir Jain took charge of the company from his late father Ashok Kumar Jain. The Jains have never disguised their intention to maximize profits out of their various media businesses and never claimed they had noble objectives to promote journalism as a “mission” or to treat information as a “public good”. For them, a newspaper has always been a “product”, no different from a cake of soap or a tube of toothpaste. BCCL Managing Director Vineet Jain was recently quoted in the October edition of the New Yorkermagazine stating his company is in the “advertising” business and not in the business of journalism since advertising revenue accounts for 90 per cent of the company’s total earnings.
(The New Yorker article by Ken Auletta was titled “Citizens Jain” in an obvious reference to the 1941 silent era film “Citizen Kane”, scripted and directed by Orson Welles, who also acted as the protagonist in the celluloid portrayal of the rise and fall of an American newspaper tycoon. Welles’ film was a thinly disguised biography of William Randolph Hearst, the newspaper publisher whose use of screaming headlines and sensational reporting changed journalism in the US and whose publications completely ignored the critically-acclaimed “Citizen Kane” after it was released.)
The views of the Jains on newspaper publishing as a business were often at variance with those of journalists, including those they employed. Veteran journalist and author Inder Malhotra recalls the time he formally resigned as Resident Editor of the Times of India in Delhi in 1986 and was asked by Samir Jain to stay on for a few months till his replacement was in place. He told The Hoot: “I told Samir that although he was fond of describing the newspaper as a product that was no different from a cake of soap, I had never seen a cake of soap that had to worry about its credibility and its integrity. His reply to me was curt: ‘Only profit matters, nothing else’.”
In private conversations, Samir Jain has said that BCCL is not really a media company but a private equity company with substantial holdings in the media. This was, of course, before the company’s “private treaties” scheme failed to achieve the anticipated financial expectations.
Its financial clout and marketing muscle have made BCCL’s promoters confident of remaining market-leaders and contemptuous of competition. The ToI used to carry a slogan, “The leader guards the reader”, even as its rivals accused BCCL of compromising ethical values by, among other things, masquerading advertising and news and working out “private treaties” or financial arrangements with advertisers. Nevertheless, some of these competing organizations ended up emulating the same unethical practices.
BCCL seems prepared to expand its operations vigorously in the near future to remain ahead of competition, as it has by recently launching a Bengali daily Ei Shomoy. With its subsidiaries (called the Times Group) it has diversified way beyond its main publication, the Times of India daily newspaper, into various mass media including magazines, books, television, radio, the internet, event management, outdoor display, music and movies, as well as businesses as varied as real estate, retail, banking and insurance (with varying degrees of success).
The ToI -- the most widely-circulated English daily publication in the world -- is the main driving force of the group and accounts for roughly half the total circulation of all English daily newspapers in India. The Economic Times published by the company is the most widely circulated financial daily in the country and the second-most widely circulated financial daily in the world after the Wall Street Journal.
According to its official website, the Times group is India’s largest media conglomerate and BCCL is the largest publishing company in India as well as in south Asia – it publishes 13 newspapers and 18 magazines out of 11 publishing centres and 26 printing centres. The company also publishes the largest (by circulation) non-English newspapers in three of India’s largest cities, Mumbai, Delhi and Bengaluru. The turnover of the group currently exceeds a billion US dollars. The group claims it has the “support of over 25,000 advertisers, 11,000 employees and an audience spanning across all continents”.
The group, through Times Global Broadcasting, claims it broadcasts India’s most viewed English television news channel (Times Now), its second-largest business news channel (ET Now), the country’s largest cinema (Bollywood) news and lifestyle channel (Zoom) and the second most viewed television channel showing English movies (Movies Now). The group also claims it runs the largest internet network in India (after Google, Facebook and Yahoo) based on traffic and revenue, over 30 digital businesses (“most of which are among the top three in their competitive segment”), the “most popular” business-to-consumer mobile “shortcode” in India across short messaging services (SMS), voice, wireless application protocol (WAP) and USSD (unstructured supplementary service data) radio.
The Times group also claims that it runs India’s largest radio network (Radio Mirchi) in terms of revenue and number of listeners through 32 FM (frequency modulation) radio stations and the largest rock radio station in the United Kingdom.
Radio Mirchi is run by Entertainment Network India Limited (ENIL), a subsidiary of Times Infotainment Media Limited (TIML), a holding company promoted by BCCL incorporated in 1999 which, unlike its parent, has listed its shares on the Bombay Stock Exchange and the National Stock Exchange. For the quarter ending 31 March 2011, the company’s revenues grew by 34 per cent to Rs 82.2 crore, its earnings before interest, taxes, depreciation and amortization (EBITDA) more than doubled by 120 per cent to Rs 32.6 crore.
ENIL’s net profit for the year ended 31 March 2011 went up by as much as 192 per cent to Rs 52.2 crore against Rs 17.9 crore in the previous year, but this figure was boosted by the sale of the company’s subsidiary, Times Innovative Media Limited. On a consolidated basis, the company reported revenues of Rs 92.7 crore and profit after tax of Rs 20.3 crore during the fourth quarter of fisal 2010-11. For the full fiscal year, consolidated revenues were Rs 461.6 crore and net profit Rs 17.2 crore against a loss of Rs 15.3 crore in previous fiscal year.
With a listenership of more than 41 million, Radio Mirchi claims it has nearly twice as many listeners as its closest rival (quoting figures from the Indian Readership Survey). It further claims it earns around a third of total countrywide advertising revenues of all FM radio channels.
In addition, the group claims it owns the country’s largest “out of home” (OOH) advertising business and has advertising contracts in most major Indian airports. Add to these, the group’s other activities include music, movies, syndication, education, financial services, event management, specialized publications and multimedia operations.
During 2010-11, the circulation of all newspapers published by BCCL went up and new editions of Economic Times, Maharashtra Times, Speaking Tree and Crest were launched, as was a new publication called ET Wealth. The flagship publication, ToI, showed a growth of 5.7 per cent in terms of net sales, while ET grew by 5.9 per cent and Navbharat Times by 6.4 per cent. The Times group claimed it enjoyed a share of 38 per cent of the total Indian market for daily newspapers in terms of value, while in the English dailies segment its share was over half at 53 per cent. In terms of market share in terms of volume, the group’s overall share was 38 per cent and in the English segment, it was 50 per cent. (According to its 2010-11 annual report, BCCL printed 8,469 crore pages that year.)
Over the last four years, BCCL has launched a number of new editions of the ToI from centres such as Bhopal, Chennai, Goa, Indore, Jaipur and Nashik. In all these centres, printing presses have been established – with the exception of the Kerala editions which are printed in presses owned by the Mathrubhoomi newspaper group – each entailing lumpy investments (or large infusions of capital with long gestation periods) in the region of Rs 100 crore, thereby adding to establishment costs.
In this series, The Hoot looks at the company’s balance sheet, its ownership structure and its financial performance to understand where it stands when it faces competition from really big business investing in the media.
Ownership Structure:
BCCL’s 2010-11 annual report lists 63 subsidiary companies and four joint ventures. Going purely by what the names of the companies seem to suggest, 14 of these subsidiary companies are in property development and construction -- “the fourth estate as real estate” -- while 12 are apparently engaged in providing financial services (more on the company’s “private treaties” schemes later).
Five new subsidiaries were incorporated in 2010-11. Times Business Solutions ceased to be a subsidiary and Times Innovative Media Ltd became one. Most of BCCL’s subsidiaries are incorporated in India but several are incorporated in the United Kingdom, the United States of America and the United Arab Emirates. Among the subsidiaries incorporated in the UK are One Golden Square Creative Ltd, Times Internet (UL) Ltd, Times of Money UK PLC, TIML Digital Radio Ltd, Times Global Ltd, TIML Golden Square Ltd, TIML Radio Holdings Ltd and TIML Radio Ltd
The major shareholders of BCCL, on 31 March 2011, included:
· Bharat Nidhi Ltd (24.41 per cent)
· Ashoka Viniyoga Ltd (18.02 per cent)
· Camac Commercial Company Ltd (13.3 per cent)
· Sanmati Properties Ltd (9.75 per cent)
· Arth Udyog Ltd (9.31 per cent)
· PNB Finance and Industries Ltd (9.29 per cent)
· Jacaranda Corporate Services Ltd (8.93 per cent)
· TM Investments Ltd (5.96 per cent)
The Jain family, which controls the group, directly owns only small percentages of shares in BCCL. Vineet Jain holds 0.57 per cent, Samir Jain and Meera Jain between them have 0.33 per cent and Trishla Jain has 0.13 per cent. Thus, these directors and their relatives hold 1.03 per cent of the company’s shares while corporate bodies hold 98.97 per cent. However, the same promoters control BCCL through cross-holdings in subsidiary and associate companies.
Vineet Jain owns the largest stake in Arth Udyog Ltd and a significant stake in TM Investment Ltd. Samir and Meera Jain together own substantial shares in Ashoka Viniyoga Ltd. Cross-holdings among the company’s major shareholders make the ownership structure complicated (as is the case with many Indian family-dominated groups). Bharat Nidhi Ltd owns substantial shares in two shareholding companies: Arth Udyog Ltd and TM Investments Ltd. Similarly, Camac Commercial Company Ltd is the largest shareholder in another BCCL shareholder, Ashoka Viniyoga Ltd. Sanmati Properties Ltd also has a large stake in Arth Udyog Ltd. TM Investment Ltd is largely owned by Ashoka Marketing Ltd, which also owns a substantial stake in Arth Udyog Ltd, which company in turn owns a significant stake in TM Investment Ltd. PNB Finance & Industries Ltd virtually owns all of Jacaranda Corporate Services Ltd and also owns a stake in Ashoka Viniyoga.
On 31 March 2011, Samir Jain held 16.27 per cent in Ashoka Viniyoga; Trishla Jain’s stake was 16.27 per cent. Camac Commercial held nearly 46 per cent in the same company. On 30 June 2011, Vineet K. Jain held over one-third of the shares of Arth Udyog, while Bharat Nidhi held 18.36 per cent of the company. On 22 August 2011, Vineet held 18.5 per cent of TM Investments. Arth Udyog, in which Vineet holds one-third shares, owns 17 per cent of TM Investments while 14 per cent is held by Bharat Nidhi.
In Bharat Nidhi Limited, at the end of March 2012, the company which is the largest shareholder of BCCL, Vineet Kumar Jain was the largest individual shareholder with a stake just over 20 per cent. Other major shareholders in Bharat Nidhi were Ashoka Marketing with a stake of over 10 per cent -- Ashoka Marketing had a 99.9 per cent stake in Sanmati Properties Limited which, in turn, had a 16 per cent stake in Bharat Nidhi. Two other companies, Matrix Merchandise and Mahavir Finance have stakes of over 20 per cent and 6.8 per cent respectively in Bharat Nidhi.
Page 24 of Bharat Nidhi’s annual report for the year ended 31 March 2012 stated that the company had only two tangible fixed assets -- a computer and a note counting machine!
Research Assistance: Ahana Banerjee and Purav Goswami
(The writer is Consulting Editor, The Hoot, and an independent journalist and educator with over 35 years of work experience in print, radio, television and documentary cinema. He can be contacted at paranjoy@gmail.com.)
More profitable than most-- Decoding BCCL, Part II
The company’s pre-tax profit margin in 2010-11 was 31.89 per cent. Its financial clout gives it a huge advantage over its rivals, and enables the ToI to establish a strong base in new markets, says PARANJOY GUHA THAKURTA.
Posted/Updated Monday, Nov 19 12:07:16, 2012
BCCL is one of the most profitable companies of its kind. In the financial year that ended on 31 March 2011, the company earned profit before tax of Rs 1,489.2 crore on a total income of Rs 4,749.3 crore, implying a phenomenally high profit margin of 31.89 per cent. In 2010-11, BCCL earned a net profit of Rs 968.74 crore (20.4 per cent of turnover) -- up by as much as 3.8 times from Rs 252.26 crore in the previous financial year.
(This is the last balance sheet of the company that is available from the Registrar of Companies. It initially had time till the end of September to submit its annual report for the year ended 31 March 2012. However, on 28 September, the Ministry of Corporate Affairs extended the time granted to companies to file their balance sheets and profit and loss accounts in computerized forms that use an extensible business reporting language or XBRL, till 23 December 2012.)
BCCL is not just one of the most profitable companies in the media industry but one of the most profitable companies in the country. “The fact that the company is losing quite a bit on its news television and internet operations and still value-earning huge overall profits is an indication how profitable its print operations are,” observes a BCCL insider who spoke on condition of anonymity.
BCCL’s financial performance compares rather favourably not just with its rivals but with those of some of India’s leading blue-chip corporate entities. Between 2010-11 and 2011-12, for HT Media (publishers of the Hindustan Times and Hindustan), profit before interest and taxes as percentage of turnover or gross revenue fell from 19.3 per cent to 12.9 per cent. For Jagran Prakashan (publishers of Dainik Jagran), the corresponding proportions were 25.5 per cent and 17.6 per cent respectively, while for Wipro the figures were 19.2 per cent and 16.8 per cent and for Reliance Industries Limited, these were 9.7 per cent and 6.7 per cent. Only software major Infosys had profit proportions comparable with those of BCCL: 33.2 per cent in 2010-11 and 32.2 per cent in 2011-12.
BCCL has investments in non-media companies as well. More than a decade ago, it had attempted to run a bank (Times Bank) and provide financial services (through Times Guaranty) but the former was taken over by HDFC (formerly Housing Development and Finance Corporation) Bank in 2000. BCCL continued as the second largest shareholder in HDFC Bank. In July 2009, BCCL picked up a stake (less than one per cent) in Lavasa Corporation (of the Hindustan Construction Company or HCC group) which is developing a hill city on the Western Ghats between Mumbai and Pune – not surprisingly, large full-page advertisements of the Lavasa project frequently appear on the pages of the ToI.
Financial Analysis:
In the analysis that follows, it is important to note that BCCL had closed its books of accounts on 31 July 2008. Thereafter, the next three financial years ended on 31 March each year in 2009, 2010 and 2011. The Companies Act, 1956, permits books of accounts to be closed at any time during the year provided the accounting period does not exceed 18 months. The Income Tax Act, 1961, states that for the purpose of taxation, every company has to close its book on 31 March for a period not exceeding 12 months. In exceptional situations, the 12-month accounting rule under the Income Tax Act can be relaxed. If a company chooses to close books on a date other than 31 March, it has to maintain another set of accounts for the purpose of payment of corporate income tax. Most companies end their accounting on 31 March as they find it expensive and cumbersome to maintain two sets of accounts.
In the case of BCCL, its balance sheet for the year ended 31 July 2008 states in Point 7(a) in the “Notes to Accounts” that the “previous year” of the company for income tax assessment purposes is the financial year between 1 April 2008 and 31 March 2009, that provision for income tax has been made on the basis of the “cash system of accounting” for the said “previous year”. The profits relating to the period between 1 April 2009 and 31 July 2009 along with the period of eight months ending 31 March 2010 would be assessable for tax in the assessment year 2010-11 relevant to the previous year ending 31 March 2010 and therefore “provision for taxation, if any, for this period will be considered in the following year”.
For BCCL, 2010-11 was a good year, despite a more than one-fifth (21 per cent) increase in newsprint costs. The company earned a pre-tax profit of Rs 1,489.14 crore in 2010-11, more than two and a half times higher than the Rs 573.90 crore earned in 2009-10. Its reserves and surplus went up 15 per cent to Rs 5,410.50 crore from Rs 4,716.83 crore in the previous year. Its cash bank balances stood at Rs 220.00 crore, 43 per cent higher than Rs 153.64 crore in the previous year. The company made a provision for taxation of Rs 514.35 crore in 2010-11, a sharp rise from Rs 187.30 crore in the previous year. However, provision for taxes for earlier years fell from Rs 134.34 in 2009-10 to only Rs 6.05 crore the following year.
The group recorded a 24 per cent growth in terms of revenue in 2010-11, surpassing the overall 15 per cent rate of growth of the print market in India (as per a report prepared by KPMG for the Federation of Indian Chambers of Commerce and Industry or FICCI). Despite these impressive results, BCCL’s directors were cautious as they foresaw increased competitive pressures from available alternatives, stagnant readership holding advertisement rates down, and the adverse impact of inflation. The company’s management claimed that in the future, it would focus on expanding its digital ventures, its home video segment and its rights management business to create, build, licence and acquire music and film- related intellectual properties.
A look at the company’s revenues indicates that revenue from operations – which includes sales of publications, sales of “leisure and retail” products, advertisements, sales of waste paper and telecasting rights – is substantially higher than its non-operating income, that is, income from dividends, rents, business transfers and asset sales (see Chart 1). Sales of leisure and retail products accounted for Rs 19 crore in 2010-11: these could include goods obtained on barter in lieu of advertising such as consumer durables (cameras, mobile phones, household gadgets), music and film discs and so on. Whereas operating revenues are strong enough to sustain the company, these figures to a certain extent underplay the financial prowess of the BCCL.
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Revenue from advertising as a proportion of net operating revenue fell from 86 per cent in 2009-10 to 84 per cent in the following year. The fact that BCCL’s “other income” during 2010-11 aggregated Rs 296.76 crore against Rs 374.21 crore earned as revenue from sale of publications, implies that the company can theoretically distribute its newspapers free of charge and still earn handsome profits. This kind of financial clout gives the company a huge advantage over its rivals, including papers like the DNA (Daily News & Analysis) in Mumbai. This also enables the ToI to expeditiously establish a strong base in new markets.
As R. Jagadeeshwara Rao pointed out in an article in thehoot.org published on 29 September 2012, the ToI advertised that its Visakhapatnam edition would be priced at Re one. The low price would enable the paper to compete effectively against its competitors, The Hindu, Deccan Chronicle and New Indian Express. He recalled how the entry of the ToI in various cities in southern India invariably resulted in a fall in the prices of all newspapers. In fact, a similar strategy had been deployed by BCCL in other parts of India as well right through the 1980s and 1990s. The company has invariably unleashed what its competitors call a “price war” resulting in the prices of all newspapers coming down.
Those at the receiving end have cribbed that the ToI is engaged in “predatory pricing” (though not necessarily in the legal sense of the term as per competition law) while BCCL has gloated at the discomfiture of its rivals and argued that its ability to reduce newspaper prices was benefiting readers and enlarging the market. It was not just by slashing cover prices that the ToI would scorch its rivals – attractive subscription schemes with gifts would be used to entice subscribers. In Vizag, for instance, for an initial monthly subscription of Rs 49 and a “gift”, a prospective subscriber would get the daily “almost free”. This could be converted into an annual subscription by paying an additional Rs.300, making the cover price less than Re one a day. A similar strategyhas reportedly been planned for Vijaywada, the “commercial and business capital’ of Andhra Pradesh. By way of contrast, leading Telugu dailies like Eenadu, Saakshi and Andhra Jyothi are all priced at Rs 3 a copy.
As already stated, BCCL has 63 subsidiary companies, many of which are in financial services and in real estate, While these holdings are listed in the “statement pursuant to section 212 of the Companies Act” which is a disclosure requirement under the Companies Act, 1956, the true financial picture of the group is poorly reflected in the company’s consolidated balance sheet. In BCCL’s consolidated balance sheet, the aggregate profits and/or losses of the subsidiary companies in both the year under review as well as in previous years are not dealt with in the accounts of the holding company. The company’s balance sheet primarily focuses on the company’s income generated from media operations and only minimal or compliance oriented information on “other income” is made available.
The schedules to the profit and loss account detail publication profits only and the company’s investments that are listed in the balance sheet’s schedule do not reflect individual market values of the shares held. Only a consolidated figure is provided. The schedule to “loans and advances” reveals that loans to “others” who/which are not subsidiary companies have been pledged for shares worth Rs 37 crore. Who these “others” are, have not been disclosed. Thus, while BCCL has complied with the legal provisions of the Companies Act, the objective of transparency has been compromised. If BCCL was a publicly listed company (which it is not), it would probably not have been allowed to get away with such perfunctory disclosure of the financial positions of its subsidiary companies.
Return on equity (ROE) is calculated as net income divided by total equity. BCCL’s ROE, which stood at 20 per cent in 2007-08, came crashing down to 6 per cent and 5 per cent in 2008-09 and 2009-10 respectively, before rising again to 17 per cent the following year (see Chart 2). Since the company earns most of its revenues from its operations and relatively little in the form of “other income”, including income from its shareholdings in other companies – more on BCCL’s “private treaties” a little later – the fluctuations in BCCL’s ROE are significant.
How does one explain the sharp fall in the company’s ROE for two years during a period when India’s stock-market indices were particularly depressed after touching a peak in January 2008? One explanation could be that the shares held by BCCL in various companies (that it had obtained in exchange for giving out advertising space as part of its “private treaties” scheme) failed to generate anticipated revenues in view of poor conditions prevailing in the country’s financial markets. The second explanation could be that during this phase of an economic slowdown – recession is still a dirty word in India! – the rate of growth of BCCL’s advertising revenue decelerated. It is, of course, possible and likely that both these considerations played a role in BCCL’s ROE careening and rising.
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The story gets repeated in the case of the company’s return on assets or ROA which is calculated as net income divided by total assets. BCCL’s ROA slumped from 11 per cent in 2007-08 to 3 per cent over the next two years before rising to 12 per cent in 2010-11 (see Chart 3). The same trend is observed when one calculates the company’s net profit margin -- which is net income as a proportion of net sales. This proportion, which fell from 22 per cent in 2007-08 to 7 per cent in 2008-09, rose marginally to 10 per cent the following year before returning to the level of 22 per cent in 2010-11. It needs to be noted that in the case of BCCL, while its revenue has been significantly impacted by market conditions, the increase in the company’s expenditure has been substantial as well. Newsprint costs, considered to be the single largest item in the chart of costs incurred by the company, have had a major negative impact on the company’s profit margin (see section on newsprint costs that comes later).
Chart 3: BCCL’s Return on Assets
A company’s debt equity ratio is calculated as the ratio between total debt (including secured and unsecured loans) and equity (shares and free reserves). This ratio provides a relative picture between long term debt and equity capital, thereby indicating the financial leverage of a company. A high debt equity ratio typically signifies high use of debt capital which exposes a company to higher risks of debt servicing and interest rate volatility. There is no ideal debt equity ratio – it varies from industry to industry. The debt equity ratio of BCCL fell between 2007-08 and 2009-10 and then rose (see Chart 5). This can be attributed to the increase in equity capital through an issue of bonus shares which rose to Rs 286.96 crore in 2010-11 from Rs 31.88 crore in the previous year and a fall in debt wherein the company’s secured and unsecured loans become nil in the 2010-11, making BCCL an almost “zero debt” company.
Chart 5: BCCL’s Debt Equity Ratio
Comparing BCCL’s financial performance with those of its competitiors
In terms of profitability, BCCL’s performance is superior to its competitors such as HT Media (publishers of the Hindustan Times and Hindustan) and Jagran Prakashan (publishers of Dainik Jagran, said to be the world’s most widely-circulated multi-edition daily newspaper). Chart 6 shows that 2009 was a year of poor revenue generation for all the three newspaper publishing companies.
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Comparing BCCL’s debt equity ratio with that of its competitors, it can be inferred that the company’s financial leverage is considerably lower than those of its market rivals implying a relatively more comfortable risk position.
A company’s current ratio is the ratio between the current assets and current liabilities of an organization. It shows the extent to which current liabilities can be covered by current assets, where current assets include cash and other such assets which can be easily converted to cash and short term loans and advances. The ideal current ratio is considered to be 1:2 where the overall current assets are double of current liabilities. But this measure needs to be viewed against industry standards. BCCL has a very low current ratio which signifies higher profitability as fewer funds are deployed in working capital. At the same time, a low current ratio implies a higher risk of default, including default in servicing debt. Chart 9 shows that BCCL’s current ratio has been much lower than its competitors, HT Media and Dainik Jagran, over a four year period.
A low debt equity ratio signifies lower liabilities which include the current liability of debt servicing and interest payment. An increase in BCCL’s current ratio can be attributed to the absence of debt. The company’s adjusted profit margins indicate that while 2008-09 was a year when its profits were squeezed, the recovery that took place over the following two years tells a story. While revenues were constrained and costs went up, BCCL’s profit margins remained by and large unaltered.
As the market leader, BCCL is one media enterprise that has kept its advertising charges as non-negotiable. In other words, advertisers could not under most circumstances expect a discount on the advertising rates officially specified by the company on its tariff cards. The second factor was that by this period, BCCL’s “private treaties” scheme – or the company accepting shares in lieu of direct cash payments for providing advertising space – was running out of steam for reasons that will be explained.
After many years, during 2009-10, BCCL started offering discounts on its advertising rates. This, on hindsight (which makes us all more intelligent), appears now to have been a myopic and faulty business strategy because when the good times return, BCCL would find it difficult to go back to its old “non-negotiable” advertising tariffs. The challenge to BCCL was not related to circulation or market shares. It had everything to do with depressed stock-market conditions.
Research Assistance: Ahana Banerjee and Purav Goswami
(The writer is Consulting Editor, The Hoot, and an independent journalist and educator with over 35 years of work experience in print, radio, television and documentary cinema. He can be contacted at paranjoy@gmail.com.)
Seeking controversial revenue routes-Decoding BCCL, Part III
Even as the private treaties scheme was apparently aimed at undermining competition to the TOI, a number of competing newspapers as well as television channels started similar schemes. PARANJOY GUHA THAKURTA revisits some of the controversial initiatives.
Posted/Updated Wednesday, Nov 21 11:36:29, 2012
Private treaties: boon or bane for BCCL?
BCCL was the first media company in India to accept equity shares in lieu of money for advertising space. Others followed thereafter. Here are excerpts from the April 2010 report of the sub-committee of the Press Council of India (PCI) entitled “Paid News: How Corruption in the Indian Media Undermines Democracy” which is available on the Council’s website. The writer of this article was co-author of the sub-committee’s report as a member of the PCI.
“BCCL devised … (an) ‘innovative’ marketing and PR (public relations) strategy. In 2005, ten companies, including Videocon India and Kinetic Motors, allotted unknown amounts of equity shares to BCCL as part of a deal to enable these firms to receive advertising space in BCCL-owned media ventures. The success of the scheme turned BCCL into one of the largest private equity investors in India. At the end of 2007, the media company boasted of investments in 140 companies in aviation, media, retail and entertainment, among other sectors, valued at an estimated Rs 1,500 crore. According to an interview given by a senior BCCL representative (S. Sivakumar) to a website (medianama.com) in July 2008, the company had between 175 and 200 private treaty clients with an average deal size of between Rs 15 crore and Rs 20 crore implying an aggregate investment that could vary between Rs 2,600 crore and Rs 4,000 crore.
“It is a separate matter that the fall in stock-market indices in 2008 robbed some of the sheen off the ‘private treaties’ scheme for the BCCL management. While the value of BCCL’s holdings in partner companies came down, the media company had to meet its commitments to provide advertising space at old ‘inflated’ valuations which also had to be shown as assessable taxable income for BCCL on which corporation tax is levied.
“Even as the private treaties scheme was apparently aimed at undermining competition to the TOI, a number of the newspaper’s competitors as well as television channels started similar schemes. The ‘private treaties’ scheme pioneered in the Indian media by BCCL involves giving advertising space to private corporate entities/advertisers in exchange for equity investment--the company officially denies that it also provides favourable editorial coverage to its ‘private treaty’ clients and/or blacks out adverse comment against its clients.
“While BCCL representatives denied receiving money for providing favourable editorial space, the integrity of news was compromised. In advertisements published in the Economic Times and the TOI celebrating the success of the group’s private treaties, on December 4, 2009, the Mumbai edition of the newspapers published a half-page colour advertisement titled ‘How to perform the Great Indian Rope Trick’ and cited the case of Pantaloon. What was being referred to was how Pantaloon’s strategic partnership with the TOI group had paid off. The advertisement read: ‘…with the added advantage of being a media house, Times Private Treaties, went beyond the usual role of an investor by not straining the partner’s cash flows. It was because of the unparalleled advertising muscle of India’s leading media conglomerate. As Pantaloon furiously expanded, Times Private Treaties (TPT) ensured that (it) was never short on demand. The TPT has a better phrase for it--business sense’.”
In an interview published in Outlook (November 1, 2010), Ravi Dhariwal, chief executive officer of BCCL, justified his company’s private treaties scheme. Here are verbatim excerpts from the interview by Anjali Puri:
Let’s get your word on … (a) controversial issue—private treaties.
Ninety-nine per cent of journalists don’t understand what private treaties are. Private treaties are just a way by which the advertising is paid for, not in cash, but in equity. Just like a cash advertiser cannot expect to influence editorial, no private treaty client can expect to influence editorial. He signs a contract that clearly states that he will not get favourable editorial coverage. Our editors don’t even know who our private treaty clients are.
You must be aware of SEBI’s (Securities and Exchange Board of India’s) guidelines—that when you publish stories about companies you have private treaties with, you must state clearly how much of their equity you hold.
We have been doing that, for the last two years. We don’t have to state it in every story. We have written to SEBI, pointing out that the moment you tell a journalist that you have equity in this or that company, you are biasing him, either positively or negatively. We don’t want to bias our journalists. But if a reader is interested, we direct the reader to the relevant websites where we have disclosed this information.
That’s a cumbersome process.
If it’s an IPO, if it is price-sensitive information that SEBI should be bothered about, we always disclose a private treaty. But disclosing it in every article is unrealistic. A paper is put to bed at 11 pm at night, and we have 500 private treaty clients. Is a journalist going to keep on checking in the short time available whether we have a private treaty with this or that company?
But the Press Council has endorsed SEBI’s guidelines.
We endorse the objective of making sure that editorial is not influenced by our commercial interests. Give me one instance where our private treaty investment has had favourable editorial mention, or a story has been suppressed.
The point is, we don’t know. These are opaque areas.
Journalists know, you guys know. We believe in the objective laid down by the Press Council, we never want to do paid news.
* * *
On June 17, 2008, the hoot.org published an article by Clifton D’Rozario entitled “How private treaties influence reporting” which pointed out that the ToI was careful to not mention the name of a real estate company (Sobha Developers) which was one of BCCL’s private treaty partners while reporting on an elevator crash accident that took place at a construction site in Bengaluru causing the death of two workers and severe injuries to seven others on 10 May that year. Other newspapers had mentioned the name of the company in their reports on the accident.
In an article for Seminar published in 2006, T.N. Ninan, the then editor of Business Standard, pointed out that BCCL “invests in usually mid-rung companies that are keen to jump into the big league but are perhaps without the big bucks to spend on marketing. The share purchase money is immediately taken back against the promise of guaranteed advertising in Bennett publications to build the investee company’s brand(s). Part of the deal is even said to be editorial coverage, though this remains unconfirmed.”
Sucheta Dalal, while commenting on BCCL and its private treaties, had cautioned: “Investors must know the exact list of Times PT clients (which is available on their website for easy reference) because you are least likely to hear any bad news about these companies”..
Growing trend
More and more Indian media companies followed BCCL in instituting shares-for-advertising scheme, including HT Media, the companies publishing Dainik Bhaskar and Dainik Jagran and television networks like Network 18 (formerly TV18) and New Delhi Television. “The trend is obviously growing considering the financial gains to the media houses, but at the cost of the reader, his right to honest and complete reporting and importantly, freedom of the press,” wrote D’Rozario in thehoot.org.
Business Standard reported on 04 May 2012 that after signing a Rs 1,600 - crore deal with Aditya Birla Nuvo, Pantaloon Retail, India’s largest retailer, stated that it would raise Rs 200 crore by issuing shares to BCCL at Rs 245 a share. After the transaction, BCCL’s stake in the company will go up from 2.12 per cent to 5.8 per cent, while the promoters’ stake (held by Kishore Biyani and his associates) will come down by 1.6 per cent to 43 per cent. Pantaloon also said it would change the name of the company to Future Retail India Limited. However, there were not too many such transactions. |
By 2009-10, it had become evident that BCCL’s private treaties scheme had not worked out the way the company’s management would have liked it to. Stock-market indices were down and the company could not reap huge profits by getting out of a select few highly-profitable companies among its many private treaty partners. Having made significant investments in equity shares of companies on which it was receiving dividends (which were, of course, much lower than anticipated), BCCL’s books recorded an increase in operating revenue without any direct cash inflow. (Incidentally, other media companies that had started similar schemes such as NDTV discontinued these as share values remained low.) Medianet: News or Advertising? According to the Indian Express (October 30, 2012), while Ravi Dhariwal, CEO of BCCL, was busy praising his newspapers (ToI and ET) at a seminar organised by the Confederation of Indian Industry (CII) in Delhi, Amit Khanna, Chairman of Anil Ambani’s Big Reliance Entertainment told Dhariwal that he had once approached one of his newspapers to cover a film festival but was asked to contact BCCL’s Medianet team, which asked for money for coverage. Others in the audience also asked Dhariwal about the paid “pull-outs” of his newspapers. BCCL’s CEO was reportedly not in the least flustered and responded in an unperturbed manner that people seeking publicity in his newspapers must pay for coverage. The editors of his newspapers, he claimed, were free and picked news items that were in the public interest. This was the most recent example of a phenomenon that has been in vogue in the company for some years now. As the April 2010 PCI sub-committee’s report on “Paid News” observed: “In the 1980s, after Samir Jain became the executive head of Bennett, Coleman Company Limited (BCCL)--publishers of The Times of India… group of publications-- the rules of the Indian media game began to change. Besides initiating cut-throat cover-price competition, marketing was used creatively to make BCCL one of the most profitable media conglomerates in the country--it currently earns more profit than the rest of the publishing industries in the country put together though as a corporate group, the STAR group has in recent years recorded a higher annual turnover in particular years. “The media phenomenon that has caused considerable outrage of late has been BCCL’s 2003 decision to start a ‘paid content’ service called Medianet, which, for a price, openly offers to send journalists to cover product launches or personality-related events. When competing newspapers pointed out the blatant violation of journalistic ethics implicit in such a practice, BCCL’s bosses argued that such ‘advertorials’ were not appearing in newspapers like the TOI itself, but only in the city-specific colour supplements that highlight society trivia rather than hard news. There was another, more blatant justification of this practice not just by BCCL but other media companies that emulated such a practice after BCCL started it. If public relations (PR) firms are already ‘bribing’ journalists to ensure that coverage of their clients is carried, what was wrong then with eliminating the intermediary – in this instance, the PR agency – it was argued. “In many media organisations, news is sought to be distinguished from material that is paid for, called advertisements or ‘advertorials’, by using different or distinctive fonts, font sizes, boundaries and/or disclaimers such as ‘sponsored feature’ or even the letters ‘advt’ printed in a miniscule font size in a corner of the advertisement--which may or may not escape the attention of the reader. However, in certain instances, even a fig-leaf of a disclaimer was done away with. For instance, a year-long series of articles on the skin-care product, Olay, in Delhi Times, the city supplement of The Times of India, would appear to have fallen into the category of ‘paid news’ even if this was denied by the newspaper. Whereas BCCL representatives have often argued that the companies private treaties scheme is open to public scrutiny since the companies in which BCCL has picked up stakes is in the public domain and listed on its official website, the influence such companies wield on editorial content is a matter of contention and debate. “An advertising campaign by razor blade manufacturing company, Gillete, called ‘war against lazy stubble’, broadcast on the CNN-IBN television news channel, showcased features, interviews of celebrities, as well as panel discussions on the topic of whether a man should shave or not with a foregone conclusion: ‘Indian women prefer clean-shaven men’. It was claimed that the Gillette-CNN-IBN ‘exclusive partnership’ was a mutually beneficial alliance. There are many other such examples of ‘advertorials’.” * * * Here’s another excerpt from the Outlook interview with BCCL CEO Ravi Dhariwal: There was a year-long series of articles on the brand Olay in Delhi Times. It was a paid marketing campaign, but a media ethics report says this was not clear to readers. Even if you make an advertisement, and put a circle around it, how is that important? Why is it important that it should be made clear to the reader? Are we writing something that is wrong? This kind of thing is only important to media persons. You as an editor would make a big deal about it, by saying this is my territory... No, it creates a buzz. It gives the impression that you are endorsing a product objectively, whereas you are doing so because you are paid to. We are not endorsing any product, and the reader understands it…. What about the controversy relating to Medianet? Medianet only operates in our advertising supplements. There have never been any Medianet stories in our main paper, ever. But there is no clear demarcation there, between what is paid for and what is editorial. There is hundred per cent demarcation. Our supplements or features are not news. To say that our Education Times (a supplement) is news, or our Delhi Times (another daily supplement) is news is to change the meaning of news. They are not under the editorial control of The Times of India editor. Our main paper is news—and there is no paid news. But does the reader understand that? Of course he does. Do you think the reader is a fool? If we were doing something horribly wrong with Medianet, why would advertising be continuously coming to those supplements? The advertiser knows. And please look at our Medianet stories. Forget about paid or not paid; tell me where we have misled people in these stories. Is it true that one of the reasons Medianet came into being is that deals were being made between journalists and PR agencies and you wanted to eliminate that? Yes. A large part of the reason for Medianet was that. But why not eradicate the corruption instead? There is no corruption now. We are saying this is totally an advertising supplement and it is not news. We are totally opposed to paid news. * * * The PCI sub-committee’s report had stated the following, quoting P. Sainath, Rural Affairs Editor of The Hindu: “It would be a mistake to conclude that the business of paid news was confined to language dailies,’ said Shri Sainath. “He added: ‘Even English dailies like the Vidarbha Plus (a supplement of the Times of India) published advertisements for candidates in the form of news. The Vidarbha Plus carried an advertisement disguised as news on the Congress candidate from Amravati Assembly Constituency, Shri Raosaheb Shekhawat, son of the President of India Smt Pratibha Devisingh Patil. The report carried a headline ‘Motorbike rally marks conclusions of electoral campaign’. The contents of the news item, that comprised endless praises for Shri Shekhawat, make for interesting reading. No regular reporter would ever use the language of this ‘news item’ which says, for example, that Shekhawat ‘epitomises politeness, potential and promise’ and that he is ‘blessed with extremely charming personality’, and ‘a charisma (that) attracted huge crowds throughout his campaign’. This ‘news item’ was published on the very day of polling in the Assembly elections,” said Shri Sainath.” Dhariwal dismissed Sainath’s contention as his “personal view”. He told Outlook: “The Press Council has examined it; our reply is in the public domain. This is absolute rubbish. We would take paid news in a Vidharba paper? Why, we could have made thousands of crores by aligning ourselves with major parties like the Congress or the BJP!” The fact is that the PCI did send a letter to Indu Jain, Chairperson, BCCL, asking her or her representatives to depose before the Council’s sub-committee on Sainath’s allegation. The company chose not to respond to this letter nor send a representative to the PCI. On September 1, 2012, thehoot.org published an article by this writer entitled “MPs’ report refutes ToI’s Bt cotton stories, the first paragraph of which read: “Allegations leveled by Palagummi Sainath, Rural Affairs Editor of The Hindu newspaper, that its competing daily, The Times of India, published an article at the behest of Mahyco-Monsanto Biotech without disclosing this fact to its readers and subsequently gained financially from its publication, have been endorsed by a committee of Parliamentarians in a recently-published report. Whereas the report, prepared by a panel of MPs belonging to different political parties, does not mention the ToI by name but merely describes it as a ‘national daily’, the inferences are all too apparent.” Writing in The Hoot (September 26 2012) Anjali Puri referred to an article entitled “Of Dull Jacks and Jills” that appeared on the editorial page of the ToI on August 29, 2012 under the byline of Olympic medal-winning boxer from Manipur, Mary Kom. While making a passionate plea for building playgrounds for children, the article in its last paragraph referred to “corporate giants who are coming forward to build and maintain playgrounds”. Mary Kom is a brand ambassador for commercial campaigns of the multinational corporation, Procter & Gamble, which urge consumers to buy P& G products by telling them a part of the proceeds (for three months, actually) will go towards building playgrounds “across the country” (40, actually). Puri wrote that shortly before Mary Kom’s editorial-page pitch surfaced, an event management company hired by P&G urged shoppers to buy P&G products for the sake of playgrounds. And on the day the ToI edit page piece appeared, “Magnificent Mary”, as a P&G press release put it, led a National Sports Day rally sprinkled with starlets to demand playgrounds. The article quotes Santosh Desai, CEO of the brand consulting firm, Future Brands, as saying: “As far as advertising is concerned, it has always wanted to penetrate the sacred space of editorial, because that is where credibility lies. And now, here was editorial saying, penetrate me.” The Hoot, on October 15, 2012, pointed out that the head of Hindustan Unilever (a major manufacturer of soaps) wrote an article on the editorial page of the ToI on the hand-washing initiatives undertaken by private companies and the Government of India. The newspaper carried full-page paid features on Lifebuoy soap (made by Hindustan Unilever) on the occasion of “Handwashing Day”. This website wondered if there had been a “package deal” of some sort between the company and the newspaper. Research assistance: Ahana Banerjee and Purav Goswami (The writer is Consulting Editor, The Hoot, and an independent journalist and educator with over 35 years of work experience in print, radio, television, and documentary cinema. He can be contacted at paranjoy@gmail.com.) |
Current costs and future prospects. Decoding BCCL, Part IV
“We were a content company that used technology. Now we are a technology company that uses content.” PARANJOY GUHA THAKURTA looks at what the future holds for BCCL as competition intensifies
Posted/Updated Sunday, Dec 02 19:42:07, 2012
BCCL’s Newsprint Burden
As the biggest publisher of newspapers in India, it is hardly surprising that BCCL is the single largest consumer of newsprint in the country. The company consumed Rs 1,246.90 crore worth of raw materials in 2010-11, the bulk of it newsprint, comprising over a third (38 per cent) of its turnover that year. The company’s imports stood at Rs 1,374.26 crore, up by as much as 2.8 times from Rs 484.91 crore in the previous financial year.
In a report published in Business Standard (11 July 2011) titled “High newsprint prices likely to hit Indian print media margins”, Sahil Aggarwal, analyst in rating agency Fitch’s telecom, media and technology team has been quoted as stating that “newsprint cost is the largest operating cost for newspaper publishers, and typically accounts for 40-50 per cent of total operating costs. Further, high competitive intensity in the industry is likely to prevent newspaper publishers from raising cover prices significantly.”
Newsprint prices increased from around US$600 per tonne to around $900/tonne over the last two years. Further, as substantial quantities of newsprint are imported, its landed prices are influenced by the exchange rate. The recent depreciation in the value of the rupee in relation to the US dollar increased newsprint prices to Indian users. It goes without saying that BCCL needs to spend more on newsprint than any of its competitors. This trend is further accentuated by the fact that for newsprint, BCCL follows the last-in-first-out (LIFO) method which means that the more expensive newsprint is used first thereby increasing printing costs. According to a report prepared by PriceWaterhouseCoopers (PWC) for the Confederation of Indian Industry (CII) in October 2012, availability of waste paper (a major raw material used in production of newsprint) in Western countries has come down drastically as a consequence of which, prices have gone up considerably.
BCCL’s annual report for 2010-11 says the price of standard newsprint rose from $560-575 per tonne to $680-695 per tonne, an increase of over a fifth. Old newsprint, the feedstock for paper manufacturing, saw prices hover near $240-280 per tonne while availability was a matter of concern. Logistics costs also bounced back from the lows of 2009 as global trade picked up, the report added, pointing out that prices of domestic newsprint rose to record levels.
Remuneration Structure
As mentioned, the Times group employs roughly 11,000 people. BCCL’s total employee-related expenditure rose sharply by 83 per cent from Rs 351 crore in 2009-10 to Rs 645 crore in 2010-11. While the company is said to rely on its smart marketing, sales and managerial personnel rather than journalists to maintain market leadership, it does indeed invest heavily in a select few top editorial staffers, besides, of course, its promoters.
Vice Chairman and Managing Director Samir Jain received Rs 18.70 crore as remuneration in the period between April 2010 and March 2011, while his younger brother Managing Director Vineet Jain received Rs 16.30 crore in this period. Their mother Chairperson Indu Jain received Rs 15.39 crore. Samir Jain’s son-in-law Satyan Gajwani, then Executive Assistant to CEO, BCCL, received Rs 0.93 crore during the financial year, while Trishla Jain’s name is missing from the list of names in the directors’ report of BCCL which has to disclose remuneration of highly-paid employees under Section 217(2A) of the Companies Act, 1956. (The relevant section makes it mandatory for a company to disclose remuneration paid to any employee in excess of Rs 5 lakh a month.)
BCCL has listed 40 employees under this section in its 2010-11 annual report. Of these, only five employees (Samir Jain, Vineet Jain, Indu Jain, Executive President Bhaskar Das and CEO, Brand Capital, S. Sivakumar) have never been employed anywhere other than BCCL.* Only four out of the 40 are editorial personnel. Editorial Director, Times of India, Jaideep Bose earned a remuneration of Rs 4.24 crore in 2010-11; he is the highest paid employee apart from Bhaskar Das (who earned Rs 5.89 crore) besides members of the Jain family who are promoters. The other three journalists in the list are Rahul Joshi, Executive Editor, Economic Times (Rs 1.43 crore), Arindam Sengupta, Executive Editor, ToI (Rs 1.15 crore) and Bodhisatva Ganguly, Editor, West, ET (Rs 0.78 crore).
After Bhaskar Das, the following top managerial personnel, among others, have been included in the list: Ravindra Dhariwal, CEO (Rs 3.08 crore), Sanat Hazra, Director, Technical (Rs 2.76 crore), Sunil Rajskhekhar, CEO, Vijayanand Printers (in which BCCL had picked up a majority stake in 2006) (Rs 2.58 crore), Rahul Kansal, Chief Marketing Officer (Rs 1.8 crore), Mohit Jain, Director, Business and Commercial (Rs 1.79 crore), Neeti Chopra, Director, ET Brand (Rs 1.77 crore), R.S. Narayan, Chief Financial Officer (Rs 1.65 crore), Chinen Das, Director, Response, South (Rs 1.57 crore), Sanjeev R. Shah, Director, Mergers & Acquistions (Rs 1.41 crore) and N.V. Chandra, Senior Vice President, Business Development (Rs 1.27 crore).
The remuneration structure disclosed may not necessarily reflect the true “cost to company” of particular senior executives as well as journalists. This is because the remuneration that is mandatory to disclose does not include each and every kind of payment for perquisites, which could include reimbursement of expenses incurred on business development, entertainment, hotel and transport.
Employees’ Stock Option Plan
On 08 February 2011, Ravi Dhariwal, CEO, BCCL wrote a letter to over a hundred senior employees of his company which began: “As a gesture of your commitment and service to BCCL… (and in order to) increase value for all shareholders…the company is pleased to offer you stock options under ESOP (or an employees’ stock option plan) 2010”. Each employee was entitled to one equity share with a face value of Rs 10 each at Rs 446 per option (share). The options would get converted into equity shares only if the concerned employee remained with the company. A forwarding letter to the one written by Dhariwal explaining the ESOP was signed by BCCL Managing Director Vineet Jain.
It was stated that prior to listing, all vested options would stand cancelled on the date of resignation of a particular employee. After listing, all vested options could be exercised before the date of registration; otherwise, these would stand cancelled. It was further pointed out that if listing was not completed on or before 31 December 2015, the “compensation committee” of BCCL may after evaluating market conditions and other factors prevailing at that point of time, provide the option grantees an opportunity to liquidate their options through various mechanisms, including compensation in the form of cash.
Further, it was mentioned that “with a view to enable the company to focus on its core media business, the non-media businesses of the company may be restructured through changes in the capital structure” or though corporate action including mergers, de-mergers, amalgamations and so on. Exercise of stock options was in itself no guarantee of continued service. Also, the compensation committee of BCCL could alter the number of options granted “at its discretion”. One employee was offered 6,778 options in December 2010 with the following exercise period: 678 options in December 2011, 1,356 options a year later, 2,034 options in December 2013 and 2,716 options in December 2014.
Many saw the ESOP announcement as a clear signal that the BCCL management was keen on going in for an IPO or initial public offer of its equity shares. That this has not taken place till date could be on account of a variety of considerations, including the depressed conditions that have been prevailing in the country’s stock exchanges. As stated earlier, if BCCL decides to publicly list its shares at an appropriate juncture when market conditions are favourable, this would undoubtedly bring fabulous wealth to the company’s promoters even if they offloaded a small proportion of the shares they currently hold. At the same time, a public listing of shares would force BCCL to become more transparent, consolidate the accounts of its many subsidiaries and make the management disclose much more than it does at present, including more details about its shareholding pattern and related-party transactions.
As an unlisted company, BCCL comes under a relatively simple regulatory mechanism in terms of financial reporting. It does not need to publish its performance data on a quarterly basis -- which it would have to under SEBI guidelines -- if its shares were listed on stock exchanges. If the company decides to undertake an IPO, it would need to have its balance sheet evaluated and graded by a credit rating agency registered with SEBI and engage the services of a merchant banker to decide on issues like the pricing of its shares and the modus operandi of the issue of shares (through book building or fixed pricing). As already emphasized, BCCL would necessarily have to make its operations far more transparent than at present.
Future of India’s Newspaper Industry and BCCL
Globally, the print industry has been facing severe market challenges because of diminishing demand and advertising revenues. India is often described as the “last” major market for newspapers in the world. The Economist (8 November 2011) in an article titled “Papering over the Cracks” stated that while a falling trend in newspaper circulations was being observed the world over, India stood as an exception and was the fastest growing newspaper market. (Similar sentiments were echoed by Ken Auletta in the October edition of the New Yorker.) The Economist added that newspaper publishers in India earned about 70-80 per cent of their revenues from advertising and had no significant advantage with regard to newsprint costs. Print covered around 47 per cent of the total advertising expenditure in the country allowing newspapers to have competitive prices, the UK-based weekly pointed out.
An important reason why the newspaper business in India has grown in the recent past –even as it has been shrinking over the last two decades and longer in North America, West Europe and Japan – is that literacy rates are still relatively low. According to census data, the literacy rate in India went up from around 65 per cent in 2001 to over 74 per cent in 2011. In other words, roughly one out of four Indians still cannot read and write their own name, according to government statistics. Since literacy rates are expected to rise further in the years ahead and since textbooks and newspapers are the first publications that are read and are relatively inexpensive, the newspaper market in India is likely to grow in the foreseeable future – some contend that the circulation of newspapers in India will continue to grow over the next decade, perhaps longer. This is something that BCCL realizes and intends profiting from.
According to the October 2012 report prepared by PWC for the CII, the print industry in the country is expected to grow by a compound annual growth rate (CAGR) of 9.2 per cent between 2012 and 2016. The report estimated the size of the industry at Rs 19,070 crore in 2011 against Rs 17,770 crore in 2010. Advertising in print grew by 9 per cent whereas revenue from subscriptions grew by less than 1.5 per cent, the report stated. It added that whereas newspaper advertising is dominated by print, digital editions are expected to obtain a large share of advertising revenue in the next four years – 12 per cent against 26 per cent. The report also highlighted how regional markets for newspapers have more potential to grow in comparison to English publications and this as been realized by BCCL.
Looking ahead:
Across the world and in India as well, the print industry is being squeezed because of diminishing demand and falling advertising revenues, largely on account of the rapid expansion of the internet. Major Indian publications such as the ToI and the ET published by BCCL have adequate financial cushion to withstand pressures from even major advertisers. A major advertiser can withdraw support from a publication without significantly denting its revenues. The notable instance is that of companies in the Tata group withdrawing advertising from BCCL publications for around five years, which has apparently had little impact on its overall earnings. The Tata group had allegedly withdrawn advertising support from the Times group following publication of negative stories about a Tata group company.
The recent launch of the Bengali language daily Ei Shomoy by BCCL indicates that the company perceives growth opportunities in non-English, regional markets. This newspaper will be competing against Ananda Bazar Patrika, which has for many decades now been eastern India’s most widely circulated daily. It clearly perceives an opportunity to occupy at least the second position in the market for Bengali dailies in the foreseeable future. BCCL also intends challenging the ABP group’s domination of the newspaper market in eastern India by offering both readers and advertisers a Bengali-English combination that would take on the ABP-The Telegraph combine of the ABP group.
As Shikha Mukherjee writes in The Hoot, the launch of the Ei Shomoy on 15 October saw the 90-year-old ABP group getting stirred out of its complacency to launch a new daily, E Bela, a month earlier. The new daily is aimed specifically at young readers and is somewhat reminiscent of BCCL bringing out Mumbai Mirror in Mumbai. BCCL reckons it will not find it too tough to dislodge Bengali dailies like Bartaman, Aajkal and Ganashakti, the organ of the Communist Party of India (Marxist), in terms of circulation to reach the second position in the market for Bengali dailies. However, taking on the entrenched ABP, which reportedly sells 13.7 lakh copies a day, nearly 7 lakh of which in Kolkata (making it the largest circulated daily newspaper in eastern India), will pose quite a few challenges for the newcomer.
Only once in the past has BCCL collaborated with its main competitor in Delhi, that is, with HT Media to set up a joint venture called Metropolitan Media Co. Ltd. In February 2006, this firm launched a tabloid called Metro Now, ostensibly meant for young commuters in the National Capital Region. The daily did not last long – its last edition came out on 22 January 2009. There were intentions expressed to distribute the edition as a free weekly supplement but these plans did not materialize.
Given its immense clout in the Indian print market, what appears somewhat inexplicable is the manner in which Times Publishing House (TPH) of the Times group has been doggedly opposing Financial Times (FT) of the United Kingdom (which is part of the Pearson group of companies) over the use of the FT brand-name. It appears that TPH obtained a registration of the FT title in 2005 from the Registrar of Newspapers of India (RNI) under the Press and Registration of Books Act without the RNI ascertaining whether the FT name had been already registered under the Trade Marks Act. BCCL brings out a “supplement” called “Financial Times” and distributes it with its regular newspapers ostensibly to adhere to RNI regulations.
By fighting a set of legal battles against FT of the UK in various courts of law and the Intellectual Property Appellate Board for as long as 19 years, TPH has successfully thwarted the Pearson group’s attempts to bring out a facsimile edition of the British newspaper. It earlier had a syndication arrangement with FT. The legal disputes between TPH and FT are currently pending.
Looking ahead, given its strong finances and its virtually unassailable position in the daily newspaper market, BCCL and the Times group will aim at strengthening its internet businesses under the stewardship of Samir Jain’s son-in-law Satyan Gajwani. Having entered the fray after many others, it is encountering stiff competition from existing players in cyberspace. The group’s Rs 260-crore plus deal for internet, mobile and radio rights for the India Premier League is yet to start yielding profits. It is trying to establishing a presence in the e-commerce market and successfully bid to become the e-auction platform that will be used for the forthcoming public auctions of second-generation telecommunications spectrum.
As Gajwani told Mint (22 August 2012): “Traditionally, we have been a media company where content and advertising comes first. We were a content company that used technology. Now we are a technology company that uses content.”
Going beyond the rhetoric, the road forward for BCCL’s promoters and directors may not be all that smooth. The entry of some of India’s biggest business conglomerates – including, the Reliance Industries Limited group led by Mukesh Ambani and the Aditya Birla group headed by Kumar Mangalam Birla – into India’s media industry will ensure that there will be intense competition for the Jain family-controlled Times group in the time to come.
*Das has since left the company.
Research Assistance: Ahana Banerjee and Purav Goswami
(The writer is Consulting Editor, The Hoot, and an independent journalist and educator with over 35 years of work experience in print, radio, television and documentary cinema. He can be contacted at paranjoy@gmail.com.)