What is going on with SPH & why its media business is going non-profit, explained

Mothership Explains: We explain why print advertising is forcing SPH to restructure its business into a non-profit.

Joshua Lee | May 08, 2021, 08:49 AM

The Singapore Press Holdings (SPH) took the spotlight on May 6 and it wasn't just because of the umbrage that its CEO, Ng Yat Chung, took.

While the public and local memelords are having a field day with Ng's comment, the bigger piece of news is that SPH is restructuring its media business into a not-for-profit entity — big enough for media academic Cherian George to call it the "biggest shake-up of Singapore’s news media industry in decades".

Why does SPH want to turn its media business into a non-profit?

In short, like any publicly listed company, SPH faces pressure to provide its shareholders with dividends. But the dividends have been shrinking over the years in tandem with the shrinking profits from its media operations.

Why is that so?

Because of advertising dollars, specifically the lack of it.

The decline of print advertising

SPH said that its operating revenue has dropped by half in the past five years, due "largely to a decline in print advertising and print subscription revenue".

Print advertising, referring to advertisements in newspapers and magazines, have indeed been decreasing thanks to the rise of Google and Facebook who provide platforms for online advertising. 

Those who remember reading newspapers 20 years back would recall that the papers used to be bulging with pages and pages of advertisements. Think full-page advertisements and a thick Classifieds section.

Selling advertisement space is how newspapers make money, apart from their subscription revenue.

But for years now, advertisers have been flocking to digital advertising — like the ones you see on this page — because readers are spending an increasing amount of time online.

The switch to digital advertising affects all media companies, but the impact on SPH is disproportionately large because it owns (and publishes) all the newspapers in Singapore (the Straits Times, Lianhe Zaobao, Berita Harian etc.)

SPH recorded first-ever loss in 2020

That said, SPH has been making some profits over the years. But last year, exacerbated by the Covid-19 pandemic, SPH went into the red.

The company said in its May 6 announcement:

"[SPH] recorded its first-ever loss of S$11.4 million for the financial year ended 31 August 2020. If not for the Jobs Support Scheme (JSS), the loss would have been a deeper S$39.5 million."

SPH added that its media business incurred a pre-tax loss of S$9.7 million (not including JSS grant) for the six months which ended on February 28, 2021.

While SPH has other businesses (property, student hostel accommodation, and nursing home facilities) which are performing relatively well, the conglomerate's shareholders (who invested in SPH and expect regular dividends in return) aren't likely to be happy about the business subsidising its loss-making media operations.

SPH said as much — that being subject to "expectations from shareholders of profitability and regular dividends" is no longer a sustainable model for its media business.

While SPH's media operations had still been turning a profit prior to Covid-19, revenue has been declining over the years. George underscored this point when he said:

"In many cases, editorial capacity [in corporate media] has been shrunk not because companies are making losses, but because they are not profitable enough."

Turning the company into a CLG

SPH proposes to spin off its media business into SPH Media Holdings Pte Ltd, a Company Limited by Guarantee (CLG), injecting S$80 million in cash as well as S$30 million in SPH shares and SPH Reit units into the new entity.

Such a model is usually used by non-profit organisations, which need corporate status to perform certain functions, like borrowing credit and buying or selling property.

Examples of local CLGs include the National University of Singapore, The Esplanade, Temasek Foundation and The Arts House.

Examples of overseas media companies that operate as non-profits include The Guardian which is controlled by the Scott Trust, German media conglomerate Bertelsmann, and the Philadelphia Inquirer, which is owned by the Lenfest Institute.

Removing shareholder pressure

One of the immediate benefits of the new arrangement is that SPH Media won't face shareholder pressure.

Unlike the listed company that SPH is, a CLG cannot raise funds by issuing shares, so it has no shareholders to answer to (and correspondingly, no dividends to pay out).

Instead, it has members who act as guarantors. These guarantors will agree to pay a nominal sum (it can be as low as S$1) if the CLG folds. Hence the liability for members is limited to the guarantee.

SPH said that moving to a CLG structure will allow its media business to focus on "transformation efforts and quality journalism, as well as to invest in talent and new technology to strengthen its digital capabilities".

Open to a range of public and private funding

The next benefit is that the new structure will open SPH Media to "a range of public and private sources with a shared interest in supporting quality journalism and credible information", said the conglomerate.

It won't shield SPH from the same decline in print advertising that has decimated its media revenue, but funding can help to plug the gaps left by advertising dollars — if SPH Media can find people and organisations to support it financially.

Private funding can come from foundations, philanthropic groups and wealthy individuals, though one does wonder how many of them here in Singapore are able (and willing) to fund the costly business of printing the news in the long run.

Funding can also come from the Singapore government, who is likely to be the party with the deepest pockets and the motivation to do so.

Former SPH editor Bertha Henson surmised that the proposal to restructure into a CLG was mainly to allow funding from the government. George, in his piece for the South China Morning Post opined that the government will become a "major patron of the press".

And indeed, shortly after SPH made its announcement, the Ministry of Communications and Information (MCI) said that it supports the restructuring, subject to shareholder approval, and is willing to provide financial support:

"Our goal is to help the local news media and our journalists adapt and thrive in the digital era while maintaining the high professional standards we expect and value."

Former editor of Today and The New Paper, PN Balji told Mothership that from a commercial point of view, spinning the media arm off is "the right decision":

"From the editorial point of view, honestly it cannot get worse than it is now, right? So no big deal. The bigger question really.....is can it attract talent?"

Mothership Explains is a series where we dig deep into the important, interesting, and confusing going-ons in our world and try to, well, explain them.

This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date on not just what is going on in the world, but also the "why's".

Top image adapted from SPH papers, screengrab from Straits Times YouTube video.