Hong Kong Economic Times Group Diversification and Differentiation

There are several factors that have affected the newspaper industry in the last 20 years both globally and in
Hong Kong (HK). Globally, emergence of IT platforms as a strong source of information has caused a serious
dent to the profitability of print media in general, with the advertisers share of wallet or expenditure on ads
in newspapers and magazines declining from 36% in 1995 to 25% in 2015 (projected). As mentioned in the
case, in Q1 2005, the advertising expenditure (print and online) grew by only 1.8%, whereas that on
newspaper websites grew by 35% in the US. Now even though this is not an apple to apple comparison, this
paints a very clear picture where one can see that although the expenditure on advertising through this
medium is stagnating, that in online media is growing rapidly which means that print media is losing out on
advertisers. HKET, however, posted a 7% growth (although it is expected to go down as the customer
demographic ages). The primary factors which influenced the profitability (both in HK and globally) of the
industry can be analyzed using two techniques:
a. PEST analysis
b. Five forces analysis
PEST Analysis
Political
If we consider globally, news reporting is affected greatly by the freedom of press of the particular region,
which is majorly affected by the political scenario. The more open the economy, more chance for
international players to enter and hence more would be the competition resulting in lower profitability. In
case of HK, as the economy was an open one and growing, it was an attractive market for new players (both
international and local) to enter. As the number of publications increased, profits reduced.
Economic
Overall it can be concluded that as economic situation improves, the profitability of this industry will increase
as advertisers are more willing to pay for niche target segments in all the media forms, since readers would
be willing to spend on things that they would avoid in a bad economy. In case of HK, similar trend can be seen
in last 20 years. As the economy improved, there were new avenues which could be tapped into such as real
estate news or news pertaining to leisure category, which would contribute to improve profitability.
Social
As the society matures, it broadens its perspective towards information. Hence in an undeveloped or
developing society merely stating the news suffices whereas in a developed society there is a chance to
supplement this by information about sports, financial markets, real estate, fashion, entertainment,
education etc. This is exactly what happened with HK, as the society matured and also the income levels
improved. These additional segments contribute in improving profitability as new, specific and targeted
platforms become available for advertisers. Though with mature market, there is a greater responsibility on
publisher as the scrutiny level also goes up as is evident from responses of 75% readers in 1999 who
perceived journalists behavior as unethical.
Technological
Advent and proliferation of internet as a source of information, including current news, has caused serious
issues for print media, where it has to compete with online portals for the advertisers share of wallet. This
has resulted in reduced profitability for the print newspapers and magazines worldwide, and HK is no
exception. As a result of this stiff competition, the print media had to change and try and match up with
online portals at least to certain extent. To avoid losing young readers, who like their news on the go, most of
the newspapers have started publishing their papers on their website.
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Five Forces Analysis

Barriers to entry - Low
The industry, as inherent characteristics has low barriers to entry. News reported is the same, irrespective of
who reports it. Its interpretation might differ. Though initial investment required for print news media is high,
an entity with enough funding can easily enter the industry, as was seen in HK. Detailed explanation provided
in Exhibit A. Thus, due to low barriers to entry, profitability tends to be low.
Buyer Power High
There are two types of consumers for newspapers advertisers and readers. Buyer power for readers is high
and for advertisers is moderate to high (as it is to a great extent dictated by the reader base/circulation
volume of the paper). This is illustrated in detail in Exhibit A. Due to high buyer power, profitability will be low.
Supplier power Low
Explained in detail in Exhibit A. Low supplier power has a positive effect on profitability.
Competition High
Depending on political situation and freedom of press, competition can fluctuate between medium and high
in this industry around the world. In HK, the market is highly dense with 49 newspapers and 752 periodicals
catering to a population of seven million. Detailed explanation is provided in Exhibit A. Because of high
competition, profitability tends to be low.
Substitutes High
Spread of TV, internet, radio etc. has posed serious problems for print media, both globally and in HK, as
explained in Exhibit A. Due to this, the profitability is low.
Evaluation Based On Imperatives Of Blue Ocean Strategy
Create uncontested market space
HKET started with the goal of achieving dominance in its core market/offering and then use that as a base to
diversify into other related business opportunities. When the HKET was launched in 1988, it created an
uncontested market space by providing a newspaper that did not just offer news but also up-to-date market
information and analysis. Its closest competitor, HKEJ, focused more on economic part of the business. Thus
HKET was able to satisfy unmet needs of local business community and grew as they grew, becoming the
leading business/financial newspaper in HK. It launched an online version of its paper in 1995, becoming one
of the few to offer this kind of service at that time. HKET also successfully pioneered printing information in
reader friendly sections such as financial, commercial, international news etc. which others could not imitate
successfully. As and when new markets began to rise up, they added sections pertaining to these as well, for
e.g. property section in early 90s and IT section in mid to late 90s. Though this wasnt necessarily
diversification, it clearly differentiated HKET from rest. It offered community oriented free newspaper (called
Take me home), which filled the gap in offerings portfolio and drew immediate response from the
competition. An undifferentiated offering U magazine (a leisure and lifestyle magazine) ran into losses as
it failed to gain traction in market space. I would conclude that HKET followed this imperative to a high extent,
as is evident from avg. 20% growth in the circulation income, calculated in Exhibit B, which can be attributed
to higher price or higher no. of readers both achieved by offering uncontested offerings.
Make the competition irrelevant
I believe HKET was able to moderately follow this imperative, as the evidence in the case suggests that any
new product that HKET launched was susceptible to be copied by competition within six months. For e.g. the
Take Me Home magazine launched by HKET in Aug 2005 was immediately followed up by competitor Sing
Taos Express Post, in less than a month and had circulation of 321,504. Most of HKETs products were easily
and quickly imitated in the market by its competitors, except products pertaining to Financial News Agency,
Information and Solutions division. These were differentiated products which competitors couldnt easily
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copy as they were built around specialized proficiencies. HKET was well versed with accumulating and
synthesizing large volume of information, which formed backbone of its offerings like ET Wealth, EPRC, ET
Trade and ET Net. The high market share penetration that they achieved with these products (ET Net was used
by 80% brokerage firms and 90% banks), made the competitors close to irrelevant in these particular
segments. Overall HKET followed this imperative to a medium extent.
Create and capture new demand
This imperative was followed by HKET to a high extent. In the beginning, it met the unmet need/demand of
the financial/business, manufacturing and commercial sector by providing business/financial information in
an accurate and impartial way and going one step further to provide analysis as well. From its beginning as a
business newspaper, it diversified and provided information pertaining to real time financial quotes, property
information, career related information etc. through variety of offerings such as ET Net, EPRC, Career Times
etc. The management put a lot of emphasis on customers needs, making sure critical success factors are
achieved and excellence is accomplished. Serious efforts were put in to understand what the exact need of
the customer is and it was made sure that customer gets what he wants. It was because of these efforts to
either satisfy or anticipate customer needs, HKET was able to successfully diversify into variety of offerings
such as online edition of newspaper (need for the availability of the news online), Career Times (need to
connect job searchers with the growing job market in HK), Multimedia and Wealth, EPRC etc. The key to
successful diversification was rigorous customer intimacy and clear product differentiation. For e.g. ET
Wealth service which offered address cleansing service which made it easy for the client to compile and
analyze data regarding high net worth customers. As the wealth product sales in HK had increased by 197%
during 1999-2004, this was a booming market and HKET diversified into it and then used its expertise in fund
management database and wealth management system to differentiate itself.
Break the value/cost tradeoff
HKTE followed the strategy of diversifying into adjacent market places from where it had already established
a strong base, as can be seen from timeline in Exhibit 5. For example, the online edition of the newspaper that
started in 1995. HKET already had the content and must have incurred very low costs to put it online
compared to the value it created. Although this wasnt differentiated to a great extent, this diversification
broadened HKETs revenue base by offering a product to the age group of 18-35, which preferred the
convenience of news on the go. Company also followed strategy of investing for growth during
economic/industry downturn to avail the benefit of reduced costs, as during such times supplier would be
ready to offer greater discounts to use their idle capacity (e.g. 1989 protests). They were also able to increase
price of certain offerings without affecting circulation volume. All these contributed to HKETs growth or its
ability to offer greater value at comparatively lower cost. I believe that HKET has been able to follow this
imperative to a moderate to high extent.
Align the whole system of a companys activities in pursuit of differentiation and low cost
As mentioned in previous para, HKET was able to keep its costs low by identifying areas adjacent to its
current market position to diversify, capitalizing on its developed market acumen and expertise and also by
following astute procurement practices. But no further analysis can be made, as there is very little
information is given about companys expenditure.
Diversification and differentiation was carried out in an extremely structured manner. Four guidelines were
set for any division to explore possibility of diversifying or value addition idea, potential, commitment and
plan. Progress and viability was checked at each level and Rising Stars were identified who would wholly
own the project. Senior management encouraged the whole process, as it understood importance of
innovation, but at the same time, shrewdly examined performance of the project against set guidelines and
did not hesitate to pull the plug on initiatives that were not performing as forecasted. A contingency fund
was always kept aside by senior management for each new business plant. According to me, this imperative
was also followed by HKET to a moderate to high extent.
Exhibits
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Exhibit A
Five forces analysis
Force
Global scenario
Barriers to entry Barriers to entry are low in this industry (can be
medium owing to political reasons). As the news is the
same, in theory anyone can start operating in this
space. With propagation of internet as a prominent
source of information and news, barriers to entry for
online publications are even lower as the costs are
minimal compared to those incurred by print media.
Buyer power
For readers buyer power is high as the switching cost
is negligible and enough numbers of alternatives are
available. The rise of internet and free papers has only
added to this power
For advertisers the power is moderate to high as
enough alternatives are available and switching costs
are zero. The power is low for publications with higher
circulation volumes, but with increasing number of
print and online newspapers, share of wallet of an
advertiser for individual news provider is decreasing
and hence their power is also increasing.
Supplier power Supplier power for paper is low as the raw material is
commoditized. For printing machinery, it can be low to
moderate, depending on the specification required by
the newspaper printer.
Competition
Depending on political policies, competition can be
moderate to high, but in developed countries, the
competition is high due to low barriers to entry. There
is also a stiff competition from non-printed i.e. online
newspaper and magazines, as barriers to entry here are
extremely low.
Substitutes
With growth in middle class and rise in earning levels,
penetration of TV, radio, internet connectivity etc. has
grown rapidly in last two decades, offering numerous
substitutes to the printed newspapers. Advances in
mobile technology have also posed a serious threat to
the traditional news media.

HK scenario
As HK was a British colony till
1997, the freedom of press is
more compared to mainland
china. Hence barriers to entry are
low, in line with global industry
characteristic.
As there are 10 major
newspapers (including three free
ones as per exhibit 4) in such a
geographically small area, the
buyer power is high and
increasing with evolution of
internet as source of information
and news.

The global scenario also applies

to HK.

With 49 newspapers and 752

periodicals (printed) catering to a
population of seven million, HK is
a pretty densely populated
marketplace.
Though HK has a steadily growing
readership, it is expected to
decline as the demography ages
and young readers prefer other
means to get their news than
reading newspaper.

Exhibit B
Growth in turnover by income type
(HK$ '000)
Advertising Income
Circulation income
Service Income
Enrolment Income

Mar 31,2003
349,850
63,363
118,081
9,154

Mar 31,2004 % Growth

329,891
-6%
73,907
17%
103,713
-12%
8,158
-11%

Mar 31,2005 % Growth

393,492
19%
94,942
28%
109,772
6%
10,206
25%

Mar 31,2006 % Growth

481,664
22%
110,327
16%
117,885
7%
11,827
16%

Average growth in circulation income from 2003-2006 : 20%

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