Why SPH Media is going for a new funding model

SPH chairman Lee Boon Yang speaking during a press conference on May 6, 2021.ST PHOTO: GAVIN FOO

As digital disruption continues to challenge the news industry worldwide, a fundamental change is needed to ensure it is able to remain financially sound and functionally robust to deliver its critical missions in the long run. The following is the text of remarks by Singapore Press Holdings chairman Lee Boon Yang at a news conference on Thursday (May 6) to announce the restructuring of its media arm.

Since its formation in 1984, Singapore Press Holdings (SPH) with its news titles has served as a timely, trusted and credible source of news and information for Singaporeans and audiences beyond our shores. Today, when information and data are treated as new currency, there is growing recognition that responsible and high-quality journalism plays an important role in every functioning and successful society. Reliable journalism is respected as a public good and increasingly valuable as we cope with information overload and a 24/7 deluge of online falsehoods.

Our publications - The Straits Times, Lianhe Zaobao, Berita Harian, Tamil Murasu and The Business Times - are seen as reliable papers of record. This trust and reputation did not happen by chance. SPH has assiduously nurtured quality journalism and invested resources to develop our media business. These efforts helped us to stay relevant to our audiences as media consumption habits changed dramatically with the swing towards digital access and content.

Substantial investments over the years to transform media business

Recognising that the growth and continued engagement of new audiences would be in the fiercely contested digital arena, SPH has invested significantly in digital capabilities to introduce new products, strengthen content and increase audience engagement.

Over the past five years, SPH's investments in technology, product development and data analytics talent have grown by 48 per cent, amounting to more than $20 million a year. We have also invested in digital content production and audience development talent in the newsrooms, which amounted to about $35 million over the same five-year period. Beyond investing in manpower, SPH has also increased its spending to build up new consumer-facing digital platforms and products, averaging more than $20 million a year over the past five years. These investments have strengthened our newsrooms' digital content creation capabilities, product quality, as well as the ability to design, develop and monetise media content and products across different platforms.

As a result of this digital transformation effort, SPH's total audience across our publications has grown significantly. The average monthly unique audience of all SPH titles over the past two years has nearly doubled to 28 million. This is the largest audience SPH has ever had in its history, and it is remarkable if you think of the small domestic market. Our digital titles have also received numerous international accolades, including annual awards by industry associations such as The World Association of News Publishers and the International News Media Association. Resources were also ploughed into growing new revenue streams beyond advertising, which includes building digital circulation capabilities to drive subscriptions. With strong content offerings, innovative and customer-centric products such as the SPH News Tablet, digital circulation grew strongly and surpassed print circulation last year.

SPH Media financially challenged by structural changes in media industry and external operating environment

However, digital disruption continues to challenge the media industry. This is not unique to Singapore or SPH. Globally, traditional media organisations have seen revenues falling for the past decade as competition for digital revenue has intensified, especially in the advertising space, where scale is important. Non-journalistic platforms, such as search engines, social media networks and e-commerce, have emerged as dominant players in the advertising market. With the rare exception of a few titles with international audiences like The New York Times, the growth in audience and subscription revenue has not been able to overcome the decline in advertising revenue.

This trend has adversely impacted the financials of SPH's media business (SPH Media). Over the past five years, SPH Media's operating revenue has halved, driven largely by the drop in print advertising and print subscription revenues. Disruptions caused by Covid-19 have exacerbated the decline in advertising revenue as companies cut back on spending. Last year, SPH Media posted its first-ever loss of $11.4 million for the financial year ended Aug 31, 2020, and it would have incurred a deeper loss if not for the Government's Jobs Support Scheme (JSS) grants. For the six months ended Feb 28, 2021, profit before tax for SPH Media fell 71 per cent to $3.1 million compared with the same period last year. If not for the JSS grant, SPH Media would have incurred a pre-tax loss of $9.7 million.

SPH has carried out several cost management exercises as part of our efforts to maintain media profitability. In recent years, we have right-sized the media operations in the sales and back-end support functions and cut costs without affecting our media capabilities. There remains little scope for further cost cuts without impairing the ability to maintain quality journalism.

Listed company model no longer feasible, new funding model needed for long-term viability of SPH Media

Looking ahead, advertising revenue is expected to continue its secular decline at a similar pace to the last five years, and is unlikely to rebound post-Covid-19. The growth in digital advertising revenue will not make up for the drop in print advertising. While we have had reasonable success in growing digital subscriptions, further growth is likely to be challenging given the intense competition and the small size of our domestic market. As a result, the losses we have seen for SPH Media are likely to continue and widen.

SPH Media's digital transformation journey is an ongoing challenge. More investments in digital talent and new technology will be required to strengthen our digital content creation and product development capabilities. These investments will need more time to show results.

The fundamental issue that needs to be addressed is therefore this: the long-term viability of SPH Media in its present structure subjected to market pressures. The media business is expected to remain loss-making and face severe financial challenges over the next few years. SPH shareholders are not likely to tolerate the continued negative impact that the media business has on the company's financial prospects. On the other hand, we cannot allow a functioning, trusted and respected media organisation to be whittled down over time by market pressure and commercial constraints.

It is therefore clear that being part of a publicly listed company is no longer a tenable model for SPH Media. A new funding model is needed for SPH Media to remain financially sound and functionally robust in the long run.

SPH has a critical mission of serving several key stakeholders in Singapore - the public who read our news products, our shareholders, our staff as well as our business partners. SPH is a credible and trusted source of quality news and information to the public. In the context of Singapore's multiracial society, SPH serves a crucial function by providing news and information in vernacular languages to serve Singapore's diverse ethnic communities. As a key player in the media industry, SPH also plays a vital role in preserving media diversity in Singapore, which enables the public to have more variety and choices of quality local content across different platforms, languages and formats.

Considering these important roles and functions of SPH Media, winding up or selling the media business are not options for the Group, as either option will severely impact public access to quality news and critical information, as well as undermine media diversity and competition in Singapore. Both options would also require regulatory approval.

As part of its strategic review, the Group is proposing to restructure itself, with SPH Media being placed under a separate entity, which will be "not-for-profit" in that its income and property will be applied solely towards the promotion of the objects of the company set forth in its Constitution. SPH Media will then be freed from the expectations of shareholders for a fair financial return and regular dividends. Its operating revenue can be reinvested in the media operations instead. Transferring the media business out of the SPH listed entity will also open up opportunities for it to seek funding from other public and private parties which have a shared interest in supporting quality journalism and credible information in the public interest.

Transferring SPH media to a CLG is the best option for all stakeholders

Accordingly, SPH approached the Ministry of Communications and Information (MCI) to apprise them of the financial challenges of the media business and with a proposal to restructure its media business into a wholly owned subsidiary. The subsidiary will subsequently be transferred to a company limited by guarantee (CLG) for a nominal sum, subject to shareholders' approval. MCI, which regulates SPH under the Newspaper and Printing Presses Act (NPPA), has indicated its support for this proposal.

In this process, the entire media-related businesses of SPH, including relevant employees and subsidiaries, News Centre and Print Centre along with their respective leaseholds, as well as all related intellectual property and information technology assets, will be transferred to a newly created subsidiary. SPH will be capitalising the subsidiary by injecting $80 million cash, $30 million worth of SPH shares and SPH Reit (real estate investment trust) units, as well as its stakes in AsiaOne, DC Frontiers, Target Media Culcreative and Singapore Media Exchange.

This CLG model that we are proposing is neither new nor radical. In fact, many well-known and respected news organisations around the world have already moved in this direction, with media trusts and foundations set up to support and uphold credible media titles. Some examples worth citing include The Guardian in Britain, which has been controlled by the Scott Trust since 1936. In Germany, the largest media conglomerate, Bertelsmann - No. 1 in Europe and one of the largest media companies in the world - is owned by the Bertelsmann Foundation. In France, Ouest-France, the leading daily in terms of circulation, has been owned by a non-profit organisation since the early 1990s. In the United States, ProPublica, a Pulitzer Prize-winning site, was created in 2008 as a public trust. There is also the Philadelphia Inquirer, which is owned by the Lenfest Institute, and the Tampa Bay Times, owned by the Poynter Institute.

With the resources that SPH is providing upfront and the prospects for public-private partnership funding going forward, we anticipate that SPH Media will have a more sustainable financial future. It will have the resources to focus on transformation efforts and quality journalism, as well as to invest in talent and new technology to strengthen its digital capabilities. This will ensure that the public will continue to benefit from quality information and credible news from trusted media titles and newsrooms, across different platforms and in vernacular languages.

The transfer of SPH Media to a CLG will also help to preserve a diverse and competitive media landscape in Singapore. Having competition among key players in the domestic media market will spur innovation and creativity, thus stimulating more variety in content and enabling the public to have better choices for quality content that caters to the local audience.

With the restructuring of SPH Media, MCI has also given its in-principle approval for the shareholding and other relevant restrictions under the NPPA to be lifted from the listed company after the transfer of SPH Media to the CLG following shareholders' approval. Without the encumbrances of the NPPA, SPH will have greater financial flexibility to tailor its capital and shareholding structure to pursue strategic growth opportunities across its other businesses and maximise returns for shareholders.

In our strategic review, we have carefully considered our options, weighing up the interests of each of our critical stakeholders, as well as the interests of the Singapore community as a whole. We have concluded that, on balance, restructuring SPH Media and transferring it to a CLG is the best and most appropriate option for all stakeholders.

Let me conclude with our former president S R Nathan's account of advice given to him when he was appointed executive chairman of The Straits Times Press, a few years before the formation of SPH. Before taking up his appointment, Mr Nathan met with the then Prime Minister Lee Kuan Yew. As Mr Nathan was leaving, Mr Lee said: "Nathan, I am giving you The Straits Times. It has 150 years of history. It has been a good paper. It is like a bowl of china. If you break it, I can piece it together. But it will never be the same. Try not to destroy it."

More than four decades on, Mr Lee's words of advice still ring true. Today, in addition, it is not just the future of The Straits Times that is at stake. It is also the future of all of SPH Media's highly regarded publications, working across platforms in a new media age. This restructuring is a carefully considered evolution of Singapore's media model to ensure that we safeguard this precious china for future generations. We are creating a new home for this fine china bowl. We are confident that in this new home, our media, which has served our society over the decades, will continue to enjoy the care, nourishment and support they need from our society if they are to thrive. This will ensure that our longstanding media titles will be able to continue serving our nation for a long time to come.

Thank you.