Next Media Ltd. (00282.HK) has issued a profit warning for the fiscal year ended March 31, a somewhat shocking announcement given that the company had reported HK$100 million in profit for the interim period ended September.
Affiliated newspapers and magazines have reportedly laid off employees, frozen salaries and even cut back writers’ remunerations.
It’s quite a concern that traditional media across the world are struggling.
The company explained in an exchange filing that the profit decline was mainly due to a 23 percent drop in the overall advertising revenue of the print business in Hong Kong and Taiwan where market conditions deteriorated during fiscal year 2015.
Print advertising has always been the major revenue contributor for the company, including advertising income from Apple Daily and Next Magazine, which are published both in Hong Kong and Taiwan.
The sector generated about HK$2 billion revenue in fiscal 2014, representing over 60 percent of the company’s total revenue for the year.
Print advertising income dropped 21 percent to HK$810 million in the first half of fiscal 2015, and is set to post a sharp decline in the second half.
Nevertheless, the profit warning offered some comfort for investors. Print advertising business is expected to fall by HK$460 million in fiscal 2015, after generating a revenue of HK$2 billion in fiscal 2014.
Therefore, the company may not post a loss in fiscal 2015 if all other factors remain unchanged. That’s why the statement said the company expected “considerable decrease” in its profit.
That indicates Next Media may find new revenue sources to offset its deteriorating advertising income. The company has rapidly expanded into digital business, including online advertising, subscription, content, mobile games and apps. This unit already contributed a revenue of HK$330 million in the first half of fiscal 2015, surging 160 percent from a year ago.
Also, the company may save considerable costs in paper due to the lower price of paper and less printed copies. Raw material costs slid by 32 percent to HK$310 million in the first half of fiscal 2014. Raw material costs were equivalent to 25 percent of its revenue in the last fiscal year.
Digitalization is the big global trend emerging in the traditional media sector. Print advertising revenue is on the decline as a result of changing reading habits, and digital business is still in the early days before becoming a cash cow.
There are quite a few examples of successful digitalization moves, and they include the Financial Times, the Economist and Wall Street Journal.
All these internationally renowned media outlets have used the internet to tap into overseas markets and monetize their global reputation.
However, the case may not applicable for most regional print media, which still have a long journey going forward. Even respected newspapers like the Washington Post and the Guardian have yet to reverse their falling profits.
Next Media is one of the most aggressive companies pursuing digitalization, and it seems intent on further cutting back resources for print business.
That could be a bold move, which is quite in line with the style of its outspoken founder Jimmy Lai Chee-ying.
This article appeared in the Hong Kong Economic Journal on May 8.
Translation by Julie Zhu
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