China Print Caution

Just as the PRC looks to open up its print market (again), the fundamentals of the sector have become shaky as ad growth softens and key franchises are losing spend to online and out of home media.

Local and international media have recently been filled with stories of ongoing deregulation of Chinese print media. The main view, according to the General Administration of Press & Publication (GAPP) is that the Chinese government will support IPOs of domestic newspaper owners and publishing groups as part of big industry reforms. Liu Binjie, the head of GAPP, says that 13 companies in the print sector will IPO over the next year, including big publishing groups, newspaper owners, and print-related digital or online platforms. We’ve all been here before right? Remember Beijing Media Corp. (BMC) anyone? BMC was the first large newspaper group to list in Hong Kong back in 2004 though it was only permitted to IPO its ad sales / agency operations. Significantly, BMC, the sole advertising distributor of the Beijing Youth Daily newspaper, has seen its share price head steadily south since IPO while revenues have contracted by 30% between 2004 – 2006 and continue to soften in 2007 as the company loses market share to online and OOH. 

This time around, Mr Binjie says that publishers can list both editorial biz as well as its ad sales operations. That’s good news for investors and buyers of the entire print value chain – note that BMC does not operate editorial and has to pay fees to a parent co. First up on the market is Liaoning Publishing Media, which does about US$110 mil. in annual sales and recently got approval from the authorities to list on the domestic stock market. Plenty more are supposed to follow from Shanghai, Hubei, Hunan, Guandong etc. But in a market where OOH now has close to 17% of the ad market and online has grown to 6% market share and is expanding its absolute spend by 40% or more per annum, RADAR reckons that newspapers in particular and print in general can no longer rely on or take for granted the macro drivers it did in the past. Here are three painful reasons why:

1. Based on just rate card and excluding discounts, local agencies estimate that newspaper advertising grew by 8-9% in 2006 vs ~ 15% for TV, 20% for OOH and 40% for online. After discounts, some estimate that newspaper ad spend grew by less than 5% last year. The migration of classified ads to online is one of the big factors as is ongoing market consolidation.

2. Media buyer Zenith Optimedia says that newspapers’ share of ad spend in China will decline to below 30% this year vs 32% three years ago as a result of significant spend decreases in major categories such as property, automotive and mobile phones, as well as the rapid growth in spend in rival sectors like online and OOH.

3. BMC’s ad sales for 1H 07 dropped by 8% year-on-year due to severe competition from online with spend from key real estate and automotive categories falling. The second half of this year appears to have been equally if not more challenging.

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