MEDIA: Pride Drives Alibaba’s HK Newspaper Buy

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Bottom line: Jack Ma’s hubris is the main driver behind Alibaba’s purchase of the South China Morning Post, and the newspaper’s declining fortunes are unlikely to reverse under its new ownership.

Pride drives Jack Ma’s SCMP purchase

After weeks of speculation, e-commerce giant Alibaba (NYSE: BABA) has finally announced its purchase of Hong Kong’s SCMP Group (HKEx: 583), parent of one of Asia’s oldest and most influential newspapers, the South China Morning Post. Many reports are focusing on the implications of mainland Chinese ownership of a major newspaper in Hong Kong, where editorial standards are much more western and strict self-censorship policies like those required by Beijing don’t exist. But in my view, it’s more interesting to look at what this deal means commercially for Alibaba, and whether it makes sense.

Let’s begin with the news, which came as a slight surprise because it will see Alibaba buy the media assets of SCMP Group for an undisclosed price. (English article; Chinese article) That marks a shift from earlier reports, which had indicated that Alibaba founder Jack Ma would personally buy a minority interest to avoid the sensitive issue of mainland Chinese ownership of a Hong Kong newspaper. There’s no more detail on the actual transaction, though one report estimates the purchase will cost Alibaba around $100 million. 

Alibaba is saying one of the reasons behind its purchase is its desire to improve China’s image in the west and offer an alternate to the biased view of western media. But executives also took efforts to emphasize that the newspaper will continue to exercise its own editorial judgment, and won’t become a mouthpiece for promoting Alibaba.

One of my friends jokingly said we’ll have to see how the newspaper covers JD.com (Nasdaq: JD), Alibaba’s main e-commerce rival, to see if the SCMP will really maintain its editorial independence. But frankly speaking, I think that Alibaba will face much bigger challenges in operating the SCMP and won’t attempt to make big editorial changes for fear of scaring off its already-dwindling number of readers.

The South China Morning Post is facing the same issues as print media throughout the world, with readership and profits declining steadily as younger consumers flock to online news sources. The parent company’s profits have fallen in each of the last 3 years, and would have dropped by 40 percent in the first half of this year after excluding some one-time extraordinary gains. That’s hardly a promising investment.

Driven By Pride

In my view this deal was driven almost completely by Jack Ma, whose hubris is his main motivating factor, despite what others say. Ma was an underdog for much of his career, before rising to become one of China’s richest men on his execution of a savvy strategy in the nation’s booming e-commerce market. Ma’s role model is the more cerebral Jeff Bezos, founder of global e-commerce giant Amazon (Nasdaq: AMZN), who made a similar purchase of the storied Washington Post in 2013.

I haven’t heard much about changes at the Washington Post since then, but I do think it was wise for Bezos to buy the newspaper personally rather than using Amazon funds. Ma appeared to be taking a similar approach, based on the earlier reports, but changed course and decided to make the purchase through Alibaba. If that’s the case, his motivation is probably a desire to find a place for the newspaper among his small but growing stable of related media assets.

Those assets include a recently formed financial news joint venture with Shanghai’s China Business Network (CBN), and also a major stake in  Weibo (Nasdaq: WB), often called the Twitter of China. Alibaba certainly has plenty of experience on the Internet and lots of resources at its disposal to try and reverse the SCMP’s decline. The company will need to use those resources and move quickly to revive the paper, but will also be need to be careful of politically sensitive issues. With all those challenges to overcome, i would probably only give it a 30 percent chance of success.

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