Are Asian Newspapers Under Siege?

Last week, Arthur Sulzberger Jr, the publisher of America’s most prestigious newspaper, told Haaretz, the Tel Aviv-based daily newspaper, that it is entirely possible that the New York Times might soon no longer be published on paper.

“I really don't know whether we'll be printing the Times in five years, and you know what? I don't care either," he told Haaretz in a rare interview. "The Internet is a wonderful place to be, and we're leading there."

Sulzberger later met with Times employees to "clarify" his statement, saying "It is my heartfelt view that

newspapers will be around--in print--for a long time. But I also believe that we must be prepared for that judgment to be wrong. My five-year timeframe is about being ready to support our news, advertising and other

critical operations on digital revenue alone ...whenever that time comes."

Nonetheless, his statement sent shock waves through an increasingly worried industry. Is Asia going to follow the western trend? In a fragmenting information world, readers and advertisers are migrating to the Internet at an ever-increasing pace. Across the United States, even the very best newspapers have been bleeding circulation at an alarming rate. The Los Angeles Times lost 8 percent of its daily circulation in 2006, the Boston Globe 6.7 percent and almost 10 percent of its Sunday circulation. The New York Times itself lost about 3.5 percent of its daily and Sunday circulation. Across the country daily national newspaper circulation was 43.7 million compared to 63.2 million in 1984, the year newspaper circulation peaked. The 2006 figures represent the biggest annual decline since 1991.

In Asia, free newspapers are joining the raid on circulation and advertising, particularly in Hong Kong, where three free Chinese-language daily papers have been widely distributed on the MTR, the city’s rapid transit system, since early in 2006.

Publishers of major Asian titles say that although cities like Singapore and Hong Kong boast high broadband penetration and explosive demand for mobile technology, not all newsprint is destined to be birdcage liner. Nonetheless, say marketing executives like Roy Ma of Pure Media in Hong Kong, Asia’s wired cities are probably three to five years behind Europe and the United States in Internet growth.

While free dailies eat away at local Chinese print in Hong Kong and Singapore’s print dynamos move on defensive strategies to avoid losing advertising share to online classifieds, the international publishers of regional broadsheets are preparing for the structural shift to online although most reckon they still will enjoy significant growth in Asia, particularly in India and China, for some time.

For instance, International Herald Tribune (IHT) publisher Michael Golden says the paper hit peak consumption levels in Asia earlier this year with a paid circulation of 91,039 but the paper is also building its online presence, averaging 3 million visitors per month since the second quarter of 2006.

“I believe newspapers have a bright future, but we’re not betting the bank on it,” Golden says. The paper, whose Asia-Pacific sales increased by 35 percent in 2006, will present its readers with a full electronic and customized version of the general interest paper in two to three years. But, he says, the move isn’t being made in response to any tangible threat. It is rather a strategy to give readers multiple platforms for information delivery.

One of these platforms has also already launched, Golden says as he demonstrates on his Blackberry a white and blue HTML screen of important headlines from a recent morning’s edition. IHT management is increasingly interested in mobile technologies and is funding a full-time research and development department to look into ways to deliver more of the paper to more people on mobile devices.

So far, Asian local newspapers have not yet begun to feel the heat, although the warning signs are there. “I think we’re 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 already sensitive to the need for re-shaping its strategy to accommodate a “structural shift” in how readers approach news.

Six years ago, newspapers had 57 percent of the advertising pie in Singapore but their share has since declined to 53 percent with the success of free papers (2 percent share in 2005, driven by Today), online growth (2 percent share), the ascendancy of outdoor (9 percent share) and gains for terrestrial TV (30 percent 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).

Singapore Press Holdings, which controls more than 90 percent of newspaper advertising in Singapore, is responding by diversifying into outdoor, magazine and online properties. In September this year, the company formed two joint ventures with Schibsted, a Norwegian publisher, to invest S$2 million in online classified sites in Southeast Asia and China. One is to be called 701Search, which will invest in regional online classifieds, search and directories. The second, to be called SPH Search, will invest in the same segments in Singapore.

The moves come amid growing concerns on increasing newsprint costs for SPH, softening display advertising growth and a growing threat from online classified sites, particularly job ads, which account for about 30 percent of SPH’s non-display ad revenue. In 2005, the two Singaporean online classified sites (Jobstreet and JobsDB) captured about close to 15 percent of employment classified revenue and around 40 percent of growth in the employment classified market. Singapore has 57 percent broadband household penetration, which could grow to 75 percent 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 be to secure opportunities to increase advertising revenue,” says Alan Chan, SPH’s chief executive.

In Hong Kong, where broadband penetration is among the highest in Asia (73 percent), if there was a threat of a bloodletting, the dominant English language paper seems unfazed. The South China Morning Post (SCMP) is not turning towards the acquisition of online classifieds sites and management says they haven’t been threatened by the free dailies which dealt blows to the Chinese daily industry.

SCMP Group’s interim results this year showed that newspaper revenue increased by 9 percent year-on-year during 1H 2006 (6 months to end-June), driven by an 11 percent growth in display advertising while classified grew 12 percent due; there was also a 47 percent expansion in statutory notices revenue with the completion of several successful initial public offerings. But costs also grew, driven by 11 percent growth in newsprint expenses.

Into 2007, with Hong Kong stock exchange disclosure rules changing to allow notices to be posted online instead of requiring print display in a newspaper, notice revenue is expected to decline while classified advertising, which represents over half of SCMP’s advertising income, could also soften amid intensifying competition from both rival papers and online platforms. Recruitment classified revenue is already slowing (14 percent in 1H 2005; 9 percent in 2H 2005; 5 percent in Q1 2006; down 11 percent in Q2 2006) and is expected to come under pressure further from online recruiters, which now have less than 2 percent of the market (versus 25 percent in the U.S.), expected to grow significantly.

Meanwhile, SCMP’s own online platform, which is subscription-based and offers no free content is likely to undergo a revamp as management looks to target higher monetization. SCMP.com saw revenue contract by 10 percent during 1H 2006 due to a 21 percent 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.

Hong Kong’s Asia Xpat, a regional classified ad and services site started by Paul Lukic, a former teacher, is growing significantly, but local newspapers are not sprinting to offset declines in classified revenue by courting his site, which caters to “anyone who speaks English and has money.” It has about 600,000 unique visitors per month across 13 major Asian cities.

Lukic believes newspapers in Hong Kong face an uncertain commercial future. “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.

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 percent year-on-year during 1H 2006 from a low base admittedly, driven by technology, travel and luxury brands.

Overall, IHT ad revenue (dominated by newspaper advertising) increased by a robust 12 percent in 1H 2006, delivered on a relatively high base achieved in 2005 when advertising grew 17 percent globally and 36 percent 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 future 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.”

Despite significant growth in advertising and paid circulation in Asia, the Financial Times Group continues to grow its online strategy because that’s where the future is. By June 2006, FT.com had 86,000 subscribers, up 10 percent year-on-year and was averaging around 6 million unique monthly users.

“You have to be an ostrich to say that the online trend isn’t happening,” says Su-Mei Thompson. She says the FT needs to increase the value of its brand by offering content and services online that can’t be accessed in print.

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

Google, the world’s largest search engine, which delivers over 50 percent 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 for the platform’s efficiency in delivering news. But even with self-publishing from bloggers, the newspaper 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. Nonetheless, 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.”

India, like China, remains a growth market for print media. The Indian National Readership Survey 2006 reported that only 1.2 percent of the country’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), print continues to grow 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. English readers only account for 21 million.

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, with advertising expected to increase at an average annual rate of 10 percent over the next 5 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 the popular hindustantimes.com. The site currently attracts up to 90 million page views and almost 4 million unique visitors a month.

In China, while newspaper advertising spending and market share remain robust, 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 classified ad revenue declining by about 40 percent in FY 2005 (year-end December) while overall ad revenue contracted by 32 percent.

In a bid to sustain ad growth and market share, BMC plans to launch its own portals and move into the outdoor and magazine publishing business. It is already expressing a keen interest in acquiring 50 percent of Beijing Gehua Sunshine and 55 percent 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 continues to grow dramatically, with its share of the ad market growing to 6 percent in 2005 versus 0.6 percent in 2000. Total online advertising is expected to increase by 30 percent-40 percent 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 the popularity of its blogs, which at the end of June 2006 had nearly 2.5 million users per week.

Outside China, online’s share of the ad pie remains modest (2 percent in Hong Kong and Singapore; negligible in print-dominated Malaysia and India) Free dailies also continue to grow in Hong Kong (4 percent ad share, led by Metro) and Singapore (3 percent share, boosted by Today). Hong Kong’s Metro daily circulation is 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 other free papers and growing distribution expenses.

Nonetheless, online’s share is expected to grow significantly, especially in the broadband-rich environments of Hong Kong and Singapore, a move that is not lost on the FT’s Su-Mei 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 as [the international paper of record],” 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. In that environment, relationships that shape business success and build a community that drives new ideas in the news media.

“The best blogs and mainstream media should have a symbiotic relationship.”

Doug Crets is an analyst for Media Partners Asia, Ltd. A version of this article originally appeared in The Asia Media Journal, published by MPA. http://www.media-partners-asia.com/home.asp