Singapore Press Holdings losing its shine

With the onslaught of new media, Singapore Press Holdings is losing its relevance, and it may be time for them to consider privatisation.

By Joelyn Chan

Along with other media companies, Singapore Press Holdings (SPH) struggles to stay relevant and maintain its profitability.

Alan Chan, CEO of SPH, said: “We have done a comprehensive business review to strengthen our position in a tough economic and media environment. Market conditions will remain difficult with the continuing disruption of the media industry.”

“We will continue to innovate and invest in our media products to stay ahead and relevant. At the same time, we will grow our business adjacencies to diversify revenue streams and maximise stakeholder value,” he added.

SPH’s lacklustre performance

Compared to 2015, SPH’s operating revenue shrank by 4.5% to SG$1,124.3 million. In the last four years, the media business’ contribution to total revenue has fallen by 8%. The fall in revenue can be explained by a 7.6% decline in the media business. Revenue from property increased by 4.6%. The declining composition of its core media business is likely to persist, and SPH is falling back on real estate to sustain their shrinking business operations. This trend also reflects on the sustainability of the traditional media industry in Singapore and Association of Southeast Asian Nations (ASEAN). Competition is now global and digital.

Source: SPH Annual Report

SPH’s lacklustre performance has warranted cost reduction measures and improvements in operational efficiency amidst continuing uncertainty. In 2001, SPH AsiaOne had downsized, retrenched 23 employees, and restructured its businesses to focus on online news, careers and database services. SPH’s broadcasting arm, SPH MediaWorks trimmed away 19% of workforce and announced an across-the-board salary cut of 12.7%. In 2003, SPH once again retrenched about 3% of its total headcount.

Since 2014, its biggest expense – staff cost, has achieved the desired year on year decrease. However, mere cost reduction of SG$12 million over two years cannot save SPH, which needs greater revenue and profits.

SPH’s service offerings lack competitiveness

The Straits Times(ST) may have held its position as the best-read publication in Singapore, with a total readership of 1.26 million. But SPH’s newspaper readership remains on an accelerating downtrend, faring worse today than ten years ago.

Lower readership has a knock-on effect on advertising rates. Outshining SPH, Google and Facebook are forerunners in the emerging digital advertising industry with an estimated 65% share in 2015’s revenue. For instance, Facebook Audience Network allows media buyers to publicise external website and applications on its advertising network.

This year, SPH has erected metered-paywalls for its content. Paywalls will work for Business Times’s specialised content, but not for generic news where sources are ample.

Free news sites like South China Morning Post (SCMP) and Channel News Asia dilutes ST’s effort to generate subscription revenue. Again, competition is international and digital. Barriers to entry to reporting are lowering. Millennials go to social media for quick news breaks. Assuming they want deeper insights, young adults know how to use techniques such as Chrome’s incognito and applications such as Newsify to bypass paywalls.

In the Radio and Television entertainment sector, SPH’s three radio stations are losing popularity to Spotify while SPH is divesting its 20% stake in Mediacorp TV. Spotify has two billion playlists available across 60 countries, allowing its 100 million users to select from a wide variety of music anytime. The hay days of radio are over. Radio’s commercial value will diminish, albeit it will remain a core information transmission service for public service purposes.

To revive its fate, SPH has entered into a joint venture with Mediacorp to launch a new digital advertising marketplace. Dubbed Singapore Media Exchange, it may be a remedy to SPH’s woes in 2018. SPH has also incorporated Fastco Pte Ltd for development of interactive digital media software. Should these plans succeed, SPH’s financial report may see a U-turn in performance.

SPH – Singapore Press Holdings or Singapore Property Holdings?

Ironically, the Property segment is SPH’s key driver of growth. Its retail properties enjoy 100% tenancy and generate pre-tax profit margins that are double of the Media business. Future plans include a proposed condo project and retail mall in the highly coveted Bidadari Estate. But smarter shareholders may question whether SPH’s property segment is part of its core business. Could they not simply divest SPH and invest in other REITs or property stocks?

“Having a substantial part of our assets in the form of property does provide a buffer from the declining fortunes in the media business…In fact, SPH plans to make more strategic property investments and will continue to focus on the retail sector,” Chairman Lee Boon Yang replied in response to a shareholder’s musing on how SPH is morphing into a property investment company.

Source: SPH Annual Report

The future of SPH

SPH’s highest share price of SG$4.15 in 2016 fell below 2011’s share price of SG$4.26. After the announcement of its divestment in Medicorp entities, SPH’s share price closed at SG$2.76. SPH struggles to attract capital from investors with its blurry outlook and business proposition. Will the smart money buy into SPH’s strategy – using real estate to prop up its diminishing business?

Source: SPH Annual Report

SPH’s current circumstances bear similarities to pre-privatisation SMRT Corporation – weak profitability, sustaining on rental income, and high investment outflows. SMRT Corporation has since been delisted by Temasek Holdings to focus entirely on serving the public. The same fate is unlikely for SPH as its current top shareholders are Citibank and DBS nominees.

Apart from restructuring further, SPH can still hope for an acquisition like SCMP and The Washington Post (WP).

In 2016, Alibaba Investment Limited bought over Hong Kong’s leading English paper, SCMP, along with the Armada Holdings Limited’s other media business. Following the US$266 million sales, SCMP removed its paywall. SCMP editor, Tammy Tan, said: “ SCMP’s website doubled its number of unique users in the first year after the pay wall lift. Last month [August 2017], the site received nearly seven million unique view.” The current readership has achieved a significant improvement from its initial count of 350,000.

Similarly, Amazon CEO Jeff Bezos bought WP for US$250 million in 2013 and fueled a 58.1 million increase in unique US Digital visitors within three years. The fresh injection of funds and new leadership helped the two over-100-year-old media giants to reinvent their offerings in the dynamic media landscape.

Traditional press has no future. Be it restructuring, privatisation or acquisition, SPH needs to try harder to outshine the new media disruptors. It may want to rethink its strategy to build resilience for core media business by diversifying into education, healthcare or property. By spreading itself too thin, it risks losing focus on its consumers’ needs.