MEDIA: Alibaba Eying HK Media Investment at SCMP?

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Bottom line: A deal for Alibaba to buy a minority stake in Hong Kong’s SCMP looks logical despite dubious sourcing in reports on such talks, and could help to revive the group’s flagging fortunes by bringing in new partnerships and other resources.

Alibaba eyes traditional media with SCMP investment rumors

Just days after word emerged of a major shake-up in the newsroom of the South China Morning Post (HKEx: 583), new reports are saying that Chinese e-commerce giant Alibaba (NYSE: BABA) may be interested in a major investment or even outright purchase of Hong Kong’s leading English-language newspaper. Sourcing on the reports is quite flimsy, which I’ll describe shortly and makes me slightly dubious that such talks are happening.

But such a move also has a certain logic, since the SCMP’s current owner is reportedly looking to sell the newspaper that has a relatively modest current market value of about HK$2.8 billion ($360 million). What’s more, Alibaba has also been moving aggressively into the media and entertainment spaces, including its recent purchase of leading online video site Youku Tudou (NYSE: YOKU) and formation of a joint venture with a leading mainland financial newspaper.

Let’s begin with a look at the market rumors, which are based on a report this week in the usually reputable China Daily, China’s official English-language newspaper. (English article; Chinese article) Reflecting just how uncertain the China Daily was about the information, it didn’t even mention the SCMP in its headline and simply said that Alibaba could be planning a Hong Kong “media raid”.

Reading a little further, the article simply alludes to “rumors” from an unnamed source that emerged over the weekend saying Alibaba was in discussions to invest in SCMP’s parent, SCMP Group. Alibaba declined to comment on the rumors, and the China Daily couldn’t reach SCMP for comment. The rumors may be linked to the nearly concurrent reports of a management shake-up that will see longtime editor Wang Xiangwei leave the SCMP and be replaced by the China-friendly Tammy Tam from January 1. (English article)

The sourcing for the Alibaba’s potential bid is certainly quite shaky, but let’s look at the reasons why such a bid would be logical and therefore could actually be happening. For starters, Alibaba has been on a multibillion-dollar acquisition spree over the last 2 years, and media and entertainment are certainly one of its main focuses. Much of that has been aimed at more traditional entertainment, including its latest $3.7 billion purchase of Youku Tudou that was announced just over the weekend. (previous post)

Traditional Media Investment

But Alibaba has also been focused on more traditional news media like the SCMP as well. One of its biggest moves on that front came earlier this year, when the company formed a financial news and information joint venture with China Business Network (CBN), one of China’s leading financial newspapers owned by traditional media titan Shanghai Media Group (SMG). (previous post) Alibaba also owns a large stake in social media giant Weibo (Nasdaq: WB), often called the Twitter (NYSE: TWTR) of China.

That same SMG was also active in Hong Kong’s traditional media sector recently, when its China Media Capital (CMC) investment arm purchased an undisclosed stake in the city’s leading TV broadcaster TVB (HKEx: 583). (previous post) But I do think that particular investment is unrelated to any bid Alibaba might now be making for SCMP.

On the other side of the equation, SCMP Group’s longtime owner, the Kwok family of Malaysia, has been reportedly looking to sell the asset for some time due to the fading allure of traditional print media. Reflecting its fading attraction, SCMP stock has moved steadily downward over the last 2 and a half years, losing about 10 percent of its value over that period. Earlier rumors had said that Chinese financial conglomerate Citic might be interested in a purchase, but that the asking price was too high.

All of that brings us back to the original question of whether Alibaba is bidding for SCMP, and if so what’s the bigger picture. Given the shaky sourcing in the report and what we know about Alibaba and its past behavior, I would say there’s perhaps a 50-50 chance that talks are really happening.

If a deal were to occur, I would also expect Alibaba to buy a minority stake at first in the SCMP due to the politically sensitive nature of mainland investments in Hong Kong media. At the end of the day, Alibaba probably wouldn’t be a bad owner for the newspaper due to its private background and relatively hands-off management approach to its acquisitions. It could even bring some new partnerships with strong potential through its SMG and Weibo connections, which could help to revive the SCMP’s falling fortunes.

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