Sunday, September 19, 2010

The Economics of Pakistan's Electronic Media

Here at Cafe Pyala we have often debated the concept of the "electronic media bubble" and put forward our own opinion that the economics of the media boom in Pakistan over the last decade just did not seem to make sense. Wanted to share the following article with readers from the recent reincarnation of Viewpoint (the leftist magazine edited by Mazhar Ali Khan that died along with the collapse of the Soviet Union) as an e-zine. It is written by Riaz ul Hassan, a former lecturer at Government College, Lahore, who is currently studying in Sweden and plans to do a PhD, we are told, in Social Media studies.


(Graphic: Viewpoint)

I am not 100 per cent sure of the facts and figures contained here (in particular, I am not convinced about some of the assumptions of operating costs) but it certainly represents the first serious attempt to look at the economics of an industry that has largely escaped financial scrutiny. And it certainly argues its case well. I am reproducing the article here in full in the hope that some of our readers, particularly from the business end of the media, might themselves provide insight or even corrections to the financial assumptions made in the article.

Look forward to the input.



Pakistan media’s mysterious financing
By  Riaz ul Hassan
Pakistani media’s financial shortfall is compensated either by mysterious sources or the electronic-media bubble is heading for a big burst
It takes Rs. 40 million per month, for a privately-run, news channel in Pakistan. Apparently, advertising is the only source generating income for privately owned TV channels. The windfall from advertising industry, in case of top 32 channels, is at best Rs. 592 million.   At average, every channel earns Rs. 1.7 million per month from advertising.  Either the shortfall is compensated by mysterious sources or the electronic-media bubble is heading for a big burst.
In fact, Pakistan cannot be considered a sound Media market because there is not enough growth in advertising to sustain it. The ratio of advertising expenditure to GDP is about 0.19% - the total advertising expenditures in fiscal year 2008-2009 were Rs. 26.96 billion according to a Gallup survey and the total GDP was around Rs. 14,156 billion according to Economic Survey report for the same fiscal year. In the neighboring India, the same ratio for year 2008-2009 was 0.47%. 70 percent of goods and services purchasing power in Pakistan is constituted in small and medium cities which are nearly 80 percent of total television audience. The remaining 30 percent purchasing power is exerted by the 20 percent of television audience in metropolitan and big cities [1].  Last few years were quite promising and positive for the media industry especially for electronic media though annual advertisement growth is far less (8% in 2008-2009) as compared to annual growth of total media industry which is 120 percent approximately. Global economic recession and the alarming law and order situation in Pakistan have resulted in lowest increase in advertising expenditures in the last five years [2].
In the year 2008-2009, the television industry got the lion’s share of 55 percent of the total advertising expenditure, while print media followed with 26 percent. According to research organization Aurora’s (owned by DAWN media group) annual report 2009, the total media advertisement revenue was Rs. 24.63 billion. Aurora’s figures differ from Gallup’s who reports that there was only 1 percent increase in total ad-spend in 2008-2009 as compared to last year (from Rs. 24.36 to 24.63 billion). The total ad-spend increased by 31 percent in financial year 2006-2007, and 18 percent in 2007-2008. According to Aurora’s figures, print media still holds 37 percent share in total advertising budget while the TV is on top with 54 percent [3].
As mentioned in the beginning, in fiscal year 2008-2009, TV ad-spend increased by 24% to reach Rs. 14.807 billion as compared to previous FY according to Gallup survey report. Aurora did not provide any details about break up of TV ad spend in response of our request but according to another renowned firm MediaBank, TV advertising revenue remained Rs. 13.374 billion with 14% increase from last FY. Since there is not much difference between these two figures, we will graphically show break-up of TV ad-spend per channel here for Rs. 13.374 billion:
This graph reveals very important factors. 96 percent of TV ad revenue was taken by 32 channels. The remaining channels which are around 50% of total number of channels functional in Pakistan got only 4 percent. Another notable fact is that PTV Home and PTV News are owned directly by federal government and are terrestrial channels along with ATV; previously owned by government and now by a private company. Terrestrial channels claim some 16 percent of revenue. Consequently, more than 80 private channels are contesting for 88% of total TV ad-spend revenue. Moreover, satellite channels’ ad revenue increased by 23% and terrestrial channels’ decreased by 18% as compared to previous fiscal year 2007-2008. On the other hand, Gallup claims that satellite channels accounted for 74 percent from total revenue with an annual increase of 36% while terrestrial channels accounted for 26% with annual increase of only 0.1%.
All in all, total television ad-spend remained around RS. 14.807 billion in fiscal year 2008-2009 [4]. In the same fiscal year PEMRA awarded 46 new FM radio licenses, 16 TV channel licenses, 232 cable distributorships and two landing rights for TV channels [5]. Five TV channels started broadcasting that year, compared with 15 in 2007-2008 [6]. Currently, PEMRA charges around Rs. 2.5 million for issuing a TV license excluding Rs. 20,000 as initial charges [7]. Moreover, it costs 70 million to 1 billion rupees to establish one TV channel in the country as per estimates based on interviews with industry officials.
The total TV ad-spend of Rs. 14.807 bn is distributed among almost 60 private fully functional TV channels and two major state-run channels at the moment [8]. State-run PTV Home and PTV News get 8% and 4% from this total revenue respectively which leaves Rs. 13.03016 billion for 60 private TV channels. Meanwhile, 96% of the ad-spend goes to 32 major channels while the other 28 channels get only 4 percent from this pie (Rs. 592.28 million). Among these 28 channels, seven are news channels and remaining 21 are general entertainment channels.
If we assume that this amount of Rs. 592.28 million is equally divided among 28 channels then every channel will get Rs. 21,152,857 per year, hence Rs. 1,762,738 per month. Factually it is not possible by any means that one TV channel can be run with money as low as Rs. 1,762,738 per month ($20,935). There is no other legal source of income for TV channels in media market as the market does not generate any subscription revenue [9]. A senior official of Dawn TV informed Viewpoint on condition of anonymity that total monthly expenses to run a news channel are around Rs. 40 million. Another senior official from ARY network further verified these numbers and informed that its costs around Rs. 20 to 30 million per month to run an entertainment channel. Keeping in view these all facts, it is not possible for Pakistani media market to thrive for long period and we can predict that bubble will burst soon and many channels will have to shut down their services. According to the break-even point theory, any firm needs to meet its fixed costs in order to keep its operations running.  Below break-even point, a firm will need either to obtain additional financing or to liquidate some of its assets to meet its fixed costs [10]. In above mentioned case, most of media firms are not even able to meet their fixed costs and sooner or later will have to leave the market.
In order to inspect the claims made by both ARY and DAWN news officials, let us examine the only financial data available from a media house: Hum TV. Hum TV (Eye Television Network) is a semi-public corporation and according to the financial report of 2008-2009 [11] its total expenses for the fiscal year were Rs. 78,397,045 with Net Revenue of Rs. 1.117 billion approximately. Eye Television Network is one of major media corporations in country and secure almost 9% from total ad spend with its four channels. In the beginning of year 2008-2009, it owned two channels. The third channel (Style360) started operations in August 2008 while the fourth one (OYE) was launched at the end of this fiscal year. So we can safely claim that during the whole period of 2008-2009, three channels were in operation. This fact leaves us with calculations that total expenses per channel per month for Eye TV Networks are about Rs. 22 million, keeping in view the expenses mentioned above. In the meantime, remember that all four channels share higher management, technical facilities and distribution resources. These calculations substantiate the claims made by officials from DAWN and ARY TV.
Most of the Pakistani media industry is owned and controlled by private firms and individuals, so it is not possible to access any financial information on scientific grounds, but with some exceptions. Revenue sources, expenditures and financial values of these media houses are an inaccessible secret which is nothing but another ‘ugly secret’ of our society. Everyone knows something, but no one dares talk. It is evident that a few channels are being financed by mysterious sources else if any economic rule is applied, some of the channels must have been closed down by now.
Notes:
1. Cyber Letter Gallup Pakistan [online]. 2009 June; Available from: URL: http://www.gallup.com.pk/newslist.php?id=MEDIA 
2. Gallup Pakistan's Annual Advertising Expenditure Data [online]. 2009; Available from: URL: http://www.gallup.com.pk/GallupPakistanAdSpend.php
3. Gallup Pakistan's Annual Advertising Expenditure Data [online]. 2009; Available from: URL: http://www.gallup.com.pk/GallupPakistanAdSpend.php
4. MediaBank. Annual Subscription based Report. http://www.mediabankpakistan.com/ 
5.  CSF Achievements. Ministry of finance Government of Pakistan [online]. Available from: URL: http://www.competitiveness.org.pk/subpage.php?pageid=55 
6. Annual Financial Report 2008-2009. Available from: URL: http://www.eyetv.com.pk/financial/2008-2009/Financia_Report_2009.pdf  
7. For further details: http://www.pemra.gov.pk/satellite_tv.html 
8. Annual Report Eye TV 2007-2008. Available from: URL:http://www.eyetv.com.pk/financial/2007-2008/ANNUAL/2007-2008-annual.pdf 
9. Crampton T. Salman Iqbal on ARY and TV in Pakistan [online]. 2007 Oct. 02; Available from: URL: http://www.thomascrampton.com/media/salman-iqbal-on-ary-and-tv-in-pakistan/ Asia subscription TV figures higher than ROW combined . Available from: URL: http://www.digitaltvnews.net/content/?p=11224
10. William JN, Haka SF, Bettner MS. Financial and managerial accounting. 13th ed. Chicago: Irwin Professional Publishing; 2001. p. 844-845
11. Annual Financial Report 2008-2009. Available from: URL:  http://www.eyetv.com.pk/financial/2008-2009/Financia_Report_2009.pdf
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20 comments:

  1. takhalusSeptember 19, 2010 at 4:44 AM

    fact: a lot of media groups used to be set up for prestige esp English..

    The whole revenue generated is quite new..but u discount the expatriate appetite for media?

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  2. AnonymousSeptember 19, 2010 at 3:41 PM

    the stats in this report are so haphazard, over-lapping and badly organized that it's almost impossible to glean a clear picture.

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  3. BiyaSeptember 19, 2010 at 4:19 PM

    i agree the financing behind pakistani media is kind of mysterious.. plus the salaries of the news casters

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  4. Asad ur RehmanSeptember 19, 2010 at 5:39 PM

    This comment has been removed by the author.

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  5. Asad ur RehmanSeptember 19, 2010 at 5:52 PM

    As someone who has had considerable professional stake the media economy of Pakistan from advertising point of view, and also as someone who has worked on the media side as well, these stats do NOT look quite far from real. You have to understand there will never be an agreement on these stats by various sources who estimate these, but the differences are not that wide.

    The most interesting fact in the media in Pakistan, however, is that about 40% of the TV content on air in Pakistan is news. In most cases live news. You will not find this anywhere in the world. Primarily because it is the entertainment channels that attract the bulk of advertising revenues, and viewership indeed.

    First of all, the cost of running a TV channel in this article, is slightly over estimated. That sort of partially mathematically distorts the point the writer is trying to make. Secondly you have to understand that news channels perhaps do not seek return on investment in terms of direct advertising revenues alone. There are other sources of return, political clout being just one of them. And this is a fact that is not unique to Pakistan.

    The point about "mysterious" funding may be right, but perhaps not rightly made. For the way it is currently made almost instantly points the reader to a conclusion that these channels are being funded by "bara bhai amreeka", or that there is an obvious "agency ka hand" in this all. A perception that is by all means a by product of this very phenomenon of news channels itself. Whilst this saheb bahadur factor may be at work, it is certainly not funding all the deficit of the industry that the writer has pointed out.

    It may not be very difficult to analyse the sources of funding of these channels if you closely look at the ownership of these channels. Some of these are subsidised by the sister concerns that are entertainment media, and some by a bumper crop on a chowdhary saheb's land who, as someone in the above comments also suggested, likes to tell people that he owns a channel. Wether that chowdhary saheb is being manipulated by someone is a different question altogether and the answer to that imay very well be yes. Some of these channels are under tremendous financial pressure, Dawn news becoming an Urdu news channel is definitely something you would have never expected from Haroon House ever- but a sign of the fact that money does matter.

    Pakistani electronic media is not a bubble, it does need a bit of correction though. For the literacy rates that we have, and the penetration of TV, the distribution of advertising moneys across TV and Print also needs correction. One of the reasons why TV revenues have not grown in percentage share of adspend terms is that these channels fuel what we call negative inflation- by selling as much air time as they can, on as little sums of moneys as possible. By providing almost an infinite supply, at decreasing price points. Growth is not likely in such environment and a correction will happen.

    I will stop now, before this comment beats the original post in length, but look forward to some good interaction. I have also been out of the Pakistani market for quite some time, so may not have a great grip on some realities and would love to hear an informed point of view.

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  6. AnonymousSeptember 20, 2010 at 12:21 AM

    Don't the channels also get subscription and/or licensing fees for broadcasts in the Middle East and the US and UK, as well as advertising in those markets? Of course this would be limited to the most popular channels. From what I have heard from someone who worked at a TV channel, this cashflow can be be significant.

    I'd add that some of the methodology in the article is quite shoddy - e.g. dividing the pie of ad-spending on private tv channels equally across the 28 private channels.

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  7. kay-without-a-teeSeptember 20, 2010 at 1:36 AM

    You should also take into consideration the fact that most of the big channels also have major publications, such as English and Urdu dailies and monthly or fortnightly magazines(Geo, Dawn etc). Maybe they are using the concept of loss leaders to compensate for the deficit from the channels, hoping that the advertising sector would pick up soon. And given the recent gold prices, I dont think ARY would have much of a problem to keep functioning (re: ARY Gold subsidiary).

    And as someone above also mentioned, that they do get subscriptions from the audience in UK,USA,Middle East etc. I can say from personal experience, that we had to pay a higher charge for having Geo News through our Sky Box in London.

    And then, we all know, even if nobody says it out loud, the MNAs and other politicians must be paying these channels for saying certain stuff and not saying the other; for analysing an issue from a certain perspective etc.

    Given the fact that media has infiltrated the Pakistani consciousness as a cancer, its going to be hard to confront them with these financials and tell them to be fair. But nonetheless, I think this issue should be debated and what better place than the free-er than thou blogosphere!
    Keep up the good work! =)

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  8. RazaSeptember 20, 2010 at 2:41 AM

    Assuming the graph is correct: GEO Network have 24 percent share ( GEO News 12%, Geo Entertainment 7% and Geo Sports 5%) in the Rs 13.374 billion tv add spends during the year last financial year. This means Geo recieved more than Rs 2.5billion rupees per year or Rs 208 million per month. So if Rs 40 million is the bench mark than Geo is earning about 5.2percent higher. Or if we divide this Rs 208 million equally among the three channels (Geo News, Geo Supper, and Geo Entertainment) than all three channels are recieving about Rs 60 million per month, about Rs 20 million higher than the average requirement of Rs 40 million.
    I think problem is with small channels. Big channels will survive because their costs is much lower than their earning. There is a saying in the market, if a Seth say it is in facing losses: it means profit is there but it is lower than last year, it doesn't mean they are not earning profit. When they stop earning profit they declare the company bankrupt.
    I think it's the phony crises of big media houses to make labor market flexible that will reduce cost of hiring a good professiona and that will narrate in doubling profits.

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  9. AnonymousSeptember 20, 2010 at 3:11 AM

    Hey Cafe Pyala, thanks for broaching the topic of the economics of our local media. First off, I have to point out that I have trouble trusting this gentleman's thesis because he uses conspiratorial language along the lines of "mysterious sources". Seriously. There is a limit to how much conspiracy mongering a person can stand.

    Asad-ur-Rehman may have the closest "true" approximation. My personal assessment is that there is a lot of undeclared money sloshing around Pakistan. If that means that someone wants to set up a TV channel to "impress" their equally super rich friends, then no problem on that front. Simultaneously, the statistical discrepancies this 'Counterpoint' article is based on reminded me that three countries, the US, China and Saudi Arabia have something more than "normal" interests in the Islamic Republic of Pakistan. These countries have their domestic lobbies in Pakistan that advocate indirectly for further interaction with each of these countries. To see it's interaction with the local media, I can just point to an instance when Najam Sethi said that Pakistani journalists sometimes have a tendency to sit on reports of corruption emanating from Chinese projects, even by Chinese individuals. Sethi said this had to do with a personal bias amongst journalists that China has caused Pakistan less damage than the United States.

    Coming back to the article, his line on Rs 40 million being needed to run one channel per month, can mean that Pakistan's combined 32 channels have an annual expenditure of 32 x Rs 40 million = Rs 1.28 Billion per month. That's US$15,035,827 per month. My God. You're asking for $15 million in a country with a population of 180,000,000? For an entire industry, in 2010? That's done faster than you can say done.

    And most of our media is concentrated in Karachi. What about the money being generated across the rest of Pakistan? In Punjab outside Lahore and Pindi? In Khyber Pakhtunkhwa and Balochistan? In FATA and Gilgit Baltistan? Smuggling across from Afghanistan? From Iran? Of course there's undeclared money in our system. And it's not government security bureaucrats, or white men, or Arab men, or Chinese men sponsoring these channels. The story of undeclared money in Pakistan is an entire series of books that can be written.

    Postscript:And oh yes, I just remembered something. Do all y'all remember how a decade ago they used to call journalists (after lifafa artists), a bunch of blackmailers? Maybe some people in our media industry are not so much reporting the story, as they are sitting on it, in exchange for favours, monetary, or otherwise?

    Discussing the entire topic of money in Pakistan is like asking to go down the rabbit hole.

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  10. takhalusSeptember 20, 2010 at 3:31 AM

    That's an excellent point some of the media groups must save a lot by the dual use of media and print journalists. I suppose that is a major factor for Jangs crossover success and DAWNS failure. The former tapped into its existing resources and created a market leader, the latter was a market leader in print that tried to replicate the same assuredness in media and failed.

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  11. AnonymousSeptember 20, 2010 at 8:49 AM

    Pyala's articles aren't appearing in the newsfeed section of its fans facebook pages.The administrators of the blog should take the necessary corrective actions.

    ReplyDelete
  12. MonkeySeptember 20, 2010 at 3:31 PM

    I agree with kay-without-a-tea. For instance Express has very solid financial backing - the Lakson group. Plus they are the only group with a newspaper and a tv channel in both English and Urdu...if efficiently managed, I do believe that this means that they can significantly reduce the cost of each respective product.

    Small channels...I don't believe they spend Rs40 million per month...just look at Vibe and Metro, the quality of their programming and the production value...if Rs40m buys that then they are clearly very inefficiently managed.

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  13. osama atharSeptember 21, 2010 at 3:01 AM

    Firstly, those stats is a piece of crap
    Agree with K without a T and Raza
    Disagree with TLW.
    It is true that most of the channels are owned by private companies. As far as eye television network is concerned, which owns hum, masala, 360 etc.. their stats are correct and one should have no doubt about the revenue generated and expenditure incurred by the company on those channels because the company is regularly being audited by a well known audit firm.
    Details of revenue generation can be seen on manual annual report- note 23 in the "notes to the accounts" section.
    I would have contributed more had the notes were available on the financials of eye tv ltd for the year 08-09.
    For tv channels like geo, being owned by private company, i cannot comment as the annual report is unavailable but i can only say one thing that "Independent Media Corporation" which owns geo tv owes RS. 1.68 billion to FBR. ( http://en.wikipedia.org/wiki/Independent_Media_Corporation )

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  14. AhmadSeptember 22, 2010 at 3:39 PM

    Well there are errors in this study, and quite basic ones, Billion is 1,000 million not 100 million, and break even cost covers variable cost not fixed cost

    ReplyDelete
  15. AnonymousSeptember 22, 2010 at 7:23 PM

    This is completely unrelated to the post but you've been mentioned by George Fulton in an op-ed for Tribune :P.

    ReplyDelete
  16. know it allSeptember 23, 2010 at 12:05 AM

    Good post and good of Viewpoint to take up the matter. If the Express Group is so flush with cash, as Monkey (above) says, it is indeed odd that I hear it is losing some of its best writers due to lack of sufficient payment. Pyala---how about a post on that?

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  17. MLSeptember 23, 2010 at 12:16 PM

    I'm writing from Aurora magazine.

    In his article, Riaz ul Hassan says:

    "Aurora did not provide any details about break up of TV ad spend in response of our request..."

    Just wanted to clarify that we don't recall receiving a request from Mr Hassan on this subject.

    ReplyDelete
  18. AnonymousOctober 2, 2010 at 1:09 PM

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  19. Vote for FaisalMarch 22, 2012 at 12:41 PM

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  20. Vote for FaisalMarch 22, 2012 at 12:44 PM

    This comment has been removed by the author.

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