New Delhi: Sunil Rajshekhar is a collector.
His office on the second floor of Times House, home to Bennett, Coleman and Co. Ltd (BCCL), one of the largest media houses, is full of paintings, miniatures and objects in metal, glass and terracotta.
“I like collecting such stuff,” says Rajshekhar, a director of BCCL and head of Private Treaties, an ambitious attempt by the media giant to form lasting financial and advertising partnerships with companies looking for a leg-up, using its array of market-leading publications, including The Times of India and The Economic Times newspapers, as well as television, radio, the Internet, outdoor advertising and magazines.
Launched in 2004, the treaties translate into the cash-rich BCCL picking up equity stakes in companies in return for promoting those “partners” through long-term advertising and other publicity deals.
And, the collector in Rajshekhar has, in a short time, managed to accumulate impressive clients, turning the unlisted BCCL into one of the largest private equity investors in India with investments estimated to be around Rs1,500 crore across at least 140 companies in retail, consumer durables, aviation, the media and entertainment, to name a few key sectors.
While 120 deals have been announced, others in smaller markets such as Surat, Ahmedabad and Hyderabad, are likely to be announced in coming weeks in a programme that continues to gather steam even as it attracts nascent me-too tactics among other media companies.
Typically, BCCL’s stakes range from a low 1% to as high as 15%, and some 45 such treaty clients are now listed companies, including sugar giant Bajaj Hindusthan and India’s largest listed retailer by market capitalization, Pantaloon Retail India Ltd, a part of Kishore Biyani’s Future Group.
While Rajshekhar declined to talk about valuations, at least three senior BCCL executives, none of whom wanted to be named, claimed the current market value of the company’s Treaty portfolio is around Rs5,000 crore, well above the annual revenues of BCCL, which are estimated, in the year ended June 2007, at around Rs3,500 crore.
The company has an estimated annual profit of Rs1,000 crore before tax, which has been rising rapidly in recent years and is the source of the treaty funds.
Private Treaties is a part of a “new enterprise from The Times of India Group meant to catalyse exciting change from a commoditized country to Brand India of 21st century,” says the company on its website, www.privatetreaties.com .
In recent weeks, in addition to attracting imitators, BCCL’s treaties have also received growing scrutiny following a magazine article by columnist Sucheta Dalal, who cited an internal email from Rahul Joshi, the editor of The Economic Times, which suggests journalists at BCCL are being asked to provide editorial coverage to treaty clients in a way that enhances “the value of these companies and ToI’s (Times of India’s) investment.”
Other editors, such as the well regarded T.N. Ninan, the editor of the Business Standard, have also previously raised the issue. Ninan wrote about it in the May 2006 edition of India Seminar, a monthly journal published from New Delhi, and, this week, his newspaper wrote a front-page story looking at other media companies, including Dainik Bhaskar and Jagran Prakashan, that are now following suit.
At play are some of the same ethical questions that have long been brushed aside by BCCL executives as just sour grapes from weaker rivals trying to raise issues that readers of Indian newspapers don’t care about:
Should a media company disclose its interest—in this case an ownership stake—in companies that are regularly featured on its news pages, to readers of these newspapers? Are media companies taking enough steps to insulate their news and opinion writing from growing business interests of the firm itself? And, in a market where newspapers are significantly subsidized by advertisers, does it matter whether such conflicts of interests are divulged or not to readers who have been reluctant to pay for what it costs, even if it is only in terms of paper and ink—to produce a daily newspaper?
With such treaties, there is also a lesser known issue of how they do help reduce—in a perfectly legal way—the government’s share of taxes from what has been a booming Indian advertising market, as an equity swap for advertising often results in far less taxes being paid on the firm’s revenues and profits.
Industry reaction, somewhat predictably, is divided along journalism and business fault lines.
“It (private treaties) is the most unethical business practice ever employed by a media company,” says Kundan R. Vyas, chief editor, Janmabhoomi Group of Newspapers, which publishes several language dailies and weeklies in Hindi and Gujarati. Vyas is also a member of the Press Council of India, a statutory and quasi-judicial body that acts as India’s press watchdog.
“It...goes to BCCL’s credit for having devised an ingenious way of building ad revenues,” maintains Ajay Upadhyay, director of MediaGuru, a media consulting firm working with broadcast companies. Still, he adds: “It’s important to make sure that you don’t pump up your ad revenues by lending your editorial space to them.”
Meanwhile, companies such as HT Media Ltd, which publishes the Hindustan Times as well as Mint, Network18 Ltd, which runs channels such as CNBC-TV18, CNN-IBN and IBN-7, as well as broadcaster NDTV Ltd, to name a few, have also set up “ad-for-equity” teams.
According to executives in HT Media and NDTV, each company has already signed some half-a-dozen deals in the past few months.
Private treaties “are just another way of channelizing one’s (ad) inventory,” says Laxmi Narasimhan, who heads the Network 18 division called New Business. “It’s like a barter system where, in return of your air-time, you take what the other company can easily offer. It could be equity, or some service or product or some other asset. It’s a pure commercial transaction where you get your ads, and the company in question gets advertisements without having to dip into its limited cash resources.”
Still, Narasimhan insists that “there is a Chinese wall between our marketing and editorial teams. We never interfere with our editorial function.”
Some Indian editors, very few of whom would want to speak to Mint if their names were used, point to The Economic Times editor Joshi’s internal email to say that it is unlikely the boundaries between news coverage and the interests of treaty clients will stay intact.
“As a concept, it (private treaties) is an innovative and aggressive prescription (to shore up one’s revenues),” says Shekhar Gupta, the editor-in-chief of The Indian Express. “But, given the commitment made to the (investee) companies in such deals that you will promote them and build consumer and investor confidence around them, it is challenging to keep the editorial integrity,” Gupta says.
BCCL’s website for such treaty clients lists stories that have appeared about them, mostly from the company’s two flagship papers, listing various clients who are mentioned in articles that are broader in nature.
For instance, a story headlined “Action heats up for home deals, as loan rates soften” is cited for Assotech, KLJ, Amrapali and Meriton, four of BCCL’s treaty partners.
In many cases, the headlines on the stories, which are mostly from The Economic Times and The Times of India (though the website includes articles from papers such as The Hindu, DNA and the Business Standard as well), “alone reveal the slant”, wrote Dalal in her article, which first appeared in MoneyLife, a fortnightly personal finance magazine published from Mumbai, but has been widely circulated on the Internet.
Adds Janmabhoomi’s Vyas: “BCCL is keeping its commitment to the PT clients quite well. But, what about its responsibility towards its readers and the media community at large?”
For its part, BCCL insists that Private Treaty clients have no influence on its editorial coverage. Joshi declined to comment on his email cited by Dalal in her article saying he was not the official spokesperson of the company.
Rajshekhar strongly refutes any allegations about the influence of treaties on editorial coverage in BCCL’s publications.
“We have no influence over our editorial colleagues,” he insists. “On the contrary, many of our treaty clients complain that they get a lot more coverage in other publications.”
But, at least on BCCL’s website, clients seem to expect the nature of their relationship with the news side of BCCL will change because of such treaties.
Here is what Kushagra Nayan Bajaj, joint managing director of Bajaj Hindusthan, has to say in his testimonial: “To my mind, the most important benefit of our association with ‘Times Private Treaties’ is the fact that it has enabled the two organizations transcend the ‘us versus them’ kind of feeling and perspective that inevitably develops in the interface between a business enterprise and a media organization...The key contribution that ‘Times Private Treaties’ has made is that it has enabled both sides rise above their narrow professional points of view and look at issues from a larger social perspective. It is also helping create, strengthen and reinforce a climate of mutual trust.”
Rajshekhar says the goal of BCCL’s treaties is to find companies that otherwise wouldn’t be able to spend a lot of money on brand building in their early stages.
“We look for companies that are in a growth phase,” he says. “They are either expanding or scaling up their business and hence, need to build consumer reach and brand pull, but are squeezed for cash to invest in their brand building and advertising. There are also some that need to position themselves to potential stakeholders or investors because they wish to raise capital from the markets either through strategic partnerships or through IPOs (initial public offerings).”
BCCL’s website says the company looks for “sectors that currently do not advertise so that we can create first-mover advantage for our partners.”
Because BCCL funds companies that normally don’t advertise or are just gearing up to advertise, and then negotiates long-term advertising deals, the company’s treaties help reduce the overall corporate tax liability on its own profits while ensuring a steady stream of new ad revenue for its media outlets, creating a circular flow of money as well as a big upside when the value of the company’s stake soars, as in the case of, say, Future Group, a rapidly expanding conglomerate.
Earl J. Wilkinson, executive director, International Newspaper Marketing Association, a trade group, says he has pitched the BCCL model to European publishers.
“I find private treaties to be a clever way of creating a win-win for the up and coming companies and established media players,” he says. “It’s a great example of creating opportunities where none, traditionally speaking, exist.”
Janmabhoomi’s Vyas, though, is convinced that private treaties will do an irreparable damage to the media industry.
“The Press Council of India will definitely take an action in the case, provided somebody lodges a complaint with us,” he says. “We cannot take a suo motu action against anybody.”
Editor’s Note: Mint’s Journalistic Code of Conduct, which governs our own news department’s policies on identifying potential conflicts of interests, is available at the top of our website www.livemint.com under Mint Code.