Current costs and future prospects. Decoding BCCL, Part IV
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.)
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