Hong Kong Economic Times

 

HONG KONG ECONOMIC TIMES
Global Strategy

LUCAS LOPEZ – FENWAY
Hult International Business School

 

1. Which factors have affected the profitability of the newspaper industry in general and in Hong Kong in particular over the last twenty years?

The newspaper industry has been facing a different situation in Hong Kong compared to other countries. First, is important to know that the financial perspective of newspapers in the global scenario is not the best one, as they have been decreasing their `wallet share’ in the advertising expenditure from 36% to 25% in 2015 and sales are almost flat with a total revenue growth of only 1% (See exhibit 1). On the other hand, Hong Kong has been experimenting a healthy advertising revenue growth of 7% during the last years, with some threats in the near future.

The key factors that have affected the newspaper industry are (See exhibit 2):
a. Changes in consumer behavior
b. Substitutes: Online News Platforms
c. New Entrants: Free newspapers
d. Commoditization of some media products or categories

a. Changes in consumer behavior
Many of the changes that the industry has faced in the last 20 years have one responsible: the consumer. It is not a secret that people have changed the way they live and interact with others in many ways, and that includes the media (news) consumption. These are some of the habits of the `modern customer’:
* Moves more
* Interacts with different platforms
* Skips advertising
* Prefers entertainment than just information
* Prefers visual and interactive content
Almost all the new habits are a threat for the regular newspapers, that don?t offer the features that the consumer is looking for, thus, they are getting the news from other platforms such as websites, apps, social networks, etc. Advertisers need to get their clients anywhere they are, and as they are not reading the newspapers, advertising money goes to players in the new types of media.
On the other hand this seems to affect more the global industry than the Hong Kong one.

b. Substitutes: Online News Platforms
This factor is closely related to the last one. New technology has evolved into new platforms and consumers are eager to use them more. Computers, Cell Phones, Tablets, Interactive TVs, etc. are all rivals of the newspapers because they offer interactive, live, social, entertaining, mobile, free (many times) content, something that the `old fashioned paper’ can not offer. This has negatively impacted the newspaper industry in the global scenario, but seems not to be affecting its counterpart in Hong Kong that still reports a 7% growing rate (see exhibit 2).

c. New Entrants: Free newspapers
This factor is not well explained for the global perspective in the case, but on the other hand, it seems to be the most crucial for the Hong Kong newspaper industry. These new entrants have a slightly different business model compared to regular newspapers. They are free to the public, so, all the revenues come from advertisers. They have simpler, easy-to-read, general information, so they don?t need a huge, very professional journalist staff and finally they are strategically located for commuters, taking advantage of that `free time’ of the people. These features have given a huge reader base to these newspapers, attracting advertiser’s money and creating a difficult environment for regular newspapers that are loosing market share. It is known that many of the Hong Kong newspapers have had to cut their prices such as the Sun, and others as Apple Daily, Sing Tao and Ming Pao have seen their revenues decrease in more than 10% (See exhibit 2)

d. Commoditization of some media products or categories
Last, but not least, it is mentioned in the case that some newspaper categories such as gossip magazines are more fiercely competed (which erodes profitability) because the players are undifferentiated, so advertisers are paying less for their adds (See exhibit 3).

2. The HKET Group grew thru a strategy of diversification and differentiation. To what extent did the strategy of the Group follow the key ?imperatives a Blue Ocean Strategy?

Is important to highlight that there is no evidence to conclude that the Hong Kong Economic Times Group followed exactly the Blue Ocean Strategy parameters. I would prefer to say that their plans had some common elements to Blue Ocean, but also some different approaches. The company used certain characteristics of the BOS in several of their products, such as ET Net, ET Wealth and ET trade, U magazine, etc. but they also didn’t use BO for other initiatives as the Business College or the Book Publishing as they entered into a well established industry playing under almost the same rules that their competitors did. On the other hand, there?s no evidence that HKET met this two BOS imperatives: break the value/cost trade-off and align the whole system of a company’s activities in pursuit of differentiation and low cost in any of their businesses.

The following charter is an evaluation of HKET Group’s strategy under the imperative factors of the Blue Ocean Strategy.

Blue Ocean Strategy Key Factor | HKET Group Strategy / Example | Blue Ocean? |
Create uncontested market space | I can say that HKET did create uncontested market spaces when they launched products such as ET Net, ET Wealth and ET trade. The company used its capabilities to build the first professional financial information platforms in Hong Kong, finding a new uncontested market. On the other hand, not all HKET businesses are in uncontested markets, for example ETVision Multimedia competes in the audiovisual production with players that were suppliers of the HKET before. The Company could have a privileged position as a one stop shop for their customers, but the ETVision by itself does not follow the Blue Ocean Strategy | YES, but only in some of their businesses |
Make the competition irrelevant | HKET made the competition irrelevant when they launched Electronic Property Information Services. While there was information of the property market, it was all spread out; no one had this user-friendly, comprehensive information. The Company took advantage of their information management skills and created something that competitors didn’t have. On the other hand, units such as the business college has many direct competitors, for example universities, consulting companies are direct competitors. | YES, but only in some of their businesses |
Create and capture new demand | HKET created and captured new demand with products such as E-zone and U magazine. This kind of publications were focused to satisfy unmet needs like leisure and lifestyle content, and you can infer that for instance the U Magazine will be a new product for the customer, something `extra’ that will not directly “steal” market share from a competitor. | YES, but only in some of their businesses |
Break the value/cost trade-off | They didn?t break the value/cost trade off, in fact they chose an high added value strategy for all their products that was based on better information, more technology, better costumer experience, etc. And that is more expensive to operate but also increase the willingness to pay of their target market. | NO |

Align the whole system of a company’s activities in pursuit of differentiation and low cost | I didn’t find evidence to support the idea of lowering costs and creating value in the businesses of the HKET. In fact, almost all the HKET initiatives had higher costs than the previous ones. For example, going from the newspaper to the electronic platform business (ET Net) requires more information, more technology, more people, more technical skills, etc.

To conclude, I can say that as we saw in class: it’s very difficult to find a `perfect’ application of the Blue Ocean Strategy. It is complicated to discover something that not only creates value but also decreases costs. The Cirque du Soleil example is very unique. The HKET case is a very good illustration of how to create value in a highly competed industry with a diversification strategy that is not exactly Blue Ocean, but definitely takes advantage of the company’s capabilities to create new opportunities, find untapped markets and cater to unmet needs, creating value for the company and its stakeholders.

Exhibit 1: Revenue Trends (From the Case)

| Developed Countries | Hong Kong |
Industry Revenues | % of global advertising spent on newspapers went from 36% in 1996 to an expected 25% in 2015 | Newspaper advertising revenue is growing at a “healthy” rate of 7% |
| Online and print advertising grew only by 1.8% in the USA | |

Exhibit 2: Key Facts in the Newspaper Industry (From the Case)

Key Factors | Developed Countries | Hong Kong |
Substitutes: Online News Platforms | Online advertisement grew by 70% in 2006 | The internet apparently had no big impact on Hong Kong’s newspaper industry |

| Advertising on newspaper websites grew by 35% in the US in 2006 | Readership base was aging due to new media sources used by younger generation |

New Entrants: Free Newspapers | Metro International, a Swedish company is agitating the industry with a new business model: Free “Simple” Newspapers. Less content, less journalists (1.200 of the NYT compared to 30 of Metro), free to the consumer, large consumer base | Free Newspapers are affecting the industry, capturing 10% of advertising revenues by 2006 |

| | Established players in HK have been affected: The Sun lowered prices by 50%, Apple Daily’s Sales decreased 11.5%, Sing Tao Daily and Ming Pao decreased advertising sales by 12% and 7% |

Fierce competition due to the commoditization of some media products | | Advertising rates are falling in undifferentiated markets, such as gossip magazines (Full pages adds went from HK$10.000 to HK$6.000 |

Exhibit 3: The imperatives for red ocean and blue ocean

 

 

Hong Kong Economic