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January 1 2008
Hot off the presses
China Economic Review
(c) 2008 China Economic Review Publishing. All Rights Reserved
Widely seen as one of the last bastions of state control, China’s print media was given its first taste of reform and restructuring in November as Liaoning Publishing won approval to sell shares in its editorial and operational assets. Industry watchers believe this could lead to consolidation in the country’s fragmented media industry.
In the past, publishing companies listed shares of their operational arms, such as printing and advertising, but kept their editorial arms privately owned, according to Anke Redl, managing director of China Media Monitor Intelligence.
“To date there have been a number of publishing company listings in China, [but] most of them [were] back-door listings,” she said.
The back-door listing - in which a company buys and inserts its own assets into a firm that is already listed - is popular among companies that either can’t meet the listing criteria themselves or don’t want to go through the disclosures involved in an initial public offering. In the media sphere, for example, Beijing CCID Media Investment formed after it took over property developer Hainan Gang’ao Industry in 2000. Beijing CCID publishes technology-related titles.
Top-level backing
During October’s Communist Party Congress, the government came out in support of all publishing divisions going public. This was followed by General Administration of Press and Publications (GAPP) announcing that newspaper publishing groups and news websites would be allowed to list on both domestic and overseas exchanges.
Liaoning was first off the mark and plans to offer up to 140 million shares, equivalent to 25.41% of its enlarged share capital, on a domestic exchange. It hasn’t specified whether this will be Shanghai or Shenzhen, but it intends to use the proceeds to open book stores, improve logistics and supplement working capital.
According to GAPP, 13 publishing companies are set to issue IPOs, of which seven will list their combined editorial and operational sectors. The agency will release detailed regulations for the listings at an undisclosed date, Redl said. Until then, GAPP and the party’s propaganda department will look at IPO applications on a case-by-case basis. GAPP has said, though, that the companies will be allowed to list both domestically and abroad, leaving them open to some level of foreign investment.
Should Chinese media groups list editorial assets overseas, foreign investors would have an interest in the nature of the content that appears in their newspapers. But it remains to be seen whether this interest stretches beyond the financial. China’s magazine industry, for example, is dominated by foreign-invested joint ventures. The country’s top magazine titles include the likes of Elle, Marie Claire, Fortune and Harper’s Bazaar.
But the newspaper industry is unlikely to see the same kind of foreign participation because Beijing has given no indication that it will loosen editorial controls.
“Political issues will remain off-limits while foreign investment will be controlled through minority shareholding and other controls,” Redl said.
Deregulation will nevertheless likely have a significant impact on the media market. According to Vivek Couto of research firm Media Partners Asia, as media companies raise capital on the public markets, they will use the funds to buy up smaller firms and strengthen their own positions. A media market with a few large players is expected to result in higher quality products.
“You will see that more consolidation will be beneficial to the industry as a whole,” said Peter Tan of McCann Worldgroup’s Consumer Insights and Market Intelligence Center, “because the quality of printing and content [now] is too fragmented.”
Such improvements are greatly needed, because China’s newspapers are suffering from a global drop in daily readership. According to the China Market and Media Study, which is coordinated by Sino-Japanese firm Sinomonitor International, newspaper readership declined from 74% to 67% of the population in the first quarter of 2007.
The situation is similar in the US and Europe, with many people pinning the sales slide on the growing popularity of online news and mobile services that engage readers in new ways.
Although online news has reduced newspaper readership at home, China’s urban commuter population still demands something tangible to read. But even so, quality remains a factor. If low-quality newsprint is used, the reader is more likely to dump the newspaper as soon as they exit the bus or subway, Tan said.
Investing in quality
The injection of capital from share listings could certainly help newspapers invest in and add value to their products. By extending the amount of time people spend with their paper, publishers can count on greater interest from advertisers.
“If you have higher-quality paper that people will feel more obligated to hold on to longer, it has higher value,” said Tan.
With the Olympics approaching, 2008 will be a crucial year for media companies. Couto expects newspaper ad revenues alone to grow 35%, giving them room to expand on their current 30% share of the advertising market.
But the long-term viability of these publications depends on how they spend these revenues. Sensible investment could lay the foundations for a share offering and a key role in the industry’s consolidation story. Those that fail to act will just become more vulnerable.
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