The Winter of Chinese Print Media

(Economy Magazine via ChineseNewsNet)  The Winter of Newspapers: The Angry Chinese Print Media.  By Liu Jianhui (劉建輝).  May 17, 2006.

[in translation]

At the January 12th "Innovations and Developments in Newspaper Enterprises" forum in Guangzhou, the Jiefang Daily group made a proposal to the 39 party newspaper groups in the country: Let us form a national newspaper content alliance and raise the threshold for Internet re-publishing in order to protect our intellectual property rights.  In a speech, Jiefang Daily group party secretary Yin Minghua said in a slightly angry tone: "It costs tens of millions of RMB to gather the news for a general-purpose newspaper.  But when we give our quality information to the Internet media, we get only a symbolic payment of several tens of thousands of RMB."

The Chinese print media have been handling over the news that they gathered to the Internet media (especially the major Internet portals that featured news) almost for free.  This is something that the industry knows about . This situation started when the Internet came around and it has continued unchanged to now.  The situation is completely different in the United States, where traditional media and the Internet are both well-developed.  The two major American portals Yahoo! and AOL have to spend a lot of money to get the news products.  Many American media people think that the Chinese traditional media are stupid to be doing what they do.

Why do the print media offer their products to the Internet portals almost for free?  Economic Observer editor-in-chief He Li was interviewed by Economy Magazine and said: "The implication is that the Chinese print people are idiots.  Wrong!  They are not idiots.  During the process of cooperating with the Internet, nobody forced them.  You didn't have to provide the information, but you did.  You must have considered it."

In 1996 and 1997, the commercial Internet portals showed up.  The newspapers were faced with the choice of whether and how to cooperate.  China Renmin University Communications and Media Management Research Institute director Song Jianwu recalled: "At the time, I said that if you give the information to them for free, you will gain in the short-term and lose in the long-term."  Later on, most of the print media chose to provide the information almost without any compensation.

This has to do with the historical development of the Chinese print industry.  He Li believed that the Chinese print industry had been marketized only recently and this caused them to be economically weak.  The print industry was not yet fully developed when it encountered the development of the Internet on which the commercial portals were marketized immediately upon inception.  The portals had capital, they had the advantages of the Internet and this meant that they owned the powerful force of the platform.  By comparison, the relative weak print media was only hoping to use the Internet portals to enhance their own influence.

Among the print media that provided information to the Internet portals were the regionally distributed local media.  Under the traditional distribution model, they were restricted within their local region and so they were hoping to use the Internet to develop influence across the country.  Song Jianwu believes that this situation was strongly related to the instability and immaturity of the Chinese media market.  If when the Internet emerged, China already had strong national media like the New York Times in the United States, then those print media should not need the Internet to enhance their influence and therefore would not have to provide news to the portal websites for free.

There is another important reason why the media would offer news to the Internet portals almost for free -- for the print media, there are really no additional costs.  Why wouldn't you enhance your influence at no additional costs?  From the beginning, the Chinese print media lost its initiative and will to negotiate hard with the Internet portals over the price of their news products.

Actually, the problem is not just a question of no additional costs when the print media offer the news to the Internet websites.  When the websites use the news information to make money for themselves, the print media get nothing.  At the same time, the websites are stealing the audience and advertisers from the print media and this is reducing the advertising revenues of the print media.  If we can ignore the intermediate factors, the whole cause-and-effect process is: the print media provided the news to the portal websites and thereby reduced their own revenues.  Beijing Times publisher Wu Haimin said: "The print media used their content resources to nurture the Internet media, which turned out to be their gravediggers."

According to research conducted by the China Renmin University Media Management Research Institute, the total revenue of the newspaper industry in the first half of last year was falling.  The advertising revenue fell between 10% to 30%, with some newspapers falling by more than 40%.  On August 26, 2005, Beijing Youth Media announced a net profit of 170,000 RMB for the first half of the year, which was a 99.7% drop compared to the 66.309 million RMB for the same period last year.  The media were in an uproar.  Previously, in the past 20 years, its advertising revenue had been growing by an average of 33% per annum.

While one side was retreating in disarray, the other side was singing victory hymns.  The 2005 Q2 results showed that the advertising revenues for the major portals were growing at about 30%.  Wu Haimin believes that the print media lost advertising revenue due to macro-economic policies, but more and most importantly to the impact from the new media represented by the Internet.  Industry experts believe that the rapid growth in Internet advertising revenue was due to some extent to the "gimme" policy with respect to news content.  The Internet media only had to pay several tens of thousands of RMB or even "zero cost" to get news information, and this permitted them to obtain advertisements by virtue of their lower costs.

"This is an inevitable result of the history of development," said Wu Haimin.  "If print media were not constrained by certain systemic factors and began to pay attention to the Internet several years go, then they would not have spent their money on new buildings.  Instead, they would have developed new technological products and extensions.  Today, the print media would have their own Internet services and there would not be the major news Internet portals today.  But it is too late now."

Wu Haimin is a veteran newspaper worker and his ideas are representative.  For the past few years, Beijing Times under the leadership of Wu Haimin has accomplished amazing things.  In 2005, at a time when the Beijing newspaper industry was in a dismal state, Beijing Times went against the market trend and got a 20% increase in actual advertising sales.  The total advertising revenue for the year is expected to exceed one billion RMB.  But this is also the first media organization to propose the "winter of newspapers" theory.  He believes that the demise of newspapers is the inevitable trend in historical development.  Any effort can only postpone this process, but will be ultimately futile.

When the print media first provided news information to the portal websites, no one imagined things would develop to the current state.  In the face of the intensive competition, the individual print media are in very weak positions compared to the portal websites.  But could the 1,900 newspapers in China band together?  Or even just a few or several dozens?  In this background, it seems easy and logical to establish a "Content Alliance."

Jiefang Daily Newspaper Group wants to establish a "Content Alliance" that is based upon autonomous operations and discipline.  The initial concept is this: the 39 newspaper groups and other print media willing to participate will form a board of directors, under which will be a secretariat.  The board of directors coming from the newspaper groups will offer a standard price rate to the Internet media.  Once the prices are established, the various members will adhere to them whenever they sign third-party contacts with Internet media with respect to news content.  The secretariat will verify the contracts.

The Alliance also promises to establish an internal organization to protect intellectual property rights.  When Internet media violate the intellectual property rights of alliance members, the alliance will provide legal support.  Furthermore, in order to prevent individual media from giving away content in order to enhance their influence, the members must make monetary deposits which will be deducted as fines if the members do not follow the common rate cards and instead provide their content for less to any third-party Internet media.  The violator will also be punished publicly through the media.

Actually, prior to the Jiefang Daily group initiating the "Content Alliance," the chief editors attending the "2005 Chinese Metropolitan Newspapers Chief Editors Study Annual Conference" in Nanjing had published the Nanjing Declaration.  The core content was that they "will no longer tolerate the commercial websites from using print news products for free."  Somebody has described the Nanjing Declaration and the Content Alliance as the "collective counter-attack" by the traditional media.  Wu Haimin told Economy Magazine that the Content Alliance and the Nanjing Declaration represents the sudden awakening by the newspapers from a state of "collective unconsciousness."

But the problem is whether the sudden awakening by the print media and their subsequent actions can change the "unbalanced" commercial relationship?  Wu Haimin believes that even though everybody understands the purpose of the alliance, there will not be huge changes in the short term: "Those who provide the news will continue to provide the news; those who publish the news will continue to publish the news.  The portal websites will continue to re-publish the news information from the traditional media.  The newspapers will continue to provide their news at very low prices."

Wu Haimin was one of the chief publishers at the Nanjing "Metropolitan Newspapers Chief Editors Study Annual Conference."  Afterwards, he wrote on his own blog: "According to what I know, not all the chief editors in attendance signed the declaration.  Certain chief editors said that they will go back and study the matter, but chances are that there won't be any feedback.  At the time, we asked the various newspaper to publish the Nanjing Declaration.  In practice, most newspapers did not publish it."

"My guess was that it was just a lot of noise at Nanjing without much actual action," said Song Jianwu.  "I observed that most newspapers signed the declaration, but they continued to provide free information to the websites."

Actually, just like the earlier Chinese Home Electronics Industry's pricing alliance, the newspaper alliance is based with the typical "Prisoner's Dilemma": everybody does what they believe to be in their own best interests, but the net outcome was bad for everybody.  In this case, every newspaper believes that everybody else would not ignore the collective interest so they continue to provide free content to the websites.  Thus, the alliance falls apart on its own.

To break through the information asymmetry that created the Prisoner's Dilemma, the most effective method is to impose a constraint from the outside.  Song Jianwu believes that the print media will not be able to get together in the short term (about three years) unless there is a powerful external agency.  If there is no such powerful external agency, then none of them is willing to go through a direct confrontation with the portal websites.

Compared to the Nanjing declaration, the Content Alliance seemed to be an improvement.  Through a series of constraints, the Prisoner's Dilemma problem is solved.  But it may not be so easy to implement in practice.

First, the method of constraints is not sufficiently rational.  Hu Haimin believes that there are many issues with the definition of third-party media: not only is this about Sina.com, Sohu.com, NetEase.com and similar commercial portal websites, but there are also local government websites, and national websites such as People Net and Xinhua Net, and local multi-functional portals such as Qianlong, and entities belonging to partners.  What to do then?  And what about the existing contracts that have already been signed with the various commercial portals?

As for "deducting deposits" and "punishing through the media," that is absolutely unworkable because one would not want the newspaper industry to be attacking their own.  Some organization or newspaper is bound to break the agreement in consideration of its own interests.  As soon as the alliance rips up an opening, the entire alliance will collapse in an instant.

Next, even it this type of content alliance is operable, its effectiveness is doubtful.  The various commercial portal websites will not agree to sharp price rises or even moderate ones.  "The Internet today is no longer the one yesterday.  They are now strong and they have many channels.  Even if some newspapers will not cooperate, they still have others  Even if all the newspapers won't cooperate, they will still have rich sources of information such as news agencies, radio, television, magazines and blogs.  There is so much that they can use," said Wu Haimin.  Economy magazine learned from Jiefang Daily that the alliance members met again to restate the common understanding, but some media organizations did not attend.

Even though the situation is not optimistic, Song Jianwu believes that the overall trend is towards payments by the portal websites.  But can the portal websites afford to pay?  If the commercial portal websites have to pay to collect their own news, it would have cost 70% of their advertising revenue!  "Ordinarily speaking, for mass media, about 70% of their advertising revenue goes to support the cost of collecting information.  Mass media have a common business model: the cost of collecting and offering information depends on advertisements, while the cost of paper and distribution depends on reader subscription.  On this basis, the websites should satisfy the same criteria as mass media.  But it is impossible to do a detailed calculation as yet."

70% is a shocking number.  Even if it is just adding 30% to the cost, it would be a fatal blow to a website.  From the viewpoint of copyrights, pure current news can be used freely.  But for the portal websites, they presently can use other people's information for free; furthermore, they don't even have any cost of gathering the information, because other people are feeding them the information.  This is very different from the portal website employees having to visit newspaper websites to read and edit the information.  "I must be blunt in saying that if the traditional media even decline to voluntarily provide the information, the costs for the news to the portal websites would have increased three times!" said Song Jianwu.

Is this factual?  Economy Magazine has contacted several major portal websites, but we did not receive any direct response.  Economic Observer chief editor He Li suggested that the portal websites should exploit the values of their channels and platforms to develop a system that allows traditional media to share the advantages and benefits of the Internet.  "When something becomes unsustainable, it is bad for all sides.  Even considering their own commercial interests, the websites ought to be doing that," said He Li.

There is a developmental trend that needs attention, as when fewer and fewer print media are offering free news content to the websites.  Song Jianwu analyzed the reason: first, after many years of competition, the local media situations have stabilized and there is less desire to use the Internet to increase their reputation and attack their competitors.  Second, it is disadvantageous to the print media which are trying to enhance their own products, because those news items would have been propagated over the Internet already.

The portal websites are obviously aware that it is not a long-term solution to rely on traditional media to provide news content for free.  According to Song Jianwu, a number of major portal websites are seeking different models in which they rely less on the news business, but very few of them have gotten decent results.  On one hand, the traditional media are pulling back in providing free news content.  On the other hand, the commercial portal websites do not have the right to collect their own news and they only have the right to re-publish.  These opposite pressures pose a challenge to the websites.

Song Jianwu believes that the profitability of the websites are much less than the print media.  "I am concerned that the websites will fall down faster than the traditional media, because their core technologies are even fewer.  The core technologies for websites are communication tools.  Websites, especially the portal websites, have a lot of content, but it is the news that supported their traffic.  This is an unsound foundation, because they do not produce their own news information.  Rather, this is built upon an unequal economic relationship.  In my own analysis, within the next two or three years, the portal websites will be impacted by new communication technologies.  Those impacts will be even larger than those on traditional media."

Would the situation be reversed if the portal websites also have the right to gather news?  Not necessarily.  The chief editor at a famous portal website told Song Jianwu that not having the right to gather news is actually a good thing, because there is no need to spend so much effort in gathering news.  It requires an enormous amount of financial resources to set up a nationwide network to collect news.  Portal websites cannot afford it.  The famous Taiwan media person Zhan Zhihong once started an online newspaper, but it fell apart because it could not afford to collect its own news and the major newspapers would not provide any news content to him.

Zhu Bo is the general manager of Cgogo.  This mobile media person does not approve of the way in which the portal websites are going: "Frankly speaking, there is very little innovation in the Chinese Internet.  There is only imitation.  Most of the business models are borrowed from the United States and Europe."

(Asia Times)  Chinese newspapers mull Internet boycott. Wu Zhong.  June 13, 2006.

The advertising market of China's print media is now threatened by Internet portals, search engines and other websites, just like everywhere else in the world, so much so that some large newspaper groups are trying to form an alliance to boycott the provision of content to Internet news providers, in a desperate tactic that most analysts see as doomed.

Thanks to China's fast economic development since the late 1970s, Chinese newspapers and the print media in general enjoyed double-digit growth in profits annually for more than a decade - until last year. A market research report jointly released by Tsinghua University and the Social Sciences Academic Press (China) has pointed out that 2005 was the "turning point" for newspapers, when their profit growth began to slow down dramatically as the Internet rapidly ate into their market share in advertising.

In the first half of last year, the newspapers recorded an average 7.08% growth in advertising revenue. This was the first time the growth rate was lower than the country's overall economic development rate. According to the National Bureau of Statistics, China's gross domestic product recorded 9.5% growth in the first half of 2005.

In fact, advertising income for most of the 1,900-plus Chinese newspapers dropped in the first half of last year, with some recording negative growth of up to 40% year-on-year. This was in sharp contrast to the previous decade, when newspapers' advertising income averaged 33% growth each year.

Take, for example, the Beijing Media Corp Ltd, which published the mass-circulation Beijing Youth Daily. With its immaculate balance sheets, Beijing Media launched its initial public offering on the Hong Kong Stock Exchange in late 2004, becoming the first Chinese newspaper to go public overseas. Its new shares were favored by individual and institutional investors alike.

Last August, the company released interim financial reports announcing that its profits in the first half of 2005 dropped 99.7% year-on-year to a mere 170,000 yuan (about US$21,200). Although its income picked up in the second half, the company's profits for the whole of last year totaled only 10.09 million yuan. By comparison, the firm made 194 million yuan in net profits in 2004.

Some blamed the central government's belt-tightening policy, launched in early 2004, for the drop in newspapers' advertising income in 2005. Property advertising normally accounted for 40% of newspapers' advertising income, and cooling down the property market has been a major target of Beijing's macroeconomic control policy. Hence newspapers were victimized.

But such an argument is implausible at best. Beijing's austerity policy has in fact failed to cool down the housing market in any lasting way over the past two years. This is why Beijing has had to impose yet another round of cooling measures in recent weeks. Moreover, China's advertising market as a whole was estimated to have grown by 10% in 2005 from the previous year.

So obviously, the market share of newspapers has been gobbled up by others, particularly the Internet. This is demonstrated by evidence that, in contrast to newspapers, the online advertising market in China has been rising rapidly. According to the Shanghai-based iResearch, China's online advertising market in 2004 totaled 1.9 billion yuan in 2004, up 75.9% from 2003.

Information technology, Internet services, the handset industry, the auto industry, and real estate were the top five industries advertising online. iResearch also estimates that China's online advertising market reached 2.7 billion yuan in 2005, a growth of 42.1% from 2004. And it forecasts the market will grow another 48.1% to reach 4 billion yuan this year.

In fact, iResearch's projections may be conservative. According to a news release on iResearch's own website, the latest statistics from advertiser Ogilvy show that China's online advertising market grew 77.1% from 2004 to reach 3.1 billion yuan in 2005, ranking fourth among all media channels, and exceeding magazine advertising income for the first time. China's online advertising market is predicted to reach 4.6 billion yuan in 2006, up 48% from 2005, and hit 15.7 billion by 2010.

By comparison, the newspaper advertising market in China currently is estimated to be about 30 billion yuan. Media analysts in China believe the print media will soon lose its dominance in the market with the challenge from new-media channels such as the Internet.

According to statistics from the Ministry of Information Industry, there are now 110 million Internet users in China. The number is expected to grow to 200 million next year and 400 million in 2010.

Media analysts say that nowadays few people under 30 years of age read newspapers. They prefer to surf the Internet for news and information, as well as for fun. And as most of the new users will be young, advertisers will give progressively more weight to online advertising in their budgets.

Currently, online advertising makes up less than 3% of China's overall advertising market, but this share is widely expected to grow very fast. Inevitably, the print media will be the major victim. 

Alarmed by the aggressive challenge, some newspapers want to fight back, and are trying to form an alliance to ban Internet websites from using their contents gratis. Since no Chinese regulations currently forbid reposting of newspaper content, most Internet news services select material from Chinese newspapers as they see fit, and payment for such reuse is typically symbolic or entirely absent.

Last November, editors-in-chief of major tabloid-style newspapers gathered for an annual meeting in Nanjing, the capital of Jiangsu province. The conference concluded with a "Nanjing Declaration" proclaiming they would no longer tolerate "the free use" of their content by commercial websites.

And at a forum in Guangzhou in January, the Liberation Daily, the Shanghai Communist Party's flagship newspaper, appealed to 39 major Communist Party newspapers to form an alliance to "safeguard their intellectual property rights". An angry Yin Minghua, Liberation Daily's publisher, said: "The cost of running a comprehensive daily is in the tens of millions of yuan a year. But when we provide our good-quality news and information to the Internet media, we are simply given tens of thousands of yuan in return."

But so far other major newspapers appear to have remained lukewarm supporters of the boycott call. And Yin's comments have even been ridiculed.

"What [was] not said [by Yin] is that all staffers in the print media are fools. Wrong. No one is a fool. No one has been forced to cooperate with the Internet. Certainly, [a print publication] could have refused to give content to the Internet. But since [it] did give [content] and [is still doing so], then there must be reasons for [it] to do so," said He Li, editor-in-chief of the Economic Observer, a major business weekly, in an interview with Economics monthly.

Indeed, newspapers have greatly benefited from providing their content to Internet sites. Republications of their material on the Internet has made many of China's newspapers, most of which are regional, widely known, and in turn helped boost their advertising income over the past decade - when online advertising was struggling for a foothold.

Moreover, nearly all major newspapers also set up their own websites, which also "freely" take content from others. These websites are now benefiting from the growth of the online advertising market. A boycott would hurt them too. And even if major newspapers could successfully boycott other websites, which is highly doubtful, the latter could still obtain content from other new-media channels.

Whatever the ultimate fate of the boycott attempt, the aggressive challenge from Internet sites will eventually force a restructuring of China's print media. It can be predicted that in the face of this challenge, China's newspapers will intensify competition among themselves and, in the end, some of them will leave the market.

Relevant Link:  Newspapers and News Portals