The Times of India publisher Bennett, Coleman & Co. Ltd must be doing something right with its three-year-old Private Treaties division.
Otherwise newspaper groups such as HT Media Ltd, Dainik Bhaskar and Dainik Jagran would not be eager to duplicate their arch rival's business plan.
In spite of the criticism that Bennett, Coleman's Private Treaties division, which swaps advertising space in its newspapers for minor equity in small and medium enterprises, attracts, these print media companies are gearing up to launch their versions of the department.
Nimble-footed Dainik Bhaskar, however, beat the others to it and hired Arvind Mittal from UTI four months ago to head its Treaties section.
HT Media Ltd, publisher of Hindustan Times, is currently putting together its team for the job. "I'm not in a position to divulge much at this stage," Rajiv Verma, CEO, HT Media Ltd told Business Standard.
Sanjay Gupta, CEO, Jagran Prakashan (the company that prints Dainik Jagran), said the company's Chief Financial Officer is preparing a proposal for the board's approval.
Clearly, private treaties are the flavour of the season. And it is not difficult to see why. Share swaps for ad space is a win-win deal for both sides. For a start, it is almost a zero-cash transaction.
When Times buys shares in a company it writes out a cheque for an agreed value. However, the money immediately comes back to it as advertising fee for space in its publications. The money changes hands more to meet the regulatory and taxation needs.
Secondly, the companies that Bennett, Coleman's 100-people strong Private Treaties division picks are small, though promising.
But they have little or no money to build brands. Said Bennett's CEO (Publishing) Ravi Dhariwal: "They have no cash for marketing. Our belief is that the small and medium enterprises will grow but they need to build brands. We have the space and the skill to market them."
Strictly speaking, Bennett, Coleman did not pioneer the concept of equity-for-advertising. It was born during the dotcom boom when several internet outfits made equity deals with companies in lieu of advertising.
But Times insiders said the way the media giant exploited it for its print business was truly unique. Times first experimented on its group companies. Times Internet Ltd offered its shares to Bennett, Coleman & Co in exchange for promoting the indiatimes brand in its newspapers.
Its radio company Entertainment Network India Ltd later signed a similar swap deal for its FM brand Radio Mirchi.
Today, Bennett, Coleman has nearly 150 private equity deals on its rolls straddling sectors such as real estate, education, entertainment, healthcare, infrastructure and consumer durables, among others.
"We have already invested Rs 2,000 crore (Rs 20 billion) in the business," said Dhariwal.
Two years ago, Bennett bought 500,000 shares in soft toys and linen manufacturer Hanung Toys & Textiles Ltd for roughly Rs 7 crore (Rs 70 million). The company's promoter A K Bansal isn't complaining. First, Times bought Hanung's shares at a premium. Secondly, its ad campaigns were released in The Times of India and The Economic Times and it has already used up advertising space worth Rs 5 crore (Rs 50 million) to Rs 6 crore (Rs 60 million).
CTV manufacturer Dixon Technologies' CEO Atul Lall is equally pleased with his company's shares-for-advertising deal with Times. "We are a low cost product company. For us The Times of India is a good media platform," he said. Bennett bought 8 per cent in Dixon (it advertises Weston TV and DVD) for an undisclosed amount.
The companies also often benefit from Times' liberal valuations. "Those then become the benchmarks for these companies to raise funds," said a former Bennett executive involved with private treaties. However, mostly Times targets companies that have private equity investments and are likely to get listed in the next two-three years.
The deals help the newspaper company to lock in advertisers for the long term. "For instance, clients would rather exhaust their quota of ad space swapped for shares than spend cash elsewhere," said Bhaskar's
"These contracts help us expand our advertiser base, the cash comes to me as advertising revenue and I can utilise my ad space," he added. In short, advertising inventory remains healthy even if there are not enough walk-in ads on lean days.
But it is the escalating value of the shares that Bennett holds in these companies that has tempted others to jump into the treaties' business.
According to former Bennett executive, its profits from private treaties are said to be close to Rs 500 crore (Rs 5 billion). This is in addition to the Rs 1,200 crore (Rs 12 billion) profit that Bennett, Coleman & Co Ltd for 2006-07 is reported to have booked.
Dhariwal refused to talk numbers. "Let's it put it this way, we are very happy with the profits," is all he conceded.
What's also enticing other print players is the impact the business can have on their company's valuations. "If it were to list today, Bennett, Coleman's valuation would be more than double what it was before the private treaties came about," said a former Times group executive.
The growing popularity of advertising-for-shares deals has put a question mark on the editorial integrity of newspapers.
The companies that the newspaper groups buy into get more and more coverage in their news pages. A month and a half ago the editor of The Economic Times sent a mail to his colleagues stating that a senior editorial person would interface with Private Treaties client at different centres of the paper.
So does the newspaper abandon its role as a watchdog?
"There is a lot of misinformation about private treaties and we see no reason why we should clarify. We totally believe there is no conflict of interest in our role as a newspaper and our business," said Dhariwal.
"We have champions to cover different sectors. We do cover the SMEs well as it an emerging sector and there are fantastic stories to be told about companies in this sector," he adds.
Dainik Bhaskar's Mittal claimed that treaties and editorial coverage are mutually exclusive in his business plan as well. The newspaper does not promise any coverage and makes it clear that no negative stories will be stalled.
However, Jagran's Sanjay Gupta said: "To what extent do these deals influence coverage in a newspaper is a grey area. But I suppose that would depend on the editorial integrity of the journalist."
Meanwhile, Times is expected to invest Rs 800 crore (Rs 8 billion) to Rs 1,000 crore (Rs 10 billion) every year in the business. "We want to multiply it. We have a good feeling about it," said Dhariwal.
Some rivals are echoing the sentiment.
'Chinese walls' in TV
Have the television broadcasters borrowed a leaf from the Times' book of business strategies? No, claims Network 18, though it does sign shares-for-advertising deals under different group companies.
"The difference is that we make private investments and the focus is on companies as investment vehicles rather than on generating advertising," said a senior executive at Network 18.
Besides, it does a lot of cash deals. For instance, if the company buys stake in a retailer planning to go national, it gives him cash to open franchise stores as well as advertising inventory on its TV channels to promote his brand nationally.
But the editorial part of the television business is completely divorced from equity deals, he stressed.
That's a claim Network 18's rival NDTV also makes which set up its treaties division six months ago. It signs swap deals with a clause that no editorial support will be offered to the client.
"We are very clear in our minds and actions that there is a Chinese wall between commercial and editorial," said KVL Narayan Rao, group CEO, NDTV.
Rao said that as the shares are allotted, it will broadcast disclosures indicating that it has minority investments in certain companies and that these have no bearing on the company's editorial independence and policies.
It remains to be seen if the Chinese wall can withstand the competitive pressures of the media business.