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Should traditional media houses at all invest and build online businesses?

by Satrajit Sen

by Satrajit Sen

It all started around 2000, and after a decade, the tide seems to be swaying backwards. Traditional media houses like Hindustan Times and Network 18, who started their web business arm around that time, have recently merged their separate web businesses to make them a part of the group. Supposed reasons for such a move might be attributed to their financials which didn’t appear very promising. Meanwhile, Balaji Telefilms is also believed to be selling off its internet and new media business, owing to top level management issues.

In this context, AlooTechie spoke to some veterans of the media industry to understand and explore if web business is at all an area on which traditional media houses should invest in and whether standalone web focussed companies have an upper hand in running such business.

Ajit Balakrishnan, CEO and chairman, said that in general, the decision to execute a web strategy as a separate business entity or as a division of an existing business depends on the level of financing the company is looking for and future intentions for the business. “A standalone strategy allows pitching for VC funding and doing that as part of the mother business allows companies to use their own funds, if they have enough to spare. VCs generally do not invest when a strategic owner or investor has the majority shareholding of the business because this reduces the VCs negotiating power to force a liquidity event like a trade sale or even an IPO,” Balakrishnan added.

Balakrishnan further said, “On the other hand, a media conglomerate which executes a web strategy business has precisely the opposite goal: to grow the business and then integrate it with the rest of the business so that the overall media brand is strengthened. A trade sale or even a standalone IPO may be the farthest thing on its mind.”

Sreekant Khandekar, director, Banyan Netfaqs, publisher of and Afaqs Reporter opined that the original idea at traditional media companies must have been to build the web businesses and spin them off as independent companies but nearly all news organisations have failed to achieve the financial size online that they had hoped for. “The ad rates that non-specialised news sites attract are so low, it is impossible to build a healthy revenue stream. At those rates, the only way a news site could have some decent revenue is that it would have to do hundreds of millions of page views per month – which is hard. Once they accept that they can’t be standalone ventures, they might as well absorb them and integrate them into the main operation. The record of online-only firms is certainly far more convincing,” Khandekar added.
According to Mahesh Murthy, founder, Pinstorm, logically it makes sense for a traditional media house to present one integrated face to the advertiser but the ploy hasn’t worked so far in India. “There is way too much money being made by television and print compared to online – so the best talent and management attention migrates to where there is more money – and hence the digital business always suffers a step-sisterly treatment. Further, the rules for attracting readership online are vastly different from what it takes on TV. While reality shows and celebrities might make a TV channel’s fortunes, they are not likely to make any difference to an online platform’s business.

Giving some examples, Murthy said that from Channel V was a path-breaker in 2000 with enormous readership and some of the then-highest revenues online – before it was sold and merged into the TV operations after the purchase of both by Star TV and today it is a near-non-existent site with negligible traffic. “Similarly, went nowhere when it was part of the print properties of The Times of India. Arguably, it hasn’t gotten much further since its separation – but the independent focus has certainly helped. But independence alone isn’t the necessity for success. If you don’t move and change to keep with the times, you’re in danger of being irrelevant. Rediff was once the top Indian online property. Now, it barely scrapes into the top 10. Yahoo India once ruled India. Now, it’s far behind Google and Facebook,” added Murthy.

Backing traditional media houses and their web strategies, Kalli Purie, COO, India Today Group Digital (ITGD), however, said that it depends on how the company and the relationship between the online and the offline divisions are structured. “I think they work best in conjunction. Even pure play web companies have to eventually establish an offline presence like the travel sector or even the ecommerce businesses have done,” added Purie.

However, a fact remains that the deep pocket and the large audience still lies with the traditional media houses and that makes them strong enough to incur losses. So, can a standalone web company incur heavy losses and yet sustain the business?

Answering this query, Khandekar of Afaqs said that it is true that traditional media houses have deep pockets but as we have seen, there are enough people and funds willing to back an idea online. Of course, they are less forgiving and more demanding than they used to be. But a good idea online will almost always find the money ultimately.

“The record of traditional news organisations across the world in turning profitable has been pretty depressing and the fundamental reason is that there is just so much ad-inventory that rates are bound to be low. Web-only businesses have flexibility because they don’t have a legacy business that will define what they must do,” added Khandekar.

Kalli Purie of ITGD opined, “I think the new model that’s emerging is co-dependency. The two arms of the business need to work together seamlessly. I think the media companies that have sustainable businesses in all media spheres and can leverage content across different platforms are most likely to succeed. The India Today Group, with sustainable independent businesses in TV, Print, Radio, Events, Mobile and Web, can leverage content across platforms. Then you get rich multimedia interactive content that is 24/7 which you can showcase and monetise on multiple platforms. In the new world where so much content is expected and given free, media companies need multiple outlets to monetise their content. And, in an always connected world where information is a commodity, media companies need multiple channels and platforms to deepen their relationship with their audiences.”

Mahesh Murthy of Pinstorm said, “Unfortunately, a standalone web company incur heavy losses and yet sustain the business. There are enough cases in TV-land where investments of hundreds of crores were needed before achieving break-even. But few investors will wager one-tenth as much in the online world before pushing for break-even.”

“But this is not a bad thing. Unlike TV, getting organic break-even is a good sign – one that says that you have found your niche for traffic and that it can be reliably depended upon to grow regardless of what the content is – as the community is probably more important. While on TV a lot of your growth is dependent on the presence or absence of ‘superhit’ content – and community is probably irrelevant. Hence, if an online property breaks even it is more certain of long term success than if a TV channel breaks even – because in the latter case the future is still not certain as it is a hit-driven business,” Murthy added.

Defining a way-out for attaining profitability in web businesses for both online and traditional media houses, Murthy said that companies should find and offer independent control to someone who understands online and then step aside.

“Besides, it is imperative to focus on the audience and not the content – in fact if you focus on the audience they can create the content themselves. Understand that content is not king online. Community is king. Getting a celebrity online will do almost nothing for you. Understand that online grows slower – but surer than TV or print. Sell in an integrated fashion – advertisers want to buy a 360 degree view of the same audience – on screen, online and on ground. Make sure you’re part of the bundle. Break even early and soon you’ll make it big. Just look at Google. The company reports Rs 800 crore of revenues in India – something almost no TV channel can match – and learn lessons from them,” added Murthy.

“I think this works if you have a truly integrated multimedia operation like ours and can get 24/7 multimedia content with depth. You then don’t have large teams creating content exclusively for the web as the business model cannot sustain an expensive news gathering operation. You have a highly skilled lean curation team which knows how to create the content from different platforms for digital consumption. The web is the true integrator of content for us because it can present content combined from our different media. Create content once, then monetise it through multiple channels,” Kalli Purie of ITGD said.

According to Ajit Balakrishnan of Rediff, this strategic conflict of interest is why, in the end, media conglomerates generally end up folding their web businesses into the mother company and all of the above is another variation of what in scholarly circles is called , ‘The Innovators’ Dilemma!’

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