Increasing newsprint prices are likely to have a negative impact on profitability of the Indian print media industry in the short to medium term, according to a Fitch report.

The report expects that an increase in advertising revenues may partly offset the rising cost of newsprint. Newspaper publishers generate about 70 percent of revenues from advertising, with the remainder coming predominantly from circulations. However, the agency's expectation of moderating economic growth in India in financial year 2012 will negatively affect advertising revenue growth. " Along with high newsprint prices, advertising spending was also under pressure during this period. At end-May 2011, domestic newsprint prices increased by 13.4% and international newsprint prices (US) were up by 7.2% compared to average prices in year 2010," said the report.

"Newsprint cost is the largest operating cost for newspaper publishers, and typically accounts for 40-50% of total operating costs. Further, high competitive intensity in the industry is likely to prevent newspaper publishers from raising cover prices significantly," says Sahil Aggarwal, Analyst in Fitch's Telecom, Media and Technology team. 

Newspaper publishers use a mix of domestic and international newsprints, and companies vary this proportion to better manage costs and the quality of newsprint. Since both domestic and international rates are moving in tandem, Fitch believes publishers may not be able to reduce costs significantly, even by changing this mix.(BS)