Thursday, April 17, 2008

Newsprint price rise forces papers to hike ad rates

Newspapers across country up ad rates and seek removal of import duty as newsprint prices set to touch $1,000/t

FACED with rapidly escalating newsprint (NP) prices, Indian newspaper publishers have announced significant hikes in advertising rates, doubling them in some cases, to protect margins and tide over the crisis, even as measures are on to ask the government to remove the 5% import duty on NP and to increase government advertising rates by 50%, in addition to seeking a 30% hike in normal ad rates through the industry body — Indian Newspaper Society (INS).

Newsprint prices, which have shot up from $560 per tonne in October 2007 to $850 per tonne in April 2008, and are expected to touch $1,000 per tonne, have resulted in profit projections of most publishers going for a six. The rise in prices may continue at least till Q1 of 2009, leading some of them to go slow on aggressive plans to boost circulation and enter new markets till things stabilise. While Hindu has executed a price hike on April 1, 2008, with its All India display B/W rates going up by 16% or Rs 225 per sq cm to Rs 1,625, Bangalore-based Deccan Herald effected a more-or-less uniform 21% hike in its various categories in February 2008.

Kolkata-based Ananda Bazar Patrika Group has tweaked ad rates from April 1, 2008, and hiked it in various proportions — from a high of 94% to Rs 1,750 per sq cm for Telegraph — all editions (B/W Display& Financial — Friday-Saturday) to as low as 4% to Rs 1,200 per sq cm for Telegraph — metro edition (colour display & financial — Sunday-Thursday). Bhopal-based Dainik Bhaskar has hiked the rate for display & financial category — colour — by 75% from Rs 325 to Rs 568 per sq cm since December 15, 2008, while its sister publication DNA has hiked the same by 19% to Rs 950 for its Mumbai edition — with a further hike expected later this month. Hitavada, Malaya Manorama, Mathrubhumi, Hindustan Times, HT-Mint, Hindustan, Punjab Kesari, Eenadu and Business Standard have effected ad-rate hikes from 5% to over 30%.

Though industry heads like Dainik Jagran CMD MM Gupta and Dainik Bhaskar publisher Girish Agarwal say this is part of the routine annual ad rate hike, the quantum of the hike tells us the desperate situation publishers are in today. The hike is logical as, the world over, newspapers operate on two basic revenue models: advertising and circulation (subscription). In most cases, cost of producing and delivering a newspaper is much higher than the (cover) price it is sold at. Ad revenue makes a newspaper profitable. This not only makes the price affordable for the readers but also generates margins for the publisher. “NP comprises 50-60% of total costs for a newspaper, and so the most logical solution to counter the impact — passing on the cost hike to readers — becomes a tough choice as the Indian market is very price sensitive and operates on close to free-price points,” says Mr Gupta. Concurs Ananda Bazar Patrika CEO Dipankar Purkayastha: “A slight to moderate increase in ad rates is a better alternative as affordability of newspapers is a big issue in a country where income levels are low.” Some like MD of Hindu Group, N Murali, also former chairman of Indian Newspaper Society NP committee, says: “Ultimately we have to serve the reader and the advertiser — neither of whom can be sacrificed at the expense of other.” Media auditors like Meenakshi Madhavani, CEO of Spatial Access and founder-CEO of Carat India, say that burdening advertisers only for the purpose is not done. “Cover prices of newspapers have to be realistic and so it’s time we saw an end to combo offers and other unrealistic pricing that is being subsidised with advertisers money.” Adds Leo Burnett India’s chairman & MD Arvind Sharma: “Cost of inputs has gone up, but so have ad rates. The question is, are these ad rate hikes proportional to cost input hikes.” Reports say that barring select big media houses, other publishers are slow-pedalling their expansion and circulation drives. While unconfirmed reports say that DNA is going slow on its proposed launches in new markets, Mint from HT Media stable has decided to shelve its expansion plans — its CEO Rajeev Varma refused to speak on this issue. “Prices of not only NP, but also crude, coal, freight, payroll and consumables have also increased, and so this regular hike will not help solve the crisis, as few months down the line NP is expected to go up further,” says Mohit Jain, director at Times Group and chairman of Newsprint Committee of INS. He adds that building up circulation and quality readership cannot be ignored, as these factors are crucial to draw in advertisers.

According to Mr Gupta, after the sudden fall in Chinese NP exports and capacity shutdowns in North America and few European mills, Indian newsprint manufacturers have started demanding prices on par with international producers, even though their quality is not as good as imported newsprint. On their part, Indian mills refute the charge and say that costs have increased for them too as raw materials like pulp, ONP, petroleum products, freight and coal has affected them too. Emami Paper ED PS Patwari says investments on fresh capacities are also being mulled by few mill owners and this means there has to be disposable cash with paper mills to go for expansion. Newspaper publishers have pressed the panic button in government circles. Mr Gupta, as part of a delegation of publishers, has made a representation to the finance ministry to remove the 5% import duty on NP. “We, through the aegis of INS, are proposing a hike of at least 30% on ad rates and a further hike of DAVP rates by 50%.” However, some like Mr Murali say that the removal of import duty is a case of barking up the wrong tree, even as Mr Gupta feels that the rates — which the government specifies — are based on NP prices of $500 per tonne and do not account for the 70% jump in prices since then. “Data shows that Indian ad spends are just over 0.4% of its GDP, even as countries like China and Malaysia are close to 1%, and so there is much space to grow,” says Mr Agarwal. That may be the reason that despite such a bad time, Deccan Chronicle group launched its financial daily recently.


The Economic Times

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