Into the Stream: Newspapers Push Digital Media

It’s 9.30 in the morning and nearly every commuter in the compartment of one of Hong Kong’s MTR trains is reading one of three free daily newspapers distributed at each station. Not one is reading a subscription newspaper.

Is this yet another harbinger of doom for paid newspapers in Asia? Not exactly, say publishers of major paid titles available in Asia. Though cities like Singapore and Hong Kong boast high broadband penetration and an explosive demand for mobile technology, it is clear that not all newsprint is destined to be birdcage liner.

While free dailies eat away at local Chinese print in Hong Kong and Singapore’s print dynamos build defensive strategies to avoid losing advertising share to online classifieds, the international publishers of regional broadsheets are preparing for the “structural shift” to online that has already hit North America and Europe. Most reckon that they will enjoy some significant growth in Asia before it’s too late, particularly in India and China, where newspaper consumption and advertising expenditure continue to grow.

The International Herald Tribune (IHT) publisher Michael Golden says the IHT hit peak consumption levels in Asia earlier this year with a paid circulation of 91,039 but management are also growing the paper’s online presence and securing around 3 million visitors per month, on average, since the second quarter of this year.

“I believe that newspapers have a bright future, but we’re not betting the bank on it,” says Golden. The IHT, which has seen sales increase by 35% in Asia Pacific this year, will present its readers with a full electronic and customized version of the general interest paper in two to three years, says Golden. But the move is not being made in response to any tangible threat. Instead, it’s part of a strategy to give readers multiple platforms to enjoy IHT content.

One of these platforms has already launched, says Golden, as he demonstrates on his Blackberry a white and blue HTML screen of important headlines from this morning’s edition of the paper. IHT management is increasingly interested in mobile technologies and is funding a full-time research and development department to look into how to deliver more of the paper to more people on mobile devices. Newspapers in Europe and America are flagging due to young consumers fleeing to free online publications and handout newspapers in metros and coffee shops. In Asia, there is not much movement made by local players to offset the impending transition to online, though the warning signs are there. Regional newspapers are not sure how the trend is taking shape here. “I think we are behind the curve [of feeling a real online threat], though how far behind the curve, it’s not clear,” says Financial Times managing director Su-Mei Thompson, who adds that the newspaper is sensitive to the need for re-shaping its strategy to accommodate a “structural shift” in how readers approach news.

Cracks in traditional newspaper edifices, such as the one held up by former newspaper monopoly Singapore Press Holdings (SPH), publisher of the Singapore Straits Times, are increasingly visible. Six years ago, newspapers had 57% of the advertising pie in Singapore but their share has since declined to 53% with the success of free papers (2% share in 2005, driven by Today), online growth (2% share), the ascendancy of outdoor (9% share) and gains for terrestrial TV (30% share in 2005). Newspaper advertising has grown more slowly than GDP over the past decade and a half, a trend that will likely continue, according to media buyers, as more consumers migrate to online media and TV (free and pay).

THE EDIFICE CRACKS. SPH, which controls more than 90% of newspaper advertising in Singapore, is responding by using its cash pile to invest in outdoor, magazine and online properties. In September this year, the company formed two joint ventures with Schibsted, a Norwegian publisher, to invest in online classified sites in Southeast Asia and China. Both SPH and Schibsted are injecting S$2 million into the ventures. One will be called 701Search, which will invest in online classifieds, search and directories in Southeast Asia. The second, to be called SPH Search, will invest in the same segments in Singapore.

The partnership with Schibsted may be the precursor to a more aggressive online strategy for SPH. Schibsted, one of the leading online classified players in Europe, has been actively acquiring assets overseas, recently closing a US$736 million acquisition of Trader Classified Media’s assets in Spain, Latin America, France, Italy and Switzerland.

“We are very excited about the partnership as it marks a major milestone in SPH’s quest to grow beyond print and beyond Singapore,” says SPH chief executive Alan Chan. The move comes amid growing concerns on increasing newsprint costs for SPH, softening display advertising growth and a growing threat from online classified sites, particularly in the employment category, which accounts for about 30% of SPH’s non-display ad revenue.

In 2005, the two Singaporean online classified sites, Jobstreet and JobsDB, captured close to 15% of employment classified revenue and around 40% of growth in the employment classified market. This is a function of a broadband rich market with current estimates indicating 57% broadband household penetration, which could grow to 75% by 2010, according to estimates from AMJ publisher Media Partners Asia.

The ramifications of such growth are not lost on SPH management. “We envisage that with growing Internet penetration, we will need to adopt new strategies in order to secure opportunities to increase advertising revenue,” says Mr Chan. Additionally, in recent months, SPH has been pursuing new media initiatives by expanding into STOMP (Straits Times Online Mobile Print), a website aimed at encouraging interactivity with readers through mobile devices and the Internet. SPH news content is also available through mobile phone-based Internet services. In Hong Kong, where broadband penetration is among the best in Asia (73%), if there was a threat of a bloodletting, some papers have put fresh paper over the wound, literally. Papers like the South China Morning Post (SCMP) are not turning their gazes towards acquisition of online classifieds sites and they have not been threatened by the three new dailies launched in Hong Kong, which dealt blows to the Chinese daily industry. In fact, they are focusing on developing their own online site, with steps for future growth.

SCMP Group’s interim results this year showed that newspaper revenue increased by 9% year-on-year during 1H 2006 (6 months to end-June), driven by a 11% growth in display advertising while classified grew 12% due to a 47% expansion in notices revenue with the completion of several successful initial public offerings. Costs also grew, driven by an 11% growth in newsprint expenses. Moving into 2007, with Hong Kong stock exchange disclosure rules taking full effect, notice revenue is expected to decline while classified advertising, which represents over half of SCMP’s total newspaper advertising income, could also soften amid intensifying competition from both rival papers and online platforms. Recruitment classified revenue is already slowing (14% in 1H 2005; 9% in 2H 2005; 5% in Q1 2006; -11% in Q2 2006) and is expected to come under pressure further in the future with online recruiters, who currently have less than a 2% share of the market (versus 25% in the US), expected to grow significantly.

Meanwhile, SCMP’s own online platform is likely to undergo a revamp over 2007 as management look to target higher monetization. SCMP.com saw revenue contract by 10% during 1H 2006 due to a 21% drop in content syndication fees and the postponement of a number of advertising campaigns. The site’s paid user base remains flat at around 20,000, though the group is already preparing for changes in 2007 to offset this plateau.

“A lot of people are moving towards the online platform,” says Irene Ho, assistant director for marketing and communications at SCMP, speaking of local competitors. As a result, 1Q 2007 “may” see the company introduce a tiered pay structure for its online content, said Ms Ho.

Hong Kong’s Asia Xpat, an almost exclusively classifieds site started by Paul Lukic, a former teacher, is realizing significant growth, but local newspapers are not sprinting to offset declines in classifieds revenue by courting his site. The site, which caters to “anyone who speaks English and has money,” has acquired about 600,000 unique visitors per month across 13 major Asian cities.

“We have not been approached by any newspapers about acquiring our online classifieds [business]. My feeling is they will cannibalize themselves [if they do],” says Lukic, who believes that newspapers in Hong Kong are stuck between a rock and a hard place. “They are never going to compete with me on rates, because we don’t have to feed this huge beast,” says Lukic. “[Newspapers] are going to be more like a daily magazine but you’re going to spend HK$15 (US$2) for the Post [instead of HK$7],” says Lukic.

CLARION CALL. In Hong Kong, international papers have actually sounded the clarion call to the electronic, digital and online shift. IHT publisher Golden says that online growth for the general interest paper has been strong and predicts around 4 million unique page views per month by next year. Online advertising has also been strong, up 40% year-on-year during 1H 2006 from a low base, driven by technology, travel and luxury brands.

Overall, IHT ad revenue (dominated by newspaper advertising) increased by a robust 12% in 1H 2006, delivered on a relatively high base achieved in 2005 when advertising grew 17% globally and 35% in Asia. In China, Golden and Randy Weddle, Asia-Pacific managing director for IHT, held meetings in Beijing in September, in order to find printing partners there. Golden expects that in the medium to long-term the paper will be able to “increase news and information delivery in China, [but that’s] not easy in the short-term. The government’s not ready but we’re ready.”

Meanwhile, Golden is becoming increasingly excited about accessing content on the go. “The principle thing is mobile,” he says. The “instant” version of the paper is getting about one million unique page views a month. Golden also expects, following the success of initiatives like New York Times Select and the acquisition of IHT by The New York Times in 2003, that the paper will “definitely [be] bringing a paid element into [the online version] later on. We will also be able to deliver an electronic version of the paper [online] in two to three years that’s quite customized and still contains the serendipity that keeps the daily press so fun.”

The FT has significantly grown its paid circulation over the past year, with audited numbers reaching 40,000 in August 2006, a 10% increase from a year ago and a 48% increase from the 27,000 level after the launch of the paper’s Asian edition in 2003. Advertising revenue, starting from a low base, grew by 300% in Asia over the past three years. Last year, FT’s global ad revenue grew by 9%, outpacing The Wall Street Journal at 2% (its online ad growth was offset by 4% print contraction) and helping to provide a welcome boost to profits for the FT Group. During 1H 2006, advertising grew by 11% globally and profits were about US$9 million.

“Our growth in Asia has come from growing our share of the C-suite audience

across Asia, who are interested in global and regional business,’’ says FT’s Thompson in an interview with AMJ. “Much of our circulation growth over the last three years has come from new subscriptions, pretty much from across Asia.”

Additionally, the FT Group continues to grow its online strategy because that’s where the future is. In June 2006, FT.com had acquired 86,000 subscribers, up 10% year-on-year and was averaging around 6 million unique monthly users. Management have stated that deeper integration of the FT’s print and online editorial processes are under way, plus a reinforcement of print and online teams through senior appointments and reorganisation, as well as a modified search engine, about which FT will not discuss specifics.

Soon after the FT Group’s interim result, Ien Cheng, previously the publisher of FT Chinese.com, was named the new publisher of FT.com, a move recognizing his success in launching and expanding the Chinese web site. Under Mr Cheng, FT Chinese.com had emerged as the leading international business web site in China with over 450,000 registered users and 5 million monthly page views.

“You have to be an ostrich to say that the online trend isn’t happening,” says Thompson. She says that the FT can increase the value of its brand by offering content and services online that cannot be accessed in print and it has to provide a “community” service that attracts readers and affords users control of the information they search for online.

“Most newspapers, when they talk about online presence, it tends to be an online manifestation of the newspapers. You can add bells and whistles. Is that an Internet strategy? Well, probably not,” says Thompson. “We feel that the key thing for newspapers online [is that] they need to help readers effectively and efficiently search for information. We also have an opportunity to create communities.”

Google, the world’s largest search engine, which delivers over 50% of the world’s information queries, is often listed as a great threat to newspapers because its algorithmic robots collate data and offer readers a customized search of news and context beyond a single newspaper or site. Readers turn to Google because readers enjoy the efficiency in finding the news they want to read. And they enjoy blogging because it allows them to create conversations and understand the news.

But even with self-publishing from bloggers and the “pundit” set, newspaper’s tradition of being crafted by journalists and editors will stand. “Google is powered by computer algorithms, but FT’s website is powered by human intelligence,” says Thompson. And the interaction by the newspaper’s staff with the Internet generation has meant some changes to the operation and content of the paper. “It’s quite a symbiotic organism now,” says Thompson. “We have had to change the way we write and edit our stories. We’ve also been harnessing the power of the Internet to listen to our readers.”

For now, there is more upside to print circulation and ad revenue in Asia, especially in India, where the FT wants to publish a print edition in Mumbai and where strict regulations prohibit foreign partners from owning more than 26% of a daily newspaper. The FT Group currently has an alliance with leading Indian financial daily Business Standard, in which it has a 14% stake.

India, like China, remains a growth market for print media. According to figures from the Indian National Readership Survey 2006, only 1.2% of India’s population over the age of 12 uses the Internet. And while online media growth remains slow (weekly Internet users grew by only 2.2 million, from 7.2 million to 9.4 million in 2006), the print business is growing significantly. Dailies and magazines now reach 222 million readers, up from 216 million last year. Most of those readers are “vernacular” readers in Hindi, at 203.6 million.

The Times of India, published by Bennett, Coleman & Co, is the most widely read English daily with 7.4 million readers. The Hindu has taken the second spot with 4.05 million readers, pushing the Hindustan Times, for which The Wall Street Journal supplies branded content, to third, with an estimated readership of 3.85 million. The Hindustan Times sells one million copies a day in both Hindi and English.

Improving demographics (rising literacy and disposable incomes), continued growth in key print advertising categories (property, employment, automobiles retail) due to economic expansion, and the emergence of national newspapers all support newspaper sector growth in India with advertising expected to increase at an average annual rate of 10% over the next five years.

And, while print may lose share incrementally in the future to established broadcast and satellite TV media, as well as emerging radio and online media, newspaper owners are already diversifying by investing in radio licenses and online. HT Media, the publisher of the Hindustan Times, has a radio joint venture with the Virgin Group and is increasing its online presence with hindustantimes.com. The site currently attracts up to 90 million page views and almost 4 million unique visitors a month.

CHINA ONLINE. In the rest of Asia, industry analysis shows that the exodus to online is not happening rapidly anywhere but in China. While newspaper ad spend and market share remains robust in China, newspaper incumbents are beginning to feel the heat from online and outdoor. Beijing Media Corp (BMC), publisher of the Beijing Youth Daily (BYD), has seen its fundamentals deteriorate over the past 2 years largely due to its over-reliance on property advertising. The company has also begun to lose share of the classified ad market to online with its total classified ad revenue declining by about 40% in FY 2005 (year-end December) while overall ad revenue contracted by 32%.

In a bid to sustain ad growth and share in the future, BMC plans to launch its own portals and move into the outdoor and magazine publishing business. It is already expressing a keen interest in to acquire 50% of Beijing Gehua Sunshine and 55% of Today Sunshine from its parent, both of which are state-owned enterprises that operate outdoor media advertising in Beijing. BMC has also begun to develop an online strategy to add value to its advertiser customer base, allowing users to read BYD online and access the websites of BMC’s advertisers.

Online remains a dynamic growth sector in China with its share of the ad market growing to 6% in 2005 versus 0.6% in 2000. Total online advertising is expected to increase by 30%-40% over 2006 and 2007, according to Media Partners Asia, driven by FMCG, IT, auto and real estate categories. Leading portal Sina.com is also attracting attention due to the popularity of its blogs, which had, at the end of June 2006, almost 2.5 million users per week. The company may begin to monetize this segment in the future.

Outside of China, online’s share of the ad pie remains a modest 2% in Hong Kong and Singapore and negligible in print-dominated Malaysia and India, though outdoor remains strong in markets such as China, Singapore and Hong Kong. Free dailies also continue to grow in Hong Kong (4% ad share, led by Metro) and Singapore (3% share, boosted by Today). Metro in Hong Kong has a daily circulation of about 330,000 (versus a paid 104,000 for the SCMP) and generates about US$30 million in annual net ad revenue, though its costs are growing due to competition from two new daily freebies and higher distribution expenses, thereby exerting pressure on profit margins. Metro’s 30% margin in 2005 is likely to contract this year with margins already dropping to 20% in Q1 2006.

Nonetheless, online’s share is expected to grow significantly in the future, especially in the broadband-rich environments of Hong Kong and Singapore, a move that is not lost on the FT’s Thompson. Yet, like other management at international newspaper publishers, she believes that we will never see the end of the good old-fashioned newspaper.

“I believe we are always going to try to maintain that identity,” she says. But she has a caveat for the mainstream press: newspapers will survive by meshing print tradition with the fluidity and the intelligence of the Internet community. “The best blogs and mainstream media should have a symbiotic relationship.” That kind of relationship will increasingly shape business deals and the community identity of interaction between journalists, editors and self-publishers.