CHINA: Chinese papers hit by falling ad profits

Advertising turnover dropped for the first time last year, clients choose Internet over newspapers

Straits Times
Tuesday, April 25, 2006

By Tschang Chi-chu

Beijing --- After growing at a breakneck pace for the past decade, the Chinese newspaper industry's profits plummeted last year for the first time ever as advertisers cut back or redirected spending to the Internet.

"Starting last year, a lot of people in the traditional media industry have grown concerned about the future due to profits of newspapers being diverted to the Internet," said Mr Long Xinmin, director of General Administration of Press and Publication, which regulates China's print media. He was speaking at the China Media Forum 2006 held here yesterday.

Since China began loosening restrictions on media in the early 1990s, hundreds of local newspapers catering to China's growing middle class have sprouted up to offer sports news, entertainment news and other alternatives to staid Communist Party-owned newspapers such as the People's Daily and Guangming Daily.

For the past decade or so, these metropolitan newspapers' have grown exponentially, thanks to China's rapid growth. Between 1998 and 2003, the country's newspaper circulation rose by 35.69 per cent while advertising revenues grew by 87 per cent.

Now, the world's largest newspaper market is facing its biggest challenge ever.

A joint study by Qinghua University and the Chinese Academy of Social Sciences found that Chinese newspaper advertising turnover has dropped by more than 15 per cent since last spring, the first time ever the industry has seen a decline in advertising.

As advertising accounts for more than 70 per cent of most Chinese newspaper revenues, the drop in advertising income has eroded their profit margin.

However, figures illustrating the decline in profitability are harder to come by because most newspapers are privately owned by local governments.

Last week, the Hong Kong-listed Beijing Media Corporation issued a profit warning for its 2005 earnings, citing a slowdown in advertising revenue, particularly from real estate companies.

It is the advertising arm of the Beijing Youth Daily and the only listed newspaper company out of 1,922 newspaper companies in China.

The government's measures to cool down the overheating economy, starting in 2003, targeted the real estate and automobile industries which are major advertisers.

"Since the macroeconomic controls policy came out, our advertising from real estate companies and automobile manufacturers have fallen," said Nanfang Daily Group CEO Fan Yijin.

Also, Chinese newspapers are not immune to the shift to Internet advertising which has clouded the outlook of newspapers around the world.

While spending on newspaper advertising has dropped, spending on China's Internet advertising rose 78.4 per cent to 4.17 billion yuan (S$842 million) last year, according to iResearch market research firm.

At the forum yesterday, more than 260 newspaper and magazine executives wrestled with how to adapt to this new business environment where younger readers prefer to get their news online for free.

Most industry experts agreed that the Internet's growing popularity does not necessarily mean that newspapers will be driven to extinction, as Microsoft founder Bill Gates once predicted.

Unlike blogs or most other Internet companies, newspapers have the resources necessary to send journalists into the field to report the news.

"Baidu will not manufacture its own content. Our primary responsibility is to help people find the information they are looking for," said Mr Liang Dong, vice-president at China's largest search engine Baidu, which has benefited from the growing Internet advertising market.

Date Posted: 4/25/2006