Media

People watching

State-owned newspaper IPO surges

Like many unlikely stories from the media world, this one began with Rupert Murdoch.

As told by Bruce Dover in Rupert Murdoch’s China Adventures, the grizzled press baron was desperate to enter the Chinese market.

One of his strategies was to rub up close to the People’s Daily and in late 1996 Dover – then Murdoch’s top representative in China – was tasked with demonstrating his company’s online strategy to the state-run newspaper.

The Chinese bosses were particularly impressed by their tour of the New York Times website, and they approached Dover the next week, suggesting that Murdoch might lend them a webmaster, as well as a $45,000 server, to build their own website.

“I ran the concept of ‘assisting’ People’s Daily with its online efforts past Rupert and he wholeheartedly agreed,” writes Dover. “I just never told him we were paying for all the development, and we somehow managed to hide it in the books.”

Courtesy of Murdoch’s money and manpower, the People’s Daily site went live on January 1, 1997.

Fifteen years on and Rupert may regret not asking for an equity stake. When the People’s Daily listed its website division – People.com.cn – last week the IPO gave the news portal a market valuation of $872 million, or three times the amount first envisaged.

Not bad for what the Wall Street Journal had soon christened the ‘Initial Propaganda Offering’. And on its first day of trading it opened up 75%, exceeding the $950 million market capitalisation of the New York Times (hitting a valuation of $1.53 billion).

Post-IPO, People.com.cn has about 15 large shareholders, with the People’s Daily retaining almost 80% of the stock. Not surprisingly, the buyers of the offering were mainly state-owned firms, such as China Mobile, China Unicom, China Telecom, Sinopec and Bank of China. Unlike the average institutional investor, they were probably less fazed by the offering’s pricing, at 46 times earnings.

PE ratios were probably less important in this case than ‘taking one for the team’. Indeed the IPO’s ‘success’ was surely never in doubt, as the listing is being seen as a blueprint to inspire China’s other state-related media and cultural firms.

Beijing’s hope is that by giving them access to stock market capital, the state media will respond to prodding to expand both at home and abroad, perhaps even projecting a little of China’s ‘soft power’ as part of the bargain.

Regular perusers of People’s Daily content may well query this as cloud cuckoo land, given the generally underwhelming reaction to much of its material. But the website does enjoy some enviable advantages. It goes without saying that it gets the news first when the government makes an announcement. Although these scoops don’t always rank as compelling (the Albanian delegation greatly enjoyed its tour of Tianjin’s tractor facility etc), they do allow for fee generation in selling content to third parties, including mobile networks.

The People’s Daily enjoys other privileges too, reports Time Weekly. It can count on a willing range of government customers (the IPO prospectus shows that the largest procurer of information from the site is none other than the Ministry of Finance). And helpfully it seems to have negotiated a holiday on corporate taxes until 2013, too.

Advertising is, however, the main source of income. Almost 62% of people.com.cn’s operating revenue comes from ads. And you’ve guessed it: many of these advertisers are state-related too, such as the rail ministry which has spent aggressively to promote high-speed rail.

Foreign firms are also clients: Time Weekly says the kudos of being the most ‘authoritative’ government source lures top brands from abroad (in 2010 Toyota spent over Rmb8 million on advertising on the site). Many in the local press now think the portal will set out to challenge privately-owned sites like Sina in seeking to become the ‘China Mobile’ of news websites i.e. the dominant platform.

The rumour is also that Xinhua, another stalwart in the state media ranks, could be next up to test the stockmarket.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.