Turning new page for profits

Bai Jiancheng was named editor-in-chief of China Electric Power News in April 2006, a time when it seemed as if the lights were dimming on the 25-year-old newspaper.

The Chinese power industry was undergoing an overhaul, launched in 2003, to introduce greater competition and redistribute resources more efficiently. The reforms led to the establishment of major electric power corporations, each forming its own media enterprises, with newspapers, magazines, websites, film and TV.

Before the restructuring, China Electric Power News dominated administrative resources. When its reporters went to the power companies for interviews, they were guaranteed red-carpet treatment.

Suddenly, these advantages disappeared. With intense competition from the newly formed media enterprises, about 50 of the best reporters and editors were recruited to other jobs. Many became press officers for large electric power groups, with higher salaries and better titles.

“When we lost our resources under the old system, reform seemed to be the only way out for us,” Bai said. “Our goal was quite simple: to stay alive.”

Five years later, many more newspapers and magazines, including metro newspapers such as the Beijing Times and trade papers such as the China Energy News, are standing at the same crossroad. It is time to restructure their business models and start acting like real businesses, as the government requires.

1,300 and counting

On May 8, China Press and Publishing Media Group was founded. Based on the China Press and Publishing Journal, the group consists of one newspaper, two magazines, one website and one advertising agency. It aims to turn from a simple information provider to the No 1 comprehensive service provider in the Chinese press and publishing industry.

According to Liu Binjie, director of the General Administration of Press and Publication (GAPP), more than 1,300 newspapers and periodicals have already converted from State-owned public institutions into market-based enterprises, reported the Beijing News. The remaining 5,000 – including metro and evening papers owned by central and local Communist Party of China (CPC) newspaper groups, and papers devoted to industry news or owned by businesses – will carry out the transformation by year’s end.

The CPC Central Committee’s publicity department said reform will revitalize newspapers and periodicals, enlarge the social influence of mainstream media, and increase the industry’s quality and profits. An official list of to-be-transformed newspapers and magazines will soon come out.

Sloppy administration

In the old days, State-owned institutions rarely set up a comprehensive system for their own development. Even if they had one, they usually put it on shelf, Bai said.

Before its transformation, China Electric Power News had a slack administration system. When Bai, who had worked at newspapers for 11 years, became editor-in-chief, he found the newsroom had spent more than 20,000 yuan ($3,094) a month at a nearby restaurant. All receipts were said to have been signed by the office director, but the signatures were in five different hands.

At that time, no record was taken when the management team met, so it was easy for the leaders to deny their own words. At one point, the paper cooperated with a university on a project, but the university later wanted to pull out. The paper’s office director approved the withdrawal but didn’t inform the managers.

“I spent a lot of energy to set the rules and create clear standards,” said Bai, who issued a handbook of the administration system and regulations for all staff. “Our reform started with reinforcing the management.”

Strength in numbers

Other papers were deeply troubled by the lack of a unified brand.

Liu Zelin was running 10 journals of industrial technology and marketing information. They were under the supervision of five administrative units, at provincial and ministerial level, that owned the journals without actually publishing them.

“I felt like I was raising babies for others,” Liu said.

When the journals sought cooperation with other companies, such as Web portal Sohu.com, each had to go by its own name. But potential partners often considered the journal a small newsroom and underestimated its power and influence.

In September 2007, the journals were gathered under the umbrella of a new company, Beijing Prominion Publishing Co Ltd, with Liu as general manager. As a unified enterprise, the company has grown to include one newspaper, 14 journals and about 400 employees.

Operations revenue has risen from 50-60 million yuan before reform to an anticipated 200 million yuan this year, Liu said.

“Thanks to the transformation, I was able to integrate all the resources and turn them into a competent market entity. Although the transformation cost, I’ve gained a lot more.”

Now the company plans a public stock offering. Liu said it is likely to be valued at several hundred million yuan.

Creative solution

Many executive editors and general managers share the same top concerns about converting to market-based operations: How much will it cost? How will we cover the expenses?

When China Automotive News started its restructuring in November 2008, it had more than 250 employees. About 40 were managed as staff members of public institutions.

Once the weekly newspaper and four automotive magazines were registered as a single business entity in June 2010, all its staffers would be managed as enterprise employees and incorporated into Beijing’s basic pension insurance system for enterprise employees.

Under the Chinese social security system, staff members of public institutions do not pay pension insurance while they are working but usually enjoy higher pensions than enterprise employees. That meant China Automotive News employees would receive lower pensions after the restructuring.

For example, at the current salary level, a senior editor would receive 5,000-6,000 yuan a month after retiring as a staff member of a public institution, but only 2,700-2,800 yuan after retiring as an enterprise employee, said Li Chunlei, the group’s editor-in-chief.

To keep that employee’s pension at the same level, the enterprise would have to fill a gap of more than 2,200 yuan a month. If the person were still alive 20 years later, the payment would total at least 528,000 yuan.

“The biggest challenge of transformation lies in how to handle the personnel,” Li said.

To win their support, he spoke with each senior employee and visited the retirees at home to explain how they would be affected.

His solution was to enroll the senior employees into the pension insurance system as quickly as possible and pay three times the monthly average social standard contribution.

However, there is little time left to pay for those who will retire within five years. Some senior employees chose early retirement before the transformation, so they could receive a public institution’s pension.

For those who stayed, the enterprise offers supplementary retirement benefits beyond social insurance. Each year, it invests one-twelfth of its total salary of the previous year in enterprise annuity funds. China Automotive News has made a retroactive investment of 12 million yuan to make sure senior employees will not suffer heavy financial losses.

Internal separation

Similar concerns were shared by Zhang Yanping, chairman of Beijing Media Corp Ltd and president of Beijing Youth Daily.

When the corporation was founded in 2001, Zhang promised that the salaries of employees transferred from newspaper to corporation would remain roughly the same. He also allowed them to return to the newspaper for retirement, so they could resume their identities as staff members of a public institution and enjoy higher pensions.

In 2004, the corporation raised HK$1.04 billion ($133.51 million) through an initial public offering on the Hong Kong Stock Exchange. That provided a solid financial basis for Beijing Youth Daily to develop into a large business group of four daily newspapers, six weekly newspapers, six magazines, two websites and 13 subordinate companies.

As a trailblazer of China’s newspaper transformation, however, Zhang is allowed to put only the advertising and operation parts of the business into the market. From the beginning, Beijing Media Corp has been separated from editing and reporting.

Such a business model unavoidably leads to conflicts. Every year, the corporation contributes 16.5 percent of ad revenue as the newsroom budget. During a good year, the newspaper will publish more pages and hire more people.

When business is down, the paper can cut pages but cannot fire the extra reporters, so the newsroom budget falls short of expenses. In such cases, Zhang has to negotiate between the corporation and newsroom.

Ten years on, he believes it is time to end the transitional model of separation.

“Media should form an integral whole and turn completely into an enterprise,” he said. “I hope to put the newsroom into the listed corporation and restructure the entire group. It would make the corporation healthier and more efficient.”

Needed, but scarce

For many newspapers and magazines that already have converted to enterprises, lack of standard serial numbers – essentially, licenses to publish – became a major obstacle to development. Beijing Prominion has applied for many standard serial numbers since 2007, but GAPP has approved only a couple.

GAPP encourages publishers to solve the problem through mergers and acquisitions, but that is extremely difficult to practice, Beijing Prominion’s Liu said. Most administration agencies that supervise a newspaper or magazine refuse to let go of them; their scarcity means they could be worth several million yuan. Some turned down offers of acquisition for fear of losing face. Liu has negotiated with more than 10 magazines and even drafted several rounds of agreements with a few, but none succeeded.

“It’s a lot like falling in love with a girl and making a proposal,” he said. “But after she said yes, you still have to talk to her parents and grandparents. Chances are you will be rejected.”

‘Long way to go’

“The transformation of newspapers and periodicals does not simply end at enterprise registration, which is only a change of identity,” said Shi Feng, chairman of the China Periodicals Association and former deputy director of GAPP.

“There’s still a long way to go for real changes to happen in the operation and management system, and the pace of the reform depends on whether relevant government policies are already in place.”

Some experts said the government should allow various resources, including private capital, to enter the media industry.

“We can have a test on one or two types of newspapers to see what kinds of harm and benefit will be done by private capital,” said Yu Guoming, associate dean of the journalism and communication school at Renmin University of China. “Newspapers and magazines will be enthusiastic to carry out reforms, but only if the government can design the system in a way that will provide more space to develop and better chances to catch market opportunities.”

Qiu Bo contributed to this report.

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