Talking about contradictions, here is an interesting one.
The Times of India edition dated March 18,2013, had a huge advertisement featuring Arindam Chaudhuri, the pony tailed bossman at IIPM(Indian Institute of Planning and Management) and his father Malay Chaudhuri. The advertisement congratulated Chaudhuri senior for having turned seventy five and had the vision to launch IIPM forty years back.
This advertisement came four days after Arindam Chaudhuri wrote a column titled Are you still a moron advertising in newspapers? The column ended with the rather prophetic line “However, yes, your business may not be able to cater to the next generation unless you realise that you are a moron to be still advertising in newspapers!”
Why Chaudhuri chose to contradict himself is something only he can explain. But his column does offer reasons for why IIPM seems to gradually moving its advertising budget away from newspapers, the front page advertisement in The Times of India notwithstanding.
As Chaudhuri writes “It all started changing around 2009 to 2011! As everyone knows, we were one of the country’s biggest ad-spenders till 2012! But interestingly, our returns from newspaper advertising started dropping sharply from 2009-2010. The first year, the admission applications we received from students due to our newspaper advertisements dropped to 40% of the levels we had in 2008-09. The next year, the same was 25% compared to 2008-09 levels. And finally in 2011-12, our applications from advertisements were, hold your breath, just 5% compared to 2008-2009! So basically, in three years, our returns from newspaper advertising came down by a mind numbing 95%!”
While this might also be a result of the falling reputation of IIPM, given the negative coverage its constantly got in the media over the last few years, but Chaudhuri does make an important point here.
IIPM’s target audience would be people in their early 20s, living in cities and who come from reasonably rich families (given the high fees that IIPM charges). There is enough anecdotal evidence to suggest that people belonging to this demographic group consume news largely online by logging onto the internet through their computers and now their mobile phones. Or as Chaudhuri aptly puts it “if you wanted to target the youth, or actually anyone born after 1980 for certain! None of them is reading newspapers anymore! So how will this segment see your ads in the first place and how will they pick up your application form? Yes, that’s the hard fact!”
Various readership surveys have shown over the years that print readership in India has remained stagnant. In comparison people logging onto the internet is growing at a very fast pace, albeit on a lower base. It would be safe to say that a large number of advertisers are interested in this lower base which typically comprises of youth coming from reasonably well to do families living in cities. In short these are the people who have the money to spend (either their own or that belonging to their parents).
So the moral of the story is that Arindam Chaudhuri is making an important point though he has chosen to contradict it himself.
What Chaudhuri’s column does not answer is why is newspaper readership stagnating? When it comes to the city bred youth at some level its a matter of what we can call the Levis syndrome. The jeans brand Levis over the years came to be associated as something that their parents wore, in the mind of the American youth. The same stands true for newspapers as well. Reading newspapers is not cool at least among the youth.
The newspapers in India have tried to tackle this through what they feel is younger and funkier design. The looks are getting trendier and there is more sex and entertainment in the newspaper. But this hasn’t worked beyond a point. As Chaudhuri puts it “naked bodies and titillation are far more easily available and in greater variety on the internet.” And all said and done a newspaper has its limits on this front. The internet doesn’t.
An extension of filling the newspaper with sex and entertainment has been the conclusion that most readers are not looking for serious content in a newspaper. This is what we can call The Times of India syndrome. Since, this kind of positioning has worked for India’s most profitable newspaper, newspapers (across different languages) have been looking to do the same thing. But what works for The Times of India doesn’t necessarily work for others as well.
As marketing guru Al Ries told me in an interview “Everyone assumes the No. 1 brand must be doing the right thing because it’s the market leader. Therefore, we should do exactly the same thing, but better. That seldom works.” There are newspapers which have lost hundreds of crore trying to bring out a better Times of India than The Times of India.
They forget a very basic point. If I as a reader want to read The Times of India, I will read The Times of India, and not a clone. More newspapers (at least the top English and the top Hindi newspapers) have been trying to bring out different versions of The Times of India, though their managers, editors and promoters will never admit to the same. This has stagnated readership at one level as the standard of content has fallen dramatically. There is inherently better content available on the web in India, if you know where to look.
Another reason for worry for most newspapers is that their business model is not working. In the late 1980s a copy of the Delhi edition of The Indian Express (with air surcharge) used to cost around Rs 3.50 in Ranchi, where this writer grew up. Now nearly 25 years laterThe Indian Express costs Rs 4.50 in Delhi and Rs 4 in Mumbai. Most other English newspapers cost around Rs 3-5 i.e. if you buy them off a news stand. The price point of a newspaper hasn’t really taken inflation into account at all.
If you are annual subscriber the cost can be very very low. In Mumbai newspapers have been known to offer an yearly subscription for as low as Rs 99. This basically meant that the daily newspaper was priced at 27 paisa (Rs 99/365 days). No wonder people bought newspapers so that they could accumulate good raddi and then sell it.
The idea behind this business model was to lock in a subscriber for a year by giving away the newspaper almost for free, and then go to the advertiser and tell him, we have so many readers, why don’t you advertise with us.
This has meant that most newspapers are now totally dependent on advertisers to make money. This business model worked during the period between 2002 and 2008, when companies were falling over one another to advertise. It doesn’t work at all in a low growth scenario, where everyone is looking to cut costs. Also with the advertiser getting top billing any negative stories that hurt a prospective advertiser are a strict no no. This makes more newspapers concentrate on the feel good and have a pro business attitude. In short, most newspapers dish out more of the same. There is not enough differentiation for a wide variety of taste that people have.
The other thing this business model does is, it limits readership beyond a point. The newspaper cannot expand because its not viable unless extra advertising comes in. Newspapers are a rare business in which selling an extra number of units can increase losses instead of profits. This is because the reader doesn’t pay for the newspaper. If newspapers in India have to survive, they have to figure out some way of getting out of the subscription based business models that they have got themselves into and can’t seem to come out.
These were points that go against a newspaper, but what about the internet? Newspapers are a very limited medium of communication. You only read what the promoter(and not the editor) of the newspaper wants you to read. In case of the internet people can create their own content. Hence, there can (and is) a tremendous diversity of opinion which one can never get in a newspaper. Also space is not a problem on the internet. It is in a newspaper. Thus, internet can have more diversity of opinion and thus appeal to more people than a newspaper can.
Also as the world gets inherently more complicated, the limited space in a newspaper tends to make things overtly simplistic rather than just simple. On the internet things can be explained and arguments and counter arguments can be made in detail. For anyone who is looking to understand the way the world works around him, the internet is an inherently better medium.
On the internet news can be consumed almost instantly. A reader need not wait for the next day’s newspaper to be updated on what is happening in the world around him. Even analysis on the internet is up and ready, before it comes out in a newspaper, the next day. Also, the internet is now accessible almost anywhere and one doesn’t have to go looking for it, like one has for a newspaper that one does not subscribe to.
Internet is a very low cost medium. A newspaper is a very high cost operation which involves buying land to set up a printing press and cutting trees to make newsprint on which the paper is printed.
So there are many good things going for news on the internet. The trouble though is that almost no one has till date figured out how to make money on the internet through news. Internet as a medium tends to be associated with “free”. Hence, digital subscriptions have not worked almost anywhere. Also people tend to ignore advertisements on the internet. A part of this equation is falling into space through Google Ads. Now only if websites could figure out the other half, newspapers would be dead sooner rather than later.
The article originally appeared on www.firstpost.com on March 19,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Today’s edition of The Economic Times has a very interesting story on the IIPM bossman Arindam C
haudhuri. Chaudhuri sits at the top of an empire of four companies which in 2010-2011 generated revenues of Rs 533 crore, on which there was an overall loss of Rs 5 lakh (but not all the companies were loss making) and an income tax of just Rs 5 crore was paid.
This is typically how most private education institutes in this country tend to operate. While there revenues are decently high, they typically tend to make a loss and pay very low income tax. And there is a clear method to the way they operate.
The money spinning machine at the heart of any education empire is the education institute where students come to study. The same is true in case of Chaudhuri. The education business remains a major revenue earner within the group. In 2010-2011 its total revenues stood at Rs 349 crore. On this it made a loss of Rs 2.3 crore.
Typically in most such cases the education institute doesn’t own any assets. To give you a simple example, the building in which the education institute operates out of might be owned by a private limited company. The private limited company will be in turned owned by the entrepreneur who also runs the education institute. Hence, the rent that is paid by the education institute is legally tunneled out and goes into the pocket of the entrepreneur.
As The Economic Times points out “For example, in 2010-11, the education arm paid Rs 37.6 crore to the consulting arm, Planman Consulting—Rs 31 crore for services received and Rs 6.6 crore as rent.” While it is not specified what this rent was for, it was a rent nonetheless. Planman Consulting is the consulting company of Arindam Chaudhuri. What is interesting is that the education arm was responsible for 84% of the total revenues of Rs 45.8 crore revenues earned by Planman. The company also earned a profit of Rs 7.8 crore whereas the education business made losses.
There are other legal ways of tunneling out money. The computers and other infrastructure in the education institute might also not be owned by the institute and may be on rent from a private limited company owned by the entrepreneur or by one of his close relatives. Or if the institute does own the computers, it buys them from a company owned by the entrepreneur.
Similarly insurance contracts that the education institute might enter into are also facilitated through an insurance broker close to the entrepreneur. Another legal way of tunneling out money is through advertisements. The advertisements that are placed in the media are done through an advertising agency owned by the entrepreneur or one of his relatives. The agency gets a cut on this.
Chaudhuri though has taken this trick to the next level by launching his own magazines and placing his own advertisements in them. As The Economic Times points out “The latest issue of The Sunday Indian had 44 edit pages and 19 ad pages (including 10 pages of group ads)….In 2008-09, the latest year for which financials were available for Planman Media, it earned revenues of Rs 41.4 crore. Of this, just Rs 1.6 crore came from magazine sales.” Interestingly claims are made that Chaudhuri’s magazines sell more than magazines like India Today and Outlook in the general segment and more than any other business magazine, in the business segment. So then why is Planman Media earning only Rs 1.6 crore through magazine sales? Also if magazine sales is not bringing in the moolah for Planman Media, what is? Advertisements from other group companies owned by Chaudhuri?
So moral of the story is this. Whenever the education institute spends money on anything there is a private limited company owned by the entrepreneur waiting to capture it. In fact, entrepreneurs further tunnel out money even from these private limited companies by giving themselves high salaries.
Chaudhuri is no exception to this. As The Economic Times points out “Chaudhuri and his wife, Rajita, who are executive directors in Planman Consulting, drew a total remuneration of Rs 6.96 crore from the company that year.” So Chaudhuri and his wife took away more than 15% of the Rs 45.8 crore revenue of Planman Consulting as a remuneration.
Entrepreneurs have other innovative ways of tunneling out money. They set up placement agencies. And these agencies get paid for placing students as well as appointing teachers at the education institute. Interestingly, some of the biggest private business schools in the country (including IIPM) tend to place their ‘unplaced’ students in one of the group companies. The idea is of course to show decent placements. Other than that it gives these students a little more time to find themselves a decent job. And once they do that on their own, the institute can always claim that they were placed by the institute.
Of course, if the student is unable to find a new job within a certain time period, he or she is asked to leave, given that by then a new batch of students is ready to be placed. The institutes can afford to do this because of the high fees that they charge for their courses. If some of it goes back to the student, it does not do them much harm. Its all a part of the game.
To get back to the main story, the question is why do education institutes do this? As The Economic Times points out “An accounting expert, speaking on the condition of anonymity, says it’s a common industry practice for the education arm to show losses and group companies that provide services to this company to earn profits. “Promoters adopt this to circumvent Indian regulation, which prohibits profitmaking companies in the education sector,” he says. “But firms that provide services to the company that runs the education business are not bound by it.”
This essentially ensures that the education entrepreneur surrounds the institute with a web of private limited companies and uses them legally to tunnel out the revenue being generated out of the fees that students pay the institute. Of course, everyone does not operate at the same scale and is not as successful as Arindam Chaudhuri is.
There is a scope for great debate here. Why cannot education be a profitable business? This specially in a country where education is in such a short supply. Ironically, private equity investors have been greater investors in coaching institutes which coach students to get into education institutes or sit for various board exams. But given that the education institutes are not supposed to be profitable in a normal way, these investors have stayed away.
And entrepreneurs who have entered the education business are more interested in making a quick buck, rather than building an infrastructure which provides quality education at a decent price over a long period of time. Typically big private money has stayed away from this sector. Those who have entered it are typically politicians, who are good at financial shenanigans and are looking to put their black money to some use.
The article originally appeared on www.firstpost.com on March 15,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek. He studied in a private business school. And also worked for one)