Murdoch Gets Slice Of A Rich Asian Cake
Eric Ellis in Hong Kong

12/05/1986
Business Review Weekly

News Corporation's acquisition of a 34.9 per cent stake (with an option to move to 50 per cent in a month) in the Hong Kong publisher South China Morning Post Ltd has opened a Pandora's box of possibilities for the media magnate.

The calibre of Murdoch appointments to the South China Morning Post board, expanded from a nine-member affair comprising the cream of Hong Kong's business establishment, strongly suggests Murdoch is serious about Asia via Hong Kong.
News Corporation chairman Richard Searby Q,C, News Ltd managing director Ken Cowley and finance director Peter Chegwyn took seats alongside heavyweights from the Hong Kong and Shanghai Bank, trading group Hutchison Whampoa and Sir Y.K. Pao's Worldwide Shipping group. Murdoch appears certain to exercise the 50 per cent option and move to assume control of the South China Morning Post.

"He hasn't just put Hong Kong establishment puppets on the board - he's got some very sharp operators in," says merchant banker close to the deal.

In two weeks since the South China Morning Post deal was announced, Murdoch has made his presence felt in Hong Kong. For openers, BRW understands the South China Morning Post has dealt its way out of a $HK160 million ($A32 million) joint venture with US publisher Dow Jones in the resepcted Far Eastern Economic Review.

Under the Review agreement, Dow Jones had an option to acquire the Post's 51 per cent in the magazine in the event of a major reshuffle of the SCMP register. Dow, which publishes the Asian Wall Street Journal in Hong Kong, held a 49 per cent minority stake in the Review and still retains 19 per cent of the South China Morning Post.

Apart from nurturing favor with a Chinese bureaucracy readying to take back Hong Kong from Britain in 1997, and the enormous potential of developing Murdoch presses on the mainland, News Corporation has bought an option to dominate English-language media in Asia, adding a fourth continent of influence to the Murdoch empire.

In many ways Murdoch's Hong Kong play is a play on China. The South China Morning Post's colonialist editorial stance has more than once disturbed the powers-that-be across the border, and media watchers in Hong Kong expect a softer China line from Murdoch's South China Morning Post as the switch back to China draws nearer.

Further, they argue, Murdoch is sitting on a potential goldmine in developing Chinese-language media. It would not be in his commercial interests to editorially ruffle Chinese sensibilities so close to 1997, despite the strong feeling the issue has aroused in Hong Kong, and the lead the public seeks from an influential South China Morning Post.

The Chinese know Murdoch well. He has been a frequent visitor, on both business and pleasure, in recent years and with Mr Cowley has been a prime mover behind establishing a bricks-and-mortar central communications post to house Beijing's considerable foreign press corps.

Beijing encourages foreign investment in Hong Kong to help maintain confidence and market levels with local Chinese, most of whom fled across the border during the dark days of Mao. Despite the overt prosperity and abundance of Rolls-Royces, memories of sudden and violent political change die hard with the tough Hong Kong Chinese.

"I think it is fairly obvious what our attitude to China and the future in Hong Kong is," says Mr Chegwyn. "We wouldn't be spending such large sums if we weren't confident about the future."

The South China Morning Post is Hong Kong's main English daily, almost monopolising English readership (including educated Chinese) in the territory. Although Sally Aw Sian's Hong Kong Standard considers itself competition, the South China Morning Post's daily print run of 90,000 against the Standard's estimated and generous claim of 10,000 indicates otherwise.

Unlike some of his other purchases, Murdoch has not bought an ailing concern. While Miss Aw's Standard loses money hand over fist the South China Morning Post is the world's most profitable newspaper, returning 32 per cent of 1985-6 revenues ($HK523 million) as profit ($A165 million) and 80 per cent of the profit as dividend.

The paper has been a goldmine for its former major shareholders, the Hong Kong and Shanghai Banking Corporation Bank and trading group Hutchison Whampoa. The excellent returns would indicate it has been superbly managed, although broking analysts say this is not necessarily the case.

"Management has beeen solid and competent, but not necessarily that entrepreneurial. Hong Kong is such a unique market for English newspapers.....the Post success is due more to the lack of a serious alternative." says James Capel's director of Hong Kong research, Stuart Cook.

Cook believes the South China Morning Post will be the Murdoch vehicle for expansion in Asia. He says the Post has been a lion in its domestic market but something of a lamb elsewhere in the region. He believes that under Murdoch the Post will look to more aggressive marketing in Hong Kong and vigourous expansion elsewhere.

"I wouldn't say it has been complacent, but there is definitely scope which the previous management has not actively sought," Cook says.

The South China Morning Post has cash to spare and negligible borrowings. Some of this spare cash has helped revamp production facilities, soon to rival the world's best. When the Post's new presses are installed next year, they will also be among the world's most under-utilised for a newspaper of such standing.

Production staff say the presses will lay idle about 15 hours a day, leaving considerable time for contract printing and other commercial publishing. The recently-installed Atex 9000 system used to edit and layout the paper is believed to be identical to the News Corporation system at Wapping, London. The New York Post uses a similar system.

Production staff at the South China Morning Post say it theoretically will be possible to produce the London Times in Hong Kong, the South China Morning Post in New York, the New York Post in London and so on, thus creating a hypothetical "Murdoch's World Daily".

This concept has been made a reality by Sally Aw Sian. An edition of Sing Tao, edited in Hong Kong with a core of local news, is transmitted by satellite and printed in Chinatowns around the world. Beijing's official English language China Daily has begun a similar, less sophisticated operation.

Aside from the Review (1985-6 profit $A3.2 million), the South China Morning Post's other operations include printing several editions of the Chinese and English language telephone directories.

The Chinese press has been neglected by previous management, but is expected to be high on Murdoch's list of expansion possibilities.

Unlike the many dialects of the spoken word, Chinese text is probably the only thing that genuinely unites Chinese the world over. With new presses Murdoch will be able to rival Sally Aw's influence in the Chinese press. It would be Murdoch's first publishing foray in a language other than English.

Television is another option. Murdoch has had discussions with the Chiu family, which owns Asia Television Ltd (once controlled by the David Syme group). Murdoch also has talked with Sir Run Run Shaw, whose Shaw Bros studios own a string of cinemas, a vast library of popular Chinese films and a huge film studio. Shaw Brothers could deliver control of the very profitable Hong Kong Television Broadcasts (HK-TVB), which commands 80 per cent of the Hong Kong viewing audience and is toying with cable television.

Chegwyn says News Corporation has a "range of possibilities" in Asia. "Contrary to popular belief, we do not have a grand master plan which dictates when and where we must invest," he says. "We approach each investment on its merits and choose them very carefully.

"I am not aware of any massive blueprint, though I am sure Mr Murdoch has a fair idea of what a good buy is."

The banking arm of the Jardine Matheson group, Jardine Fleming, is advising News Corporation in Hong Kong. Murdoch is also taking advice from elite Wall Street investment bank Allen and Company Inc.

Perhaps the most pertinent operation of Murdoch's newest acquisition in Asia is the security printing division Asher and Co., which until last year was a joint venture between the South China Morning Post and Australia's Leigh-Mardon group.

Asher prints cheques and does other contract printing. It is also one of two Hong Kong firms allowed to print banknotes. Murdoch's Asian play gives him a licence to print money.