SPH: The dog that didn’t bark

By Bharad Ramesh

As a former media buyer, I follow the financial reports of media organisations quite keenly. Often, I am surprised by the disconnect between what we in the industry see and what the “smarter” stock market thinks. In the case of digital companies (Facebook, Twitter etc.), that is understandable, to an extent. But here, in Singapore, the case of the island’s leading publisher, Singapore Press Holdings (SPH), is intriguing.

SPH released its third quarter results recently (its financial year runs from September to August). Yes, Kiss FM is a hit and its digital investments are showing promise. But there’s nothing significant in Singapore to offset the erosion of the newspaper and magazines business.

None of this is news to those who follow SPH, or newspaper companies in general. The traditional media is a melting iceberg and the digital ship is not yet in sight.

Well-wishers, including myself, point out that SPH still spews cash, provides dominant reach, is read by those with “influence” and its digital revenues from subscription and advertising are growing.

But surely, in a market with such a high rate of digital adoption, SPH must be suffering?

I went all the way back to SPH’s quarterly statements from 2008 to see how revenues changed over time. That’s 39 quarters – enough data to show a trend. I looked at two metrics. Total revenue of SPH as a group and the operating revenue from newspapers and magazines, (which includes circulation, classifieds and advertising).  I did not look at profits as that is a function of costs too, and I just wanted the revenue side of the story.

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As a company, SPH made about $1.26 billion in FY13. That is a lot of money, and though revenues are sliding, they are not falling off a cliff. However, FY13 revenues are the lowest the company has earned since FY08, including the year of recession. As of the first nine months of FY14, SPH is down 2 per cent from the same time last year. The most optimistic forecast has SPH matching FY13’s low numbers. This is not a growth business.

SPH’s overall performance is overwhelmingly dependent on newspapers and magazines. These revenues at $707 million in the first nine months of FY14 are down 5 per cent from the same time last year, the steepest drop since FY09.

In the third quarter of FY14, 77 per cent of total revenues came from newspapers and magazines. Pretty much the same ratio as in the third quarter of FY08. Barring for gains from property in the subsequent years, this ratio has hardly changed. So where is the digital diversification paying off?

In the second quarter of FY14, SPH generated $212 million from newspapers and magazines. That is the second lowest quarter for SPH since the second quarter of FY09 in the depth of the recession. One shouldn’t be surprised if the second quarter FY15 revenues hit a new low.

On the high side, third quarter FY2008 was the highest quarter ever for SPH at $269 million. It has not reached those levels 24 quarters since. SPH made $240 million in third quarter FY14, 10 per cent lower than what it made in the same period six years ago.

Six years is an eternity in the digital space. In 2008, there was just Yahoo, MSN and Google Search competing for advertising money. Now, there is also Facebook, Twitter, Spotify, Instagram, Youtube, SingTel and more. It cannot be that in six years SPH did not find a way to do digital better.

It has bought a collection of digital properties, spent money promoting the sites and set up the $100million new media fund. But has SPH fundamentally transformed itself for the digital age?

I looked at SPH’s stock price over the same six year period to see if there is any correlation between a company’s revenues and its stock price.

Apparently not. SPH can be in a sector that is in terminal decline and make less money every quarter. But it doesn’t impact its share price one bit. Even if SPH’s quarterly revenues in 2014 almost touch the 2009 lows, its stock price stays resolutely up.

An interesting contrast to stock prices of other press companies globally. 21^st Century Fox and Time Warner have in fact divorced the print business and spun it away from its other high performing units.

It seems that so long as you keep the investors happy, with a high stock price and good dividends, SPH’s leadership can rest easy. They get a pass to turn the good ship around in their own sweet time. It seems like the bar for performance is to avoid a meltdown and not to transform the business.

Meanwhile, for those more interested in how print organisations deal with the digital disruption, read the internal NYTimes report:

http://www.buzzfeed.com/mylestanzer/exclusive-times-internal-report-painted-dire-digital-picture

Winter is coming.