Alibaba’s pursuit of the South China Morning Post is a test of the enduring appeal of newsprint. The company founded by Jack Ma is in talks to buy the SCMP Group’s media businesses, according to a person familiar with the situation. The 112-year old title’s earnings are under pressure, and there’s scant financial logic for a deal. But as fellow e-commerce boss Jeff Bezos showed when he bought the Washington Post in 2013, newspapers have trophy value.
Alibaba has made no secret of its media ambitions: the e-commerce giant this month agreed to buy the 82 percent of Youku Tudou it didn’t already own, valuing the Chinese video site at $5.2 billion. Yet it’s far from clear how the former colony’s leading English-language newspaper fits in. It caters mainly to expats: as of last year, its combined print and digital circulation was 184,000. Its website drew 4 million monthly visitors; Youku Toudu pulls in more than 500 million.
Growing global interest in information about China should help the Post, which still enjoys reporting freedoms not shared by mainland publications. However, the business is under pressure from falling circulation and a decline in luxury advertising. Revenue at the SCMP’s newspapers and magazines fell more than 9 percent to HK$511.3 million ($66 million) in the first half of the year. Adjusted operating profit almost halved.
Yet even struggling newspapers can fetch a premium, as Bezos showed two years ago when he paid 17 times the Washington Post’s adjusted EBITDA. Apply the same multiple to the EBITDA of the SCMP’s newspaper and magazine businesses over the past twelve months, and they would be worth $373 million, according to Breakingviews calculations. An even more generous comparison would be the 35 times operating profit that Japan’s Nikkei paid for the Financial Times this summer. That would lift the price tag to $500 million.
Alibaba should be able to drive a harder bargain. Of course, the difference between Bezos and Ma is that the former did not use company money to pursue a personal trophy. To the Chinese billionaire, the distinction may just be fine print.