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Media Convergence Asia-Pacific is happy to send you this CONFIDENTIAL newsletter about recent developments in the region. This regular newsletter will be sent to media companies' CEO's and senior executives.

Please let us know your reaction and if you do not wish to receive it.

Didier Guérin
President

Inside this issue:

The day after the September 11th tragedy in the US, we at MEDIA CONVERGENCE emailed our friends in New York and Washington, D.C., to ask if they were safe, along with their families, executives and staff. All of them were fine, except for the NATIONAL GEOGRAPHIC which suffered the loss of eight people who were on the American Airlines flight 77 that crashed into the Pentagon:

Terry Adamson - THE NATIONAL GEOGRAPHIC SOCIETY:

"We had two long time and beloved employees escorting three elementary and middle school teachers and three students to a National Geographic-sponsored Sustainable Seas program at the marine sanctuary in Santa Barbara, California. As we cope with the magnanimity of all of this around us and what it means, we hope that it refocuses and ultimately reenergizes us as an organization to promote global understanding and knowledge."

Fran�ois Vincens - HACHETTE FILIPACCHI:

"It was a surrealistic vision from the office (on the 44th floor). Then we realized it was not a movie but war and everyone started to tremble".

Etienne Katz - SMART BUSINESS:

"I have sights and sounds that will stay with me for the rest of my life."

George Green - HEARST INTERNATIONAL:

"The city is very quiet. Shock of yesterday's happening is beginning to sink in; but will impact us all for some time to come".

Steve Florio - CONDƒ NAST:

"The city is a ghost town. No one wants to return to work."

Ten days later, Steve added:

"Things are almost normal now. I am amazed at just how tough the people of this city are. Our Mayor is just amazing."

Michael Miller - PC MAGAZINE:

"It has indeed been a very scary day. The staff and their families are safe if shook up. We were among the lucky ones. Just horrifying."

Jim Spanfeller - FORBES:

"A truly horrible time to be sure but as usual, New York is fighting back."

James McLeod - REDWOOD INTERNATIONAL:

"I would love to think this could be the catalyst for us finally to get to grips with this 21st century scourge but sadly, I doubt it."

Scott Donaton - ADVERTISING AGE:

"We are deeply sad, but OK."

 

The following article which was written prior to the September 11 attacks in the US, gives a fairly optimistic view of the magazine publishing industry in the Asia Pacific region for the first half of the year. It is true, during that period, the region did not feel the pre-recession signs which appeared in the US and in Europe. However, the situation changed in early August, when advertising budgets started to become tighter. It is currently difficult to predict how the post September 11 US recession will affect the Asia Pacific magazine industry. As usual, the American consumers will decide.

It is likely that the next six months will not be as satisfactory as the first half of the year. However, the Asia Pacific region now has the structural force to develop better efficiencies and come out stronger next year. Just as it did - fairly quickly - after the 1997 financial crisis. Now, is the time to prepare the rebound strategy.

 

This is another industry analysis produced by MEDIA CONVERGENCE ASIA PACIFIC at the request of the worldwide magazine association FIPP (Fédération Internationale de la Presse Périodique) to appear in this month's issue of the FIPP magazine: www.fipp.com

This article was written one week prior to the World Trade Centre tragedy in New York and the Pentagon attack in Washington.

The Asia-Pacific magazine industry is adjusting to a period of slow growth. Yes, slow growth, not downturn.

During the first half of this year, most magazine publishers in the region experienced a flat or modest progression from the same period a year ago. Obviously, there are exceptions with some depressed markets (Taiwan, Singapore) or some specific categories more affected than others: the regional weeklies and the IT magazines are down, but women's magazines are up. However, there is no doubt publishers in the Asia Pacific region have experienced better performance than their colleagues in Europe or in the US.

Another significant trend is the fact most leading publications have experienced a simultaneous increase both in revenue and market share. Unless a major economic collapse occurs by the fourth quarter, these magazines will report their highest revenue - and most likely profit - ever experienced during their young history. Furthermore, three major countries - China, Japan and South Korea - are gaining in strength or going through positive significant changes to become Asia's "publishing dragons".

These are the conclusions gathered - at the end of July - by Media Convergence Asia Pacific from a collection of market research company's analyses along with direct interviews with major international magazine publishers in the region. Zenith Media has revised downwards its 2001 overall advertising spending growth in Asia from 4% to 3.4%. The magazine industry might struggle to keep this level this year, however it will perform better than in the US, where Zenith Media just predicted recently an 8% negative growth at constant price for this year.

The magazine tigers (click here)

The publishing dragons (click here)

With different degree, most Asian economies continue to create more local wealth. Therefore, the Asia Pacific consumer magazines, with their ability to increase the local consumption, still have a few good years ahead of them. Magazine publishers in Asia Pacific can expect - this is no longer true in the mature markets - to grow their business faster than the local economy.

For the time being, many US and European publishers would have grown a few less grey hairs in the last six months, if they had experienced the market conditions of this part of the world.

 

This is the total number of Websites in China, according to the Australian Broadcasting Corporation, which found 60% of them were created in the past 18 months. Most of these Websites are business-related, however a small portion (5.4%) have an e-commerce application. There are now 1.5 million domain names in China.

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For most Australian companies, June 30 means the end of the fiscal year and the two largest magazine publishers recently issued their financial reports. A profitability erosion was experience by both Australian Consolidated Press (a division of Kerry Packer's Publishing & Broadcasting Ltd. and publisher of 39 magazines) and Pacific Publications (part of PMP and publisher of 13 magazines). While the two parent companies reported negative earnings of respectively A$87 and A$500 million, the Australian magazine industry was affected by three negative factors:

• the Sydney 2000 Olympics which saw a large concentration of advertising revenue in the first half of the calendar year;
• the introduction of the 10% GST(VAT) which slowed down magazine consumption (newsstand sales fell 2.5% in volume) and inhibited the capacity to increase cover prices;
• the 18% reduction in value of the Australian dollar, which increased paper costs by as much (and since September 11, the Australian dollar has plunged a further 5%).

A$'000	A$'000		US$'000	US$'000
2000	2001	REVENUE	2000	2001
539.9	546	Australian Consolidated Press	276.4	279.6	1.1%
303	293.7	Pacific Publications	155.1	150.4	-3.1%
		EBIDTA
113.2	93.8	Australian Consolidated Press	58.0	48.0	-17.1%
30.1	20.8	Pacific Publications	15.4	10.6	-30.9%
A$1 = US$ 52.1

In Japan, the publisher of Tokyo Walker, The Television and marie-claire Japon, Kadokawa Shoten, acquired recently 80% of S.S. Communications for ´3.4 billion (US$28 million), from The Seiyu Ltd, who recently signed an agreement with Martha Stewart (see below). With revenues of ´5.39 billion (US$44.3 million) and net earnings of ´300 million (US$2.5 million), SS Communications publishes three magazines, including the successful women's magazine Lettuce Club along with Money Japan (no connection with Time Inc.). Kadokawa's transaction (www.kadokawa.co.jp) represents a multiple of 12.5 times earnings. Not cheap.

 

Martha Stewart Japan, Inc. (MSJ), the joint venture between Martha Stewart Living Omnimedia, Inc. and The Seiyu Ltd. will publish Martha Stewart Martha, a bi-monthly Japanese magazine with an expected circulation of 200,000 copies. The magazine is due to appear in March 2002, after a special Christmas issue this year. The joint venture is 80% controlled by The Seiyu Ltd., one of Japan's largest retailers with 226 stores which will distributes Martha Stewart's merchandise products. The publishing company is operated by Seiyu's former subsidiary SS Communications, now controlled by Kodakawa Shoten. However, Martha Stewart Omnimedia (www.marthastewart.com) retains the control of the editorial content of the magazine which will be designed using 60 to 70% of material from the US edition and 30 to 40% newly created Japanese art and edit. MSJ expects revenues of ´500 million ($4.1 million) in its first fiscal year (ending in February 2003) and ´1 billion the following year.

 

Again in Japan, the third largest magazine publisher, Shogakukan Inc. has acquired President for "an estimated price" of ´2 billion (US$16.5 million). Aimed to be the Fortune of Japan, the magazine was launched in 1963 in a joint venture between Time Inc. and Diamond Publishing. President became a wholly-owned subsidiary of Time Inc. in 1994 and generated revenues last year of around ´7 billion (US$58 million). With annual revenues of ´161.3 billion (US$1.3 billion), the new owner, Shogakukan (www.shogakukan.co.jp), publishes about 70 magazines, including Shukan Post and Can Cam.

 

In Korea, Seoul Walker was launched by Seoul Cultural Publishers under a licensing agreement from Kadokawa Shoten, publisher of the highly successful Tokyo Walker. The city magazine follows the distinct Japanese layout of the original edition, with many small pictures of local restaurants and fashion boutiques. This is Kadokawa's second attempt to expand its successful city magazine concept outside of Japan, following the launch three years ago of Taipei Walker, published by Kadokawa's local subsidiary. Seoul Cultural Publishers (which is yet to publish the second issue of the new magazine) is the publisher of Women's Sense, Ecole and the local edition of An An (under a license from Shogakukan).

 

In China, publishers of new magazines are nervous that local authorities will most likely delay the procedure for publication permits until the new generation of government and party leaders are in office. Nevertheless, L'Officiel announced officially it will "soon" be launching a local edition of the fashion magazine. Primedia's Seventeen has concluded a licensing agreement with the local "Women Friend" (sic), which has submitted an application to the Government and expects to be able to publish the first issue next January. The first issue of Hearst's Good Housekeeping just came out (with a new logo of the magazine).

 

In Australia, the first issue of the bi-annual Vogue Kids was launched by Condé Nast. The wholly-owed subsidiary of the US publisher (http://www.vogue.com.au) also expects to launch a local test issue of the Condé Nast Traveller in April next year.

 

 

 

Still down under, Hachette Distribution Services (HDS) bought 40% of Newslink, the retail chain which sells all the magazines in the largest airports in Australia and in Singapore. With annual revenues of about ¥40 million, Newslink remains under the majority control of three local media tycoons: Roger Wood, founder and Chairman, Kerry Stokes, Chairman of Seven Networks and 50% owner of Pacific Publications, and Ken Cowley, former Chairman of News Corporation and of PMP Communications. A mechanism exists over time for HDS to gain control of Newslink. A division of the Lagardère Group, HDS ( www.lagardere.com) had a turnover of ¥3.8 billion last year.

 

In Taiwan, the first local edition of the Harvard Business Review will be launched next month in Taipei by Infopro (www.infopro.com), the local dominant publisher of IT magazines, including the local editions of PC Magazine and e-Week. The first issue has 24 pages of advertising and an expected circulation of 20,000 copies. Harvard Business Review is already published in Germany, Japan and Korea, but not yet in China.