Market Insight

Alibaba Group’s investment to drive South China Morning Post digital revenue

December 16, 2015  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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China’s Alibaba Group has agreed to acquire Hong Kong’s newspaper South China Morning Post (SCMP) for US$266 million.  While retaining the print edition, Alibaba has plans to strengthen SCMP’s digital operations. It intends to reposition SCMP’s business, to move away from subscription, focus on advertising and distribution via mobile devices.

Alibaba is a New York Stock Exchange listed online company headquartered in Hangzhou, China. It is known for its e-commerce platform, Taobao, akin to eBay.com. IHS estimates its advertising revenues to be RMB35,400million (US$5,803million) in 2014, accounts for half of Alibaba’s revenues where it charges advertisers for cost per impression. In its most recent quarterly financial release in September 2015, Alibaba showed 60% of its China commerce retail revenue is from mobile transactions and mobile advertising revenue tripled.

SCMP is a legacy English-language newspaper based in Hong Kong. It was originally owned by News Corp, before being sold to Malaysian tycoon Robert Kuok in 1993. The newspaper recorded annual revenues of HK$841.5 million (US$108mllion) in 2014.

Our analysis

The deal mirrors Amazon’s acquisition for The Washington Post in 2013. Under the management of Amazon, The Washington Post has become a digital product with more than 50 million monthly unique visitors. IHS expects the acquisition by Alibaba to reinvigorate and drive SCMP’s digital advertising revenue, especially from mobile. Meanwhile, Alibaba is expected to leverage SCMP content to pull more users to its e-commerce platform, especially those outside China.

Around the world, traditional print media companies are increasingly shifting their contents to online and mobile platforms following the migration of their audiences. In Hong Kong, growth of newspaper ad revenue has slowed since 2011 and IHS forecasts a CAGR of -11% in Hong Kong’s newspaper advertising in the next 5 years. Online and mobile ad revenue, nevertheless, will continue to grow at CAGR of 15% in the next five years, reaching €1,197million (US$1,496million).

SCMP’s business strategy has focused on digitalization and monetization of international audiences. It started to introduce a metered paywall in 2012 following a significant growth in traffic. In 2014, SCMP’s newspaper publishing business reported a slight decrease in print ad revenue; however, overall revenue increased 3% driven by digital sales. Mobile and tablet circulation grew significantly and SCMP reported 100 new digital advertisers in 2014. IHS believes that the paywall removal by Alibaba will further lift SCMP’s digital circulation as well as advertising revenue. Digital subscription accounts for only a quarter of SCMP’s circulation in 2014 but grew 33% compared to the year before; meanwhile, SCMP print circulation has dwindled by 11% in the same period. Currently, digital subscription is estimated to generate HK$96million (US$12million), accounting for 11% of SCMP’s revenue. The elimination of the paywall to fit with Alibaba’s focus on digital advertising will thus not have a significant effect on SCMP’s total revenues.

The ownership by Alibaba will further bolster SCMP’s China news coverage, its key appeal to international audience. It has an extensive international presence; in fact, only an estimated 30% of its readers are local and many are in the rest of Asia, Europe and Northern America.

Without the paywall, Alibaba will be able to exploit SCMP’s contents to build an even larger user base, inside and outside China. Currently, Alibaba focuses on China but like many other Chinese companies, it has the ambition to expand beyond home. SCMP’s mainly international user base will play a key role in Alibaba’s international expansion.

With this investment, Alibaba Group further expands its influence in the media industry. In addition to its video streaming platform Tmall Box Office and production house Alibaba Pictures, it paid US$4.2billion in cash in November 2015 to acquire shares in online video giant Youku Tudou. SCMP’s stake in Hong Kong online fashion retailer MyDress will also be a good addition to Alibaba’s comprehensive e-commerce portfolio.

Organization
Alibaba
Research by Market
Media & Advertising
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