Quotes of the Day

It's a sign of the times that one of the hottest IPOs in India this year was that of a newspaper company. Shares in HT Media—which publishes Hindustan, a major Hindi daily, the Hindustan Times, an English-language newspaper, and two magazines—listed on the Bombay stock exchange on Sept. 1 after raising about $90 million through a public stock sale. The IPO marked the climax of an extraordinary year for the Indian newspaper industry, which has seen new editions launched, turf wars fought and sensational stories broken. All this exuberance is a heart-warming sight for newspaper publishers. In most countries, sales and profits of dailies have been declining for years, a slide that has been hastened recently by a surge of fresh competition from the Internet and TV. That's why, as a newspaper boom rages in India, investors and media executives across the world are looking for a way to penetrate what is probably the world's last great newspaper market.

It won't be easy. India's news business remains mostly closed to outsiders. In June, the government removed one barrier when it allowed foreign newspapers such as the International Herald Tribune to publish in India for the first time. The concession came with a catch: foreign media outlets can sell only international editions—issues can't contain local content or advertising, because that would threaten the country's homegrown publications. Nor can outside media giants buy their way in. There's a 26% cap on overseas ownership of newspapers and TV news channels. The recent changes aren't enough, say some of the key players who had hoped for an opening. Last year, for example, the Wall Street Journal announced with fanfare that it would launch an Indian edition with a local partner. The publication has yet to hit the newsstands. "We certainly hope to publish in India," says Suman Dubey, chief representative in India for the WSJ's owner Dow Jones & Co, "but only if our product can be attractive to Indian readers and economically viable."

Dubey's frustration is magnified by the sense that a golden opportunity may be eluding him. Watching the Indian newspaper scene is like taking a trip in a time machine to early 20th century America, when newspapers ruled life and politics. Sales of most Indian newspapers are increasing, and advertising is soaring. There are some 50,000 newspapers in this country of more than 1 billion inhabitants. Although circulation data is often controversial and hard to verify, one recent survey suggests that the number of Indians who read a daily newspaper shot up by 14% in the past three years to 176 million. (Most of them are reading newspapers in languages other than English—the Times of India, the top-selling English newspaper, is only the 12th largest.) It's not hard to see the reasons for the boom: literacy is still expanding in India, and has increased by 21% over the past three years. A growing readership has combined with India's other strengths—a vital economy and democratic culture—to make it a serious rival to China for the attention of global media investors. While there's more advertising money in the Middle Kingdom, "India is less regulated than China and it's easier to make money here," says Vivek Couto, executive director of Media Partners Asia, a Hong Kong-based industry consultancy.

That's hard to believe, considering that newspapers sell on the streets of New Delhi for 6¢ or less per copy. But advertising more than makes up for any circulation revenue shortfalls. Newspapers grabbed 46% of the $2.6 billion spent on advertising in all Indian media last year. Smelling big profits in the combination of rising circulation and advertising, India's newspaper barons have now unleashed the biggest newspaper war in their country's history. Until recently, most cities have been dominated by one major English-language newspaper. Bombay, for example, was Times of India territory. A handful of families controlled India's major newspapers, and a gentleman's agreement largely kept them off each other's turf. Not anymore. In Bombay, a new English newspaper called DNA (as in Daily News and Analysis) has launched an advertising blitz, buying dozens of giant billboards around the city, as it prepares to take on the Times of India. At the same time, the Times launched a new tabloid, the Mumbai Mirror. To thicken the melee, the Hindustan Times, a leading New Delhi paper, also entered the fray. Bombay is currently experiencing India's most febrile newspaper battle, but it's not the only one. In Madras, the Deccan Chronicle is aggressively taking on The Hindu, India's most respected English-language paper.

The new editions and start-ups should offer foreign investors a chance to get in on the action. After all, the Indian newspapers need capital to pay for expensive marketing campaigns to muscle into new cities. Western newspapers, while facing an uncertain future, have deep pockets. It should be a perfect match. Yet only a handful of big deals have been inked. For example, Britain's Financial Times has taken a stake in the Business Standard, an Indian business newspaper, and Henderson Global Investments, a British firm, has invested in HT Media. "It's worked out very well for us," says T.N. Ninan, editor of the Business Standard. His paper now carries a daily page of international business news from the Financial Times and frequently runs opinion pieces from the British paper, which help to set it apart from competitors.

Why aren't more deals being done? The 26% ownership restriction is one problem. Tariq Ansari, managing director of Mid Day Multimedia, owner of the popular Bombay newspaper Mid Day, says that most foreign investors want the cap to be higher—at least 49%—before they'll invest in Indian papers. Supporters of the cap point out that many countries have restrictions on foreigners entering their newspaper market—why shouldn't India? Then there's the claim that without the cap, illicit money could enter the local industry. "Would you want funds that have terrorist linkages to enter the media?" asks M.J. Akbar, one of India's most respected journalists and editor in chief of the Asian Age newspaper. Critics don't think much of that argument. Many feel that the real reason the cap stays at 26% is that India's powerful newspaper barons want it that way. "Entrenched monopoly newspaper houses have been making this allegation as a way to keep out potential competition," says Ansari.

Some analysts believe that in the long run, pressure from the outside world—and the Indian media's need for new funds—may compel lawmakers to ease restrictions. But for now, the cap looks likely to remain for some time—and ironically, that may work out in favor of the foreigners in the end. Competition for reporters and other staff has pushed up labor costs for existing newspapers, and huge marketing expenditures threaten to eat into profit margins. Ansari of Mid Day says he is "concerned about some of the competitive strategies being adopted," warning that they "can only hurt the industry in the long term." In other words, even in one of the world's largest and most vibrant media markets, too many players may wind up chasing too few customers—and newspaper closures will be sure to follow. "People have come into newspapers thinking it's a casino," says Akbar. "It certainly isn't." If publications start cashing in their chips, perhaps the foreign investors now itching get into India will be glad that they weren't let in too fast.

• Multinational media conglomerates are eager to snag a share of India's tumultuous newspaper market. Are the outsiders just treading water?