Jack Ma paper chase is test of newsprint's appeal

Great Wall Pan Asia Holdings

26/11/2015 05:12

(The author is a Reuters Breakingviews columnist.  The opinions 
expressed are her own.) 
    By Robyn Mak 
    HONG KONG, Nov 26 (Reuters Breakingviews) - Alibaba's 
 BABA.N  pursuit of the South China Morning Post  0583.HK  is a 
test of the enduring appeal of newsprint. The company founded by 
Jack Ma is in talks to buy the SCMP Group's media businesses, 
according to a person familiar with the situation. The 112-year 
old title's earnings are under pressure, and there's scant 
financial logic for a deal. But as fellow e-commerce boss Jeff 
Bezos showed when he bought the Washington Post in 2013, 
newspapers have trophy value. 
    Alibaba has made no secret of its media ambitions: the 
e-commerce giant this month agreed to buy the 82 percent of 
Youku Tudou  YOKU.N  it didn't already own, valuing the Chinese 
video site at $5.2 billion. Yet it's far from clear how the 
former colony's leading English-language newspaper fits in. It 
caters mainly to expats: as of last year, its combined print and 
digital circulation was 184,000. Its website drew 4 million 
monthly visitors; Youku Toudu pulls in more than 500 million. 
    Growing global interest in information about China should 
help the Post, which still enjoys reporting freedoms not shared 
by mainland publications. However, the business is under 
pressure from falling circulation and a decline in luxury 
advertising. Revenue at the SCMP's newspapers and magazines fell 
more than 9 percent to HK$511.3 million ($66 million) in the 
first half of the year. Adjusted operating profit almost halved. 
    Yet even struggling newspapers can fetch a premium, as Bezos 
showed two years ago when he paid 17 times the Washington Post's 
adjusted EBITDA. Apply the same multiple to the EBITDA of the 
SCMP's newspaper and magazine businesses over the past twelve 
months, and they would be worth $373 million, according to 
Breakingviews calculations. An even more generous comparison 
would be the 35 times operating profit that Japan's Nikkei paid 
for the Financial Times this summer. That would lift the price 
tag to $500 million. 
    Alibaba should be able to drive a harder bargain. Of course, 
the difference between Bezos and Ma is that the former did not 
use company money to pursue a personal trophy. To the Chinese 
billionaire, the distinction may just be fine print.  
 
     
    On Twitter https://twitter.com/mak_robyn. 
     
    CONTEXT NEWS 
    - Hong Kong-based SCMP Group, which publishes the English 
language South China Morning Post, said it had been approached 
by a third party that is potentially interested in acquiring its 
media assets in a filing on Nov. 25. 
    - Chinese e-commerce group Alibaba is in talks with the SCMP 
Group, according to someone familiar with the matter. Chinese 
state newspaper China Daily first reported rumours of an 
investment in SCMP by Ma or Alibaba on Nov. 9. 
    - In the six months to June, SCMP Group reported total 
revenue of HK$549 million ($70.8 million), down 8 percent from 
the same period last year. Overall adjusted operating profit 
fell 37 percent to HK$44.3 million. The newspaper division 
reported an operating loss of HK$2.7 million, while the magazine 
business made an operating profit of HK$36.1 million. 
    - SCMP Group's Hong Kong-listed shares have been suspended 
since February 2013. 
    - Reuters: Hong Kong's SCMP Group confirms approached about 
possible sale of media assets  urn:newsml:reuters.com:*:nL3N13K46G 
    - SCMP statement: http://bit.ly/1lLaVwH 
 
    
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    - For previous columns by the author, Reuters customers can 
click on  MAK/    
 
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 (Editing by Peter Thal Larsen and Robyn Mak) 
 ((robyn.mak@thomsonreuters.com;)(Reuters Messaging: 
robyn.mak.thomsonreuters.com@reuters.net)) 
 
Keywords: SCMP M&A/BREAKINGVIEWS