MEDIA: Falling Phoenix Hit by TV Decline, Stumbling New Media

Bottom line: Phoenix Satellite TV’s latest results show a traditional broadcaster that failed to make the transition to new media, and could auger a decline that sees the company close or get acquired in the next 5 years.

Phoenix reports sinking revenue

As second-quarter earnings season winds down, I thought I’d take a look at the newly released interim results from Phoenix Satellite TV (HKEx: 2008), a former Chinese media pioneer that’s in a clear state of decline with no sign of turnaround. I used to be a big fan of Phoenix and saw a big future for the company, after it became one of the first independent TV news providers in China in the early 2000s. But the company’s colorful founder Liu Changle hasn’t been very skillful at parlaying his early success into the new media realm, with the result that the company’s outlook is fading rapidly.

A look at Phoenix’s shares, as well as the stock of its Phoenix New Media (NYSE: FENG) unit, reflects how investors see this former media superstar. Phoenix’s Hong Kong-listed shares have lost about 45 percent of their value since last June, when the broader Chinese market embarked on a major correction after a massive rally.

Phoenix New Media shares have tumbled even more sharply, losing about two-thirds of their value since last June. That’s certainly not a good sign, since the company’s new media arm is supposed to represent its future. But clearly Phoenix New Media isn’t living up to that potential.

All that said, let’s take a closer look at Phoenix Satellite TV’s latest results, which look quite negative all around. Most alarming was a 12 percent revenue decline, as the figure sank to HK$1.7 billion ($220 million) in the first 6 months of the year. (company announcement) Phoenix also reported a relatively large operating loss of HK$83 million, reversing an operating profit of HK$36 million a year earlier.

Phoenix attributed its deteriorating bottom line to shrinking revenues, even as its operating costs remained relatively constant. Within the bigger revenue figure, TV advertising revenue fell about 7 percent, which is relatively normal in today’s TV market. But more alarming was an 18 percent drop in new media advertising revenue, a figure that is now higher than traditional TV and should theoretically be rising.

Phoenix New Media was in the news just last week, when the company reportedly fired 3 senior employees from its core news division for unspecified corruption. (previous post) That kind of internal problem certainly isn’t unique to Phoenix, though I’ve heard from my industry sources that some of the company’s China operations suffer from poor management and lack of discipline.

Difficult Niche

Phoenix is somewhat unusual because it’s a private company operating in a space dominated by big state-run broadcasters. That positioning worked to its advantage in the company’s early days, as it allowed Phoenix to earn a reputation as a relatively independent news provider when tightly-controlled state-owned TV stations still dominated China’s media landscape.

But that same positioning has started to undermine Phoenix now. That’s because most of China’s traditional media have strong state support, and are receiving big government assistance to try to shift to new media formats. By comparison, Phoenix has to make the transition using its own resources. And like its state-run counterparts, it’s having a difficult time doing much more than operating a simple news portal.

All of that brings us to the bigger question of what the future might hold for this former high-flyer, and whether its days as an independent company are numbered. My best guess is that Phoenix’s current slide is irreversible, and the company is indeed destined to either get acquired or simply close. That could still be 5 years away or more, and would mark the end of a colorful chapter in China’s rapidly evolving media landscape.

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