SPH restructuring: Balancing the interests of all stakeholders at heart of move

SINGAPORE – Singapore Press Holdings (SPH), which publishes The Straits Times, is restructuring its media business amid a trend of falling advertising revenues for newspapers around the world. We look at what’s behind the move.

What’s happening

On May 6, following a trading halt, SPH announced that it would transfer its media business to SPH Media Holdings, as part of a restructuring exercise meant to ensure the long-term sustainability of the media business.

With advertising earnings on the decline and expected to continue on a downward trajectory, it was no longer tenable for the media business to remain part of a publicly listed company, where it would be whittled down over time by market pressure and commercial constraints, said SPH chairman Lee Boon Yang.

Under the proposal, SPH would provide the initial funding for SPH Media to the tune of $80 million in cash, $30 million in SPH shares and SPH Reit units, and stakes in four of its digital media investments.

The wholly owned subsidiary will eventually be transferred to a newly formed company limited by guarantee (CLG) for a nominal sum, pending shareholders’ approval.

The yet-to-be-formed CLG, SPH Media Trust, will be free to seek funding from a range of public and private sources.

Dr Lee said: “The fundamental issue that needs to be addressed is therefore this – the long-term viability of SPH Media, in its present structure subject to market pressures.

“The media business is expected to be 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.”

SPH has received the Government’s approval in principle for – when the media business has been hived off – the lifting of restrictions on its shareholdings and other aspects of its business that are now imposed on newspapers by law.

This will give SPH more flexibility to tailor its capital and shareholding structure and “pursue strategic growth opportunities across its other businesses and maximise returns for shareholders”, said Dr Lee.

“In our strategic review, we have carefully considered our options, weighing up the interests of each of our critical stakeholders, as well as the 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.”

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Why it matters

In March, the company had foreshadowed the move when it announced that it would undergo a strategic review to consider the options for its various businesses.

This came after the media business posted its first loss – of $11.4 million – last year.

But even before that, the company had seen its takings shrink.

Around the world, traditional media companies have seen a similar decline, with advertising revenue falling owing to digital disruption. The Internet has not only allowed more media organisations to be born, but has also allowed tech behemoths like Google and Facebook to siphon off a large proportion of advertising revenues.

In 2015, the media industry hit a milestone when global newspaper circulation revenue exceeded global advertising revenue for the first time.

With the rare exception of publications 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. As a general trend, PWC found that the more digitalised a country’s newspaper industry is, the faster its overall revenue is projected to decline.

The same trend had been felt in Singapore, and as audiences across all of SPH’s publications grew to a historical high of 28 million, operating revenue halved.

Last year, although newspapers gained record numbers of readers seeking to keep abreast of news on Covid-19, media companies largely struggled to benefit from the boom.

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Over the years, traditional media companies have turned to white knight investors or trusts to continue to survive.

With the restructuring, the funding structure of SPH Media would be similar to those of publications like The Guardian in Britain, which is funded by the Scott Trust, and the Tampa Bay Times in the United States, which is owned by the non-profit Poynter Institute.

The new CLG will be run on a commercial basis, with all profits ploughed back and reinvested into the business, enabling it to focus on its core mission.

After the announcement, the Government said it backs the proposal.

It added that it was prepared to provide funding support to the new entity to help it with digital transformation and capacity building.

When the restructuring, which represents the biggest shake-up of the media industry in Singapore since multiple media organisations were merged to form SPH in 1984, was debated in Parliament last Monday, Minister for Communications and Information S. Iswaran said a high-quality and respected media keenly attuned to Singapore’s unique circumstances is “essential to the fabric of our nation”.

He said local media help to interpret global events through a Singaporean lens, give outsiders the Singapore perspective, and also provide a range of views to inform the national debate and help foster national consensus.

The vernacular papers also help to sustain the common ground in Singapore’s multiracial and multi-religious society, he added.

Former coordinating minister for infrastructure and transport minister Khaw Boon Wan, known as the “Fix-it” minister, will come out of retirement to be chairman of the new entity.

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This, along with talk of government funding, has sparked concerns that the editorial integrity of newspapers in SPH would be compromised – a point several MPs, including Leader of the Opposition Pritam Singh, raised during the debate that lasted over an hour, although many governments, including across Europe and in Australia, have been funding newspapers for years.

Mr Khaw said the end goal was to ensure that the Singapore media remains trusted and can continue to produce quality journalism under a sustainable business model.

Thus, the independence and integrity of the newsrooms would be crucial in determining the success of the enterprise.

“If you undermine that, you undermine what we are trying to achieve,” he added. “That is my position. It is, to me, crystal clear.”

What’s next

Mr Khaw said his key priorities for the new entity are to ensure a smooth transition to SPH Media Trust, make wages more competitive and improve working conditions in order to recruit and retain talent, as well as to enhance the user experience of SPH Media products.

To ensure a smooth transition, veteran journalist and former deputy chief executive officer of SPH Patrick Daniel was asked to return as interim CEO of SPH Media Trust.

The restructuring is expected to be completed by September, pending shareholders’ approval at an extraordinary general meeting in early July.

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