Bennett, Coleman picks up stakes in companies to lock in advertising.
Bennett, Coleman & Co's (BCCL) rivals, beware. The publishing house that owns India's most-read English daily The Times of India and financial daily The Economic Times, is quietly sewing up exclusive long-term advertising deals with clients, locking the competition out of their media plans in the process. And it is taking the "equity participation" route to do so.
Earlier this month, BCCL struck deals to pick up equity stakes in two companies. In Chennai-based Celebrity Fashions, that owns the menswear brand Indian Terrain, BCCL is acquiring a 12 per cent stake.
In the Rs 650-crore Pantaloon Retail India, it is taking a 4.53 per cent stake. As a trade-off, BCCL is expected to push and promote the companies' brands through its media products including The Times of India, The Economic Times, Indiatimes, Zoom and Radio Mirchi.
BCCL is said to have spent Rs 70 crore to acquire a stake in Pantaloon in return for which it is expected to earn a similar amount of advertising over five to seven years.
The Celebrity Fashions deal is a barter deal of sorts in which BCCL will acquire its stake in return for Rs 21 crore worth of advertising over three years.
BCCL's Director, Finance, Probal Ghoshal and Director, Corporate, R Sundar haven't stopped grinning ever since the first deal, that took over six months to close.
However, having signed up some clients, they are flooded with calls from other interested parties. By July, they hope to seal about 40 such deals, though it is difficult to say how much the new business model would contribute to Ghoshal's Rs 2,000-crore advertising revenue target for the year ending July 2005.
A similar barter deal has just been struck with a company where BCCL is picking up some of its shares ("and more", says Sundar) in exchange for advertising space in its newspapers and other related benefits. Predictably, Ghoshal and Sundar are zealously guarding the client's name till the deal is made public next week.
Ghoshal does not see taking equity in companies as a deviation from Times' core business. "It's a different design in the same business -- selling media solutions," he says.
Adds Sundar: "We have the wherewithal to take the idea forward -- there's indiatimes, events management company 360s, 70 Planet M stores, Radio Mirchi and a TV channel ...other than our newspapers."
The deals have involved a great deal of due diligence -- it took six months to work out the first one with Celebrity Fashions. Both companies were chosen for being in stable but booming industries with sound promoters.
Kishore Biyani of Pantaloon insists that it is not an advertising deal. "But there are synergies between the two companies," says Biyani.
Sundar says its deal with Pantaloon may be structured slightly differently. It could take the form of special supplements that will, in turn, help improve footfalls in Biyani's stores.
Commenting on why Celebrity Fashions allowed BCCL to pick up equity in the company, its managing director V Rajgopal says: "Unique problems require unique solutions. We have a brand-building requirement and they (BCCL) have the expertise. I would not have gone into a similar deal with any other newspaper, for instance."
Also, equity participation makes the partnership active. "They are bound to go that extra mile to build the brand."
Besides, for companies which find advertising an expensive proposition, there is no immediate cash outlay.
Media marketing experts across television and print space have already declared the scheme to be another winner from The Times of India Group. Says marketing head of a news channel: "It's a zero-risk strategy."
Times can "hype" the brands it picks up through its media products including Medianet.
"The company will use both its advertising and editorial space to push the brand and make a profit when the company goes public. Through these stakes, Times is sitting on a pile of cash."
The exclusive nature of these contracts also affects Times' rivals like Hindustan Times since it locks out advertising from high-spending clients.
That's not all. Times consumes its unused inventory. Observes the news channel marketing head: "Times' unused inventory can be used for the business." Experts say that the arrangement will benefit Times as like airline seats, its commercial space is also perishable.
Sundar refutes the assumption pointing out that BCCL can easily reduce the number of pages in its papers if advertising shrinks. "It is about partnering the clients to build their brands. You could call us the venture capitalists for building brands."
On his part, Ghoshal says he will have to expand BCCL's treasury operations to manage the growing number of deals.
The question is whether rivals can emulate this strategy. Sundar thinks not: "You need criticality of mass, I mean some scale of operation to do this." For the time being, only BCCL has that mass.
Win-win scenario: Equity participation makes the partnership active. The companies feel Times is bound to go that extra mile to build the brands. Times locks in advertising