How SPH can pull itself out of the revenue trenches

According to SPH’s financial results for the third quarter, the media owner saw a 45.2% drop in net profit when compared to the same period last year. Some reasons for this were a result of its declining magazine business which incurred impairment charges of SG$37.8 million, along with advertisement and circulation revenue declines. Other reasons SPH cited for its lack luster performance were “disruption of the media industry” and a “muted economic environment”.

Nonetheless, SPH’s property segment helped bolster its recent dip in ad revenue, while other businesses garnered revenue of SG$1.2 million, which was 8.2% higher compared to last year. Some of this was contributed from its recent acquisition of Orange Valley Healthcare which was partially offset by lower revenue from the exhibitions business. (Read more on the report here SPH sees 45.2% drop in net profit, magazine business further deteriorates)

The decline in earnings of SPH’s media business is not a new problem. It has been a problem the company has faced over several quarters and by no means, is the publication house alone in this.

In a conversation with Marketing, advertising veteran Jeffrey Seah, former Southeast Asia CEO of Starcom Mediavest and currently partner at Mettle & Salt Partners (advisory focused on the data, tech, media and content industries), explained that in the past few years, a number of long tenured print publishers in North America and Europe have filed for bankruptcy protection or sold their publishing businesses to content marketplaces. But SPH, Seah explains, is not in the same situation.

He explained that the company should ideally be looking at a broader audience and not just focusing on the Singapore market. SPH’s content should look to "attract readers glued to developments in the changing geopolitical epicentre of Asia, and their shifting policies to be belted on to a new economic-political route," he said.

However, SPH's monetisation approach, such as its revenue and consumption platforms are constructed for a Singapore audience.

"They are fishing with a rod in a big captive pond,” Seah explained.

Another reason for the decline was SPH’s past diversification in real estate. While it has generated good returns, diversification in this case allowed SPH "too much rope for inertia" against digital transformation at their core, Seah explained.

“That said, its principal business remains in the content and possibly data space, but certainly not publishing anymore. The SPH board should not see revenue stabilisation/diversification via M&A in unrelated businesses as an end goal. They should see it as a part of the company's digital transformation journey,” Seah added.

Media industry veteran and former editor of Today, PN Balji, who added that the problem is not isolated to SPH, but rather to most media owners worldwide which is an inescapable problem.

"It is also a result of its publishing business failing to adapt and keep up with younger readers who prefer content that is fast and more concise," Balji said.

Lawrence Chong, CEO of Consulus, added that the fact that SPH needs its property business to hold up its flagship content business, also indicates that its leadership does not know how to monetise from its content-led business yet. He said:

While SPH is not alone, in a smaller setting such as Singapore, and even as a monopoly, to lose like this is dismal.

“Unless SPH can pick an alternative and independent path to grow its content business, it will continue to need other non-content related business to prop it up,” Chong said.

How should SPH turn things around?

Ranga Somanathan, CEO of OMG Singapore and Malaysia said that with consumer habits changing at a faster pace than expected, corporate companies are lagging behind in their transformation.He added:

SPH being at the “eye of the storm” is bearing the brunt of this dynamic.

“While SPH has been making progress, I believe they need to accelerate the transformation of the media business composition. This requires SPH to better leverage their data and tech investments by making it available to advertisers and agencies real time,” he said. He added that with strong local digital platforms, SPH has the opportunity to create private market places, customised audience segments and deliver an enhanced user experience journey.

Chong added that SPH needs to pursue a systemic shift such as South China Morning Post and the Washington Post to be a content provider that thrives on being a digital and tech company.

"Unless it can do better than Mothership in its approach to engage readers, it is wiser to cut more losing content platforms or magazine titles,” Chong said. He explained that in general, it is tough for monopolies such as SPH to do well in transformation. While SPH has been trying to adapt to changing times, internal reorganisation and rebranding is not enough, Chong added.

“This in an age where there is sea change of how people access and consume content. Only a systemic approach in terms of changing the business model, will reap more benefits,” Chong said.

To turn this around, Mettle & Salt Partner’s Seah said that a full blooded, whole of company approach towards digital transformation is needed. This is with content and data at the core of all their functional operations, including acquiring a critical mass of people to catalyse a cultural shift.

In parallel, SPH also needs to develop a more sustained M&A strategy to widen their investments in digital, both in modernising operations and covering the near horizon.

“SPH can structurally become a content company, an ad tech company, a mar-tech company and a marketplace rolled into one. Especially when oriented by the data of their customers into a profitable walled garden of going concern,” Seah said.

"While its core business is still media, SPH’s move to branch out into other businesses such as property and investment into the healthcare sectors through acquisitions such as Orange Valley, is a smart one. This allows the organisation to minimise the effects of the migration of eyeballs away from more traditional forms of media and content," Balji said.