India's media agog over ads-for-equity gambit
By Indrajit Basu

KOLKATA - It is a move that is being called alternately brilliant and bizarre. Some even call it a coup. Even as India's largest media company - Bennett, Coleman and Co (BCCL) - is swiftly firming up exclusive long-term equity-for-advertising deals with its clients, its moves are not only foxing other media houses in the country but even bankers, analysts and media planners.

BCCL is picking up small stakes in companies that are in need of aggressive brand building, in exchange of not cash, but advertising space in the scores of newspapers, magazines, new media, radio and television channels that it owns. "I think it is incredible that BCCL is using its strength in the media sector and its brand building capabilities to sell a commodity - advertising space - that is always in excess stock for any media company in the world, and also locking competition in the process," says Sandeep Vij, president of Optimum Media Solutions, a Delhi-based media planning company. "In a way, I think, it is a coup by BCCL."

The move, quite clearly, is unprecedented in the Indian media sector. Consider the details of BCCL's recent deals and it won't be difficult to fathom why this new concept is creating waves. Last year, BCCL approached Celebrity Fashions, a $37-million-revenue garment company in India that sells apparel under the Indian Terrain brand name in India, and Celebrity Fashion overseas. According to brand experts, Indian Terrain is a small brand, with a brand value not exceeding $8 million.

To make the brand and the company grow to a $115-million-revenue company in five years, the company calculated it needed to spend about $1.7 million a year on advertising. For Celebrity Fashions, advertising in the two largest newspapers in its target group - The Times of India and The Economic Times - which fit Celebrity's ad needs perfectly but have high tariff rates, would clearly be frightfully expensive. For BCCL too, $1.7 million isn't exactly pocket change either. So, end January, the two companies struck a deal under which BCCL would pick up a 12% stake in Celebrity Fashions, valued at $5 million. In exchange, BCCL wouldn't pay cash but provide Celebrity Fashions media space of an equivalent amount over three years from BCCL's stable of publications.

According to Vij, deals like this ensure the proper use of space, an extremely perishable commodity for a media company. "A media house will have to come out with a newspaper every day or magazine editions regularly. An ad space not filled up is thus an ad space lost forever. BCCL has so much space to sell in its existing ventures, and it is also expanding rapidly. So there will always be more space to spare."

Indeed, for a media house as large as BCCL, selling space is a gargantuan task. The 150-year old company is India's largest privately held and controlled publishing house that owns the country's largest circulated English daily, The Times of India, and the financial daily, The Economic Times, adjudged the second-largest financial daily in Asia. Besides, it also publishes about six magazines both in the physical and electronic space and runs a radio and TV channel, plus an event management company. Last year, BCCL and BBC Magazines (a division of BBC Worldwide) signed an agreement to set up a joint venture company to publish, produce and market in India three magazine titles from the BBC stable, as well as to facilitate exchange of content, titles and know-how.

The company also has scorching expansion plans. Besides planning to take its two flagship brands - The Times of India and The Economic Times - to almost every city in India, it is expanding in radio broadcasting as well as in television, with three new channels in the offing. "For a media company like this, ad space inventory will never be 100% sold," says Vij. BCCL has a $460-million advertising revenue target for the year ending July 2005.

But ads-for-equity is not the only unique move that BCCL is making to cash in on its media strength. "The company is also utilizing its editorial power," says Nawal Ahuja, director of Exchange4media, a platform for marketing, advertising and media professionals. In order to profitably utilize some of its huge cash pile - $119 million in net profits, $117.7 million of which went into reserves - that this $416-million-revenue company generated for the financial year ended July 2004, BCCL is also investing in companies that have large advertisement needs and also have the money to do it.

Recently it announced that it is picking up a 4.53% stake in the $149-million Pantaloon Ltd, one of the country's fastest growing retailers. BCCL is reportedly paying $16 million to acquire this stake. Although in exchange BCCL hopes that it can earn a similar amount of advertising over the next seven years, the chief executive officer and managing director of Pantaloon insists that it is not an advertising deal, but a deal to build synergies between the two companies. As tradeoff, BCCL is expected to promote Pantaloon's brands through its editorial pages and contents in its leading products that include, besides the two newspapers, a women's magazine called Femina, a film magazine called Filmfare, website Indiatimes, TV Channel Zoom and Radio Mirchi, the music FM radio channel.

"This is a win-win situation," says Ahuja. "In both deals [Celebrity and Pantaloon], BCCL has an agreement to promote the company through editorials and content of its products. Look at it this way. All the mileage that these two companies gain out of the editorial coverage could indirectly result in higher share prices and BCCL has stakes in that." Pantaloon is a listed company and has emerged as a ten-bagger in the past 18 months. Encouraged by the new foreign interest in Indian apparel following the removal of the textile quota regime this year, Celebrity Fashions is mulling an initial public offering soon.

Win-win indeed, which is why BCCL is flooded with similar "partnership offers". Though BCCL officials have stopped speaking to the press ever since the supposedly "under the wraps" Celebrity Fashions deal became public, reports suggest that BCCL is working on as many as 40 similar deals to pick up shares in exchange for advertising space.

But some say that such deals, however innovative, may not necessarily lead to higher payoffs. For instance, one of the drawbacks of barter deals of this type is that many of BCCL's larger clients that do not need to sell stake to pay for ad space could question the deals they would get from BCCL compared to companies like Celebrity and Pantaloon. "Clearly, all those companies with which BCCL enters into a deal would be seen as more favored. That in the long run could dilute BCCL's bargaining power," says a source from a rival publication house. Besides, BCCL has been under fire from other media houses in the past for using editorial content for advertising purposes, which many consider plain unethical.

Still, industry sources say that BCCL may have started a new trend in the country's fiercely competitive media sector. "Though few media companies in India have the kind of spread it has, BCCL has broken some sort of a status quo. I am sure there are at least a few in India which could gain from the idea and would follow BCCL's footsteps," says Vij.

Indrajit Basu is a Kolkata-based equity-analyst-turned-journalist with more than 12 years of experience in business/finance and technology journalism. Besides writing for Asia Times Online, he also writes for US-based publications, as well as IT companies.

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