INTERNET: Sina Dragged Deeper Into Internet Clean-Up
Bottom line: Shares of Sina and its Weibo unit could come under pressure this week and for the next few months, as the regulator pushes for a clean up of its core news sites amid a broader Internet clean-up campaign.
A year-old Internet clean-up by Beijing is coming full circle to where it first began, with word that regulators have criticized and warned online stalwart Sina (Nasdaq: SINA) for failing to adequately censor its core web portal business. China Internet followers may recall that this prolonged clean-up began almost exactly a year ago when Sina’s video license was suspended after pornographic content was discovered on its literature and photo-sharing sites. (previous post) That case wasn’t too alarming since video is quite peripheral to Sina’s business. By comparison, this latest case looks a bit more worrisome, since it involves the portal news business that accounts for a big portion of Sina’s core advertising revenue.
Sina’s shares have lost about half of their value since early 2014, partly due to concerns about the waning prospects of its formerly booming Weibo (Nasdaq: WB) social networking (SNS) service whose popularity is rapidly fading. The company is one of China’s oldest and most respected Internet companies, and thus it wasn’t too surprising when it was singled out last April to kick off a broader Beijing clean-up of China’s unruly Internet.
Since then the clean-up has gone on to net almost every major Chinese Internet company, with search giant Baidu (Nasdaq: BIDU), e-commerce leader Alibaba (NYSE: BABA) and SNS giant Tencent (HKEx: 700) all being accused of various offenses. Those transgressions have run the range from pornography, to violent content and presence of pirated goods on their various sites and services.
This latest clean-up at Sina comes in a report from the official Xinhua news agency and says the company has been warned for failing to adequately censor its core news sites. (English article) The report is quite broad, saying Sina failed to remove a wide range of offensive content including violence, terrorism, pornography and swindling.
Use of the word “censorship” in the Xinhua report also implies some content may have been related to politically sensitive topics that are also taboo. It’s also possible the warning applies to the rampant practice by Sina and most other news portals of illegally copying content from other news sites. That issue made headlines last month, when cutting-edge financial magazine Caixin formally sued Sina and several other websites for illegally republishing its stories without permission. (previous post)
The new report says the Cyberspace Administration of China called Sina officials to its offices last Friday to warn them of the improper behavior, and adds the company has been warned that its news services could face suspension if it fails to improve. It adds that the regulator has received 6,038 complaints about Sina’s content since the start of the year, more than any other news site.
Sina’s shares have yet to react to the news, since the Xinhua report came out over the weekend. I suspect we’ll see a sell-off when the stock starts trading in the new week, with shares perhaps falling as much as 10 percent. It does seem somewhat significant that the regulator is chasing Sina’s core news business this time instead of its ancillary video and literature services like we saw at this time last year. It’s also likely this latest warning is partly directed at Weibo as well, meaning we could see Weibo’s separately listed shares take a hit in trading this week.
At the end of the day, this particular development isn’t too surprising since Beijing has shown no recent signs of easing up on its year-long campaign to clean up the Internet. Companies’ core products and services have become fair targets in the clean-up, as Alibaba discovered when its popular Taobao C2C platform came under fire for widespread trade in pirated goods on the site. This latest signal indicates the clean-up is likely to continue for a while longer, and could ultimately put a significant damper on revenue and profit growth for many affected companies over the next year.
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