SPH: Does the merger between The New Paper and My Paper make sense?

The SPH’s FY2016 financial results came as no surprise. As expected, the media segment continued to disappoint and I do not expect to see improvements in the foreseeable future. In the restructuring effort, it appeared evident that there will be some lay-offs, and SPH confirmed that the plan to downsize about 10% of the workforce from the current workforce of 4,185 through attritions and retirements. That means about 418 will not replaced in the course over the next 2 years.

What appeared to be the bolder move is the plan to merge The New Paper (TNP) and My Paper (MP) and the merged newspaper will be provided free. According to The Straits Times and MP, the circulation for TNP and MP is 60,000 and 300,000 respectively. With the price of 70 cents per copy TNP and free for MP, this translates to a loss in daily sales of $42,000 or about $12.6 million annually. Can this loss in sales be covered by the cost savings through the lay-offs. Perhaps, although I personally believe it is insignificant. After all, perhaps only a portion of the 10% affected workforce is directly linked to the merger between the new newspaper products. By merging the two newspaper products, it may even reduce the revenue from the advertisers because advertisers need to advertise in the new combined newspaper instead of in two newspapers currently. The overall end results would be the readers are happy. However, it may not help boost the overall profitability of the company.

Perhaps, one may argue that the $12.6million in sales from TNP is insignificant compare to the overall sales revenue of $834 million and $902 million in 2016 and 2015 respectively, but still, unless the management had done their sums that the reduced workforce can more than off-set the loss in the sales.

Another possibility of the decision to merge the two newspapers is that the sales of TNP is dwindling so significantly that the management felt that the cost is eating too much into the profit attributable to TNP such that it is no longer viable to sell as a product. By merging the two newspapers, perhaps, the management hoped to increase the MP content/quality with higher circulation, thereby increasing the advertising revenue. However, this cannot be simply calculated given that changing reader taste to the internet. Given that the management is sacrificing the TNP sales in hope to increase the advertisement revenue, perhaps this also indirectly points to the fact that the revenue from advertisements is much higher than newspapers sales. In fact, the way it is, they are even willing to give away newspaper free to the advantage of the readers. Whatever it is, this is a business decision that the management decides to take after working out the sums. However, I believe these are ‘mickey-mouse’ changes to cause any significant overall results. What SPH needs is a game-changer product that may not even be related to media and printing business. Otherwise, it is quite difficult to offset the fast dwindling media business segment. In the meantime, I look forward to a thicker and hopefully, more packed contents, in the new merged MP.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.