Media dealflow: let the games begin

There's a lot of money sloshing around the Chinese media industry right now.
Even the beancounters are getting excited. The South China Morning Post (July 7, print edition) reports:

China is driving Asia's emergence as the global entertainment and media industry's fastest growing market, according to a report by PricewaterhouseCoopers (PwC).

PwC expects industry revenue in China to grow 25 per cent a year to reach US$86 billion by 2008, led by an increase in internet users and online advertising.

"The sector has been talking for a long time about taking opportunities ... now we are actually going to see them come to reality."

Mr Fenez said the number of mainlanders with access to the internet would increase at about 800,000 per week to 260 million in 2008, when internet-related spending would reach US$63.6 billion.

PwC also predicts revenue from television subscriptions on the mainland will reach US$7 billion in 2008, from US$2.3 billion last year. The figure will further be boosted by market penetration by cable networks and the launch of the first satellite television service next year.

And when the bean counters get excited, the big boys want to play. This is from a July 7 Financial Times article about media investments by the biggest boy on the block:

Tom Group, the Greater China media group controlled by Li Ka-shing, Hong Kong's richest tycoon, has agreed to form a joint venture with Popular Computer Group, the Chongqing-based publisher of a best-selling Chinese computer magazine...

..."With the Chinese publishing market growing, we are seeing a lot of opportunities for further deals in the distribution sector," said Tom Group. The company has agreed to pay Rmb209.5m ($25.3m) for a 49 per cent stake in the joint venture, which will handle advertising and distribution for Popular Computer Week, a trade magazine with a circulation of 600,000, and books on technology...

...At the end of last year, Tom Group formed a joint venture with Sanlian, a Chinese state-owned publisher, to manage advertising and distribution for four of its magazines.

Last year, the company bought a controlling stake in Chinese Entertainment Television Broadcasting, a loss-making mainland television station, from AOL Time Warner. It subsequently spun off its internet operations into a separate group, Tom Online.

Yet another media deal was reported in the FT on July 6:

Star TV, the Hong Kong-based News Corp broadcaster, has won approval to launch China's first wholly foreign-owned advertising company...

...Approval for the new venture was granted by China as part of its Closer Economic Partnership Arrangement (Cepa) with Hong Kong, said Jamie Davies, Star's China president...

...The advertising company, which will be headed by Mr Davies and based in Shanghai, marks one of the first high-profile cases in which international companies have been able to take advantage of Cepa.

The same article also mentions a deal of some kind betwen an Australian media investor and the Shanghai Daily. Danwei's take on the deal is:

Ha ha ha, good luck trying to get any money out of it mate!

But this is what the FT had to say:

In another example of overseas interest in the Chinese media market, interests associated with Kerry Stokes, owner of Australia's Seven Network, have been advising the state-owned Shanghai Daily on its editorial and business management.

Bob Cronin, a former senior media executive in Western Australia, Mr Stokes' home state, is working in the municipal government-controlled English language newspaper as an adviser on daily news.

However, a spokesman for Mr Stokes in Australia and the paper's editor in Shanghai denied Mr Stokes had invested directly in the paper.

"It's impossible for any foreign company to buy into the Shanghai Daily," said Zhang Ciyun, the editor-in-chief, who declined to comment further on the paper's relations with Mr Stokes.

However, Mr Stokes could be able to invest in an advertising and management company separate from editorial to provide services to the paper, as a number of foreign companies have done.

Mr Stokes has growing interests in China, as the authorised distributor for Caterpillar products in nine provinces and as adviser to Beijing on telecasting the 2008 Olympics.

And finally, the good old China Daily has this July 7 report on the government passing funds from the left hand to the right. In the China Daily spirit, we will reproduce the entire article below:

New egg in Jade Bird's nest signals reform
by You Nuo

When Beida Jade Bird (parent company of GEM-listed Jade Bird) pledged 100 million yuan (US$12 million) to become a financial investor in 53-year-old China Youth Daily (CYD), many on the mainland knew what was happening - a historic event was in the making - reform of the government-owned media.

Even before the deal had been finalized, news of CYD's restructuring had already been held up as a national example of reform - despite Jade Bird's far-from-outstanding performance in the capital markets on both the mainland and in Hong Kong, and the vague terms under which the new capital was to be injected.

Jade Bird is an elite media organization whose standing in the industry is something only a handful of others can match. It is one of a group of long-standing media organizations under the direct supervision of the central leaders. Prior to restructuring, it belonged 100 per cent to the Communist Youth League Central Committee.

Along with its restructuring, and after adding new pages and feature columns, the revamped paper has begun appearing at streetside newsstands in Beijing where it is competing for readers' eyeballs and money instead of depending on bulk subscriptions from government institutions.

"We are firing real bullets now," one CYD reporter told colleagues from other press organizations. This means a serious fight for survival and success in a market economy. The change, as many people are calling it at investors' gatherings in Beijing, is the one of the last frontiers to be breached on the path to mainland reform and a gold mine of new opportunities.

The CYD deal hands over 40 per cent of its equity to Jade Bird, while the evaluation was based, apart from its licence, entirely on such physical assets as cash, properties and machinery.

While the CYD deal sets a precedent for reform of central-level media, a large number of media organizations and publishers have also received injections of funds from the private sector.

Before buying its way into CYD, Beida Jade Bird was also involved, through its subsidary Beida Cultural Co, in publishing Beijing Times (Jinghua Shibao), a popular tabloid; and weekly newspaper Elite Reference (Qingnian Cankao), a subsidiary publication of the CYD.

In Shanghai, Beida Cultural was one of three parties involved in the restructuring of Shanghai Youth Daily (SYD) and obtained 30 per cent of its equity worth a total of 60 million yuan (US$7.2 million) in the new company.

But so far, the most successful and profitable investment project for Beida Cultural is Beijing Times, a publication that industry observers call one of the most market-oriented media products in mainland today. For overseas investors, there are still a few major stumbling blocks on the mainland's road to media reform. Direct investment in editorial and programming operations is still tightly controlled. In addition, there are still no auditing procedures in place from services like the ABC and BPA.

Still, indirect involvement is not impossible - foreign investment can still find its way into these sectors through a third party, just as Jade Bird can raise money, whenever it needs, from the Hong Kong capital market. This alternative route opens up opportunities for portfolio investors. Direct investment and involvement through joint distribution and advertising partnerships are also possible - the modus operandi in fact, for most mainland private investors. In the new market reality, their success or failure is entirely a business matter now.

LINKS:
South China Morning Post on PwC report (paid subscription required)

The FT on Star TV's new deal and the Shanghai Daily (paid subscription required)

Fons Tuistra's blog the China Herald on the Shanghai Daily deal

Danwei clipping of Xinhua report on Star TV deal

The FT on the Tom Group's movements (paid subscription required)

The China Daily on Jade Bird