SMG looks to establish giant media group

State-owned conglomerate reportedly plans to combine listed units

State-owned media conglomerate Shanghai Media Group (SMG) plans to combine its two listed new media arms to establish a giant media stock valued at hundreds of billions of yuan in the A-share market, Shanghai Securities News reported Wednesday.

BesTV New Media Co and Shanghai Oriental Pearl (Group) Co would be merged, while SMG's other unlisted media assets including SMG Pictures and SMG-CJ Homeshopping Co would be injected into the new entity, the report said, citing unnamed sources familiar with the matter.

SMG, BesTV and Oriental Pearl could not be reached for comment on the report by press time. Tradings in the shares of BesTV and Oriental Pearl had been suspended since May 29, pending a restructuring announcement.

Guo Quanzhong, senior economist with the Social and Cultural Department of the Chinese Academy of Governance, told the Global Times Wednesday that SMG will combine the two units to strengthen its advantages.

"In addition, this move can also be seen as a response to the government's call for the establishment of several new-type media groups," he said. President Xi Jinping issued a guideline on the convergence of traditional media and new media, vowing to develop "new and competitive mainstream media with advanced technologies" and build up "several media groups that are powerful, influential and credible," Xinhua News Agency reported on August 18.

SMG appears to have the potential to forge such a large group. According to financial reports filed with the Shanghai bourse in August, BesTV and Oriental Pearl generated a combined net profit of 995 million yuan ($162 million) in the first half of the year. And SMG Pictures is estimated to achieve over 100 million yuan in net profit in 2014, compared with some 80 million in 2013.

Given these units' profitability and asset size, SMG's new entity can lead the market and even have the ability to compete with multinational entertainment giants such as Time Warner Inc, the Shanghai newspaper reported, citing sources.

"The creation of a giant listed media entity would likely attract more investors and capital, which could benefit the transformation of State-backed SMG into a more market-oriented company to cope with the fierce competition in the new media industry," said Zhang Yi, CEO of Shenzhen-based iiMedia Research.

Many other traditional media giants have also begun to seek IPOs to be able to face the challenges brought by the new media and Internet.

CNR Mobile, a subsidiary of China National Radio, started shareholding reform in late June in preparation of a planned listing.

"With the growth of new media, traditional media operators have to adopt various new media channels and establish an efficient capital base," Wang Qiu, head of CNR, was quoted by news portal cnr.com as saying in June.

Xinhuanet, the Internet portal of China's State-owned Xinhua News Agency, also filed on June 27 the prospectus for its IPO, following the listing in April 2012 of people.com.cn, an online portal of People's Daily.

However, both Guo and Zhang noted that the staid management system is a major barrier for traditional media's transformation.

"Besides an efficient capital platform, they also need to develop an incentive scheme, paying for performance, otherwise talents would turn to Internet firms for higher salaries," said Guo.