Thank you for all the input.
Dhwanil, your commentary has been invaluable. It has provided great insights into the business and the industry.
These are my thoughts….
In this industry once a newspaper has reached a significant scale, it begins to enjoy immense pricing power.
The newspaper creates a network effect that commands a premium from advertisers. Customer stickiness also allows the newspaper to increase cover prices.
Thus establishing a network effect in a large market is very powerful.However HML’s entry in UP, and DB’s entry in Bihar/Jharkhand point to the fact that an incumbent’s network effect can be encroached upon. Thus a players ability sustain a created network effect is extremely important.
Amar Ujala failed in this respect allowing HML to gain market share. While HML has also bled some market share with the entry of DB, it has been more resilient when compared to Amar Ujala. Yet readership has fallen. From 2012-2014, Bihar readership has fallen from 48 lakh to 43.8 lakh, and Jharkhand readership has fallen from 17 lakh to 13.8 lakh.
DB’s launch strategy (known as the Orbit-Shifting Innovation) has won a business process innovation award, and is case study at top B-schools. DB has basically been very successful in entering new markets in the past. You can read about it here: http://www.dainikbhaskargroup.com/pdf/Media-Center-Case-Studies/Making-Breakthrough-Innovation.pdf
What I find extremely puzzling is that DB has not yet made an endeavor to enter UP/UT. In recent times DB has entered Bihar and Jharkhand but the UP/UT market is bigger than the Bihar, Jharkand, and Delhi markets combined.
I would love to hear everyone’s thoughts on
1) Why has DB not entered yet, am I missing something?
2) What will happen to HML’s market share and growth prospects if DB decides to enter now
A possible reason could be that perhaps DB was unsuccessful in penetrating the Bihar and Jharkhand market, and thus DB management is not confident about going head to head with HML again. If this is the reason, then I think it very strongly reinforces the strength of HML’s moat. This is just a possible reason. I have only recently started to study this industry, I’m far from an expert. Hence feedback is welcome, and much needed.
If its true, the implications are very favorable. Due to correlation between readership and pricing power, as HML continues to increase its readership in UP/UT, FCF will grow incrementally. FCF has quadrupled in the last 5 years (29% CAGR), and that trend may continue.
I look forward to some feedback. Thanks guys.
Disc: Not invested but looking to make a position
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