When the Old Economy meets the New Economy

When the Old Economy meets the New Economy

Kyle Wong, CFA and Ph.D.
COO of AI HK Ltd.

All eyes were tuned when the Chinese e-Commerce giant Alibaba Group bought South China Morning Post in 2015 for an undisclosed sum. Alibaba is a relatively young company based in China. It is known for its fast growth, aggressiveness and speed.   Its Chairman Jack Ma represents the new generation of successful Chinese entrepreneurs. South China Morning Post was founded in 1903 and is the dominant English paper in Hong Kong. Newspaper everywhere is in decline. SCMP represents the old economy which is losing the battle to the new digital economy. So what is the rationale behind the acquisition and what is the future of the news business?

In the talk “Transforming a News Company” at RISE 2017, Mr. Joe Tsai, the Executive Vice-President of Alibaba Group and Mr. Gary Liu, the CEO of SCMP, explained the rationale of the acquisition. The rise of China is the biggest and the most important story in the last 30 years. It is now the second biggest economy in the world. It has a middle class of 200 million people. When the rise of China was reported by the western media, the coverage is often biased. SCMP, being an English paper, can play the role of helping the world to understand China. It can report the news in China fairly and accurately. SCMP, based in Hong Kong, has two advantages. Hong Kong is very close to China. So SCMP can report the news in China with speed. Also given the freedom of press in Hong Kong, SCMP can also report with accuracy.

While traditional newspapers are in decline, Alibaba is willing to invest in SCMP to make the digital transformation. Gary mentioned the investment would focus in four areas: the ability to report news with speed and accuracy, the training of the staff in digitalization, the creation of new commercial products and internal tools. The transformation would cost money. Also SCMP has opened up the digital content for free. Fortunately, Alibaba often takes a long term view in its investment. Joe mentioned a ten year investment cycle in Alibaba. First three years is product development. Three to five year is creating business model. Year five to seven is path to profitability. Then in year the the whole process starts again so the business can invent itself. Alibaba vision is that SCMP will become a global English paper to bring the story of China to the world.

When asked about how artificial intelligence will transform the news business, Gary mentioned two areas. One is the use of natural language by readers to extract and to search news. The second is that some low level reporting should be done by AI so human reporters can focus on more complicated new stories.

Joe also mentioned that in the US 38% of the ad revenue in 2016 went to TV and another 38% went to digital media. So in 2017 the US digital media is already bigger than traditional TV industry. Hong Kong is quite behind in the digital transformation of the media industry and has a lot of catching up to do.

Kyle Wong, Ph.D. and CFA, is an educator, hedge fund manager, columnist and entrepreneur. At Kaplan Financial he teaches CFA and other financial programs for the public and financial institutions. He has been contributing regularly to iMoney.