Full Page Color Glossy: How Chinese Media and Magazines Have Changed

MICHAEL MC CUNE: Greetings everyone, I'm Michael McCune, and this is The China Business Network.

Tom Gorman is a pioneer in the China media market. He established his Hong Kong-based company CCI Asia-Pacific in 1975, anticipating that demand would build for international business and technical information just as the mainland market was opening up. Among other ventures, he currently is the publisher of the Chinese-language edition of Fortune magazine. He joins us by phone from his offices in Hong Kong today.

Hi Tom, how are you today?

TOM GORMAN: Good morning, Mike, just fine.

MC CUNE: So Tom, you got established in the China media market well before even we had normalized diplomatic relations between China and the US. Can you share with us a bit about what motivated you all those years ago to establish such a business?

GORMAN: It was pretty simple really. It seems logical that at some point, after a period of being virtually hermetically sealed from access to information about western technology, with the exceptions probably of Eastern European and Russian technology, that China would open and there would be interest in China’s – particularly in the scientific and technical community – in what was going on, and what new developments and everything – from machine tools, to agriculture, to petroleum, and you name it. Even in 1975 it seemed a pretty sure thing. The question, of course, was timing. We were betting on sooner rather than later scenario, and started a couple of technical magazines. In those days it was an industrial Readers Digest approach, covering a lot of different industries, a B2B approach, but horizontal vs. vertical. And we managed to get distribution in China. We were banking on the fact that, again, sooner than hopefully later, western industrial marketers would want to get their message into China even though it was certainly not perceived as growth market. It was perceived as market that could open up one day.

MC CUNE: You mentioned being able to get distribution in China in the 1970s. It just reminds me that the regulatory environment, in particularly for the China media industry, has evolved quite a bit over your career. I wonder if you could share with us, in your opinion, what have been the key changes that have allowed for forward strides in that business and industry?

GORMAN: Well, the first point to note that there is a regulatory environment, and there wasn’t one when we started, to speak of. Media, like so many other things, if you look back to the 70s, China’s whole regulatory environment with regard to foreign investment, including media related stuff, was really created in the beginning of the 1980s. And so it was really uncharted waters in those days, in the very beginning. Since that time, I’d say the fundamental changes with regard to media in China are, first of all, defined by the fact that media in the beginning - certainly in the 70s and most of the 80s was not really a business. It wasn’t looked at as a business in China. It was looked as extension of the state, therefore all players in the media business within China were state-owned enterprises – not even state owned enterprises, but really state owned extensions of universities, or ministries, or provincial publishing houses, and so forth. They didn’t think of themselves as businesses. They were subsidized totally by the state.

The biggest fundamental change, I think, in the landscape these 35 year has been that the government has pulled back most of the subsidies – there are still pockets in the industry that are subsidized but they’ve really pushed – and in some sense media has been sort of a last frontier in reform that the government has pushed them to think more commercially and to act more commercially. With, still very significant constraints in terms of content and so on and so forth. 

So that’s a big change, and with that, the whole idea that cooperation between international and Chinese publishers was a good thing, really emerged gradually over a period of time, and regulations governing that have emerged. At the same time, once you take away the subsidies, obviously, you have to allow mainland publishers to make money somehow – to survive – let alone profit. There have been in recent years a lot of the regulatory reform and change has focused on allowing state owned media enterprises to raise capital on domestic markets through reorganizations and in some cases listings on domestic stock markets. There’s been a lot of that.

So we’ve seen various phases, but I think those are two really fundamental changes. They’re still work in progress, to be honest.

MC CUNE: Now before we come to a close I want to ask you about the flip side of the distribution and that’s the revenue that you can earn from distribution in China. With the copyright and intellectual property issues that are played up so much in our media here in the US, people say that it’s almost impossible to generate significant revenue or even profits. Is that a fair assessment for Chinese media?

GORMAN: Yes, indeed. It really is. That’s one of the other changes that you see if you pick up some of the top Chinese media. One of the good examples is Reader – Duzhe (读者)Magazine, which has been for many years a top seller of circulation in excess of three million copies. It’s a great magazine. But up until roughly 10 years ago, I may have the timeframe wrong, Duzhe did not accept advertising. So their entire revenue base was subscription and retail-oriented. That was true, traditionally, of a lot of Chinese magazine publishers. They relied on distribution revenue and not advertising. That’s a big change. If you notice, you pick up any Chinese consumer magazine today, clearly they have a much better balance between ad revenue and subscription revenue. 

Subscription revenue is challenging partly because of the fragmentation in the market, partly because the margins are pretty thin at the best of times. So in that sense it’s no different than the west, maybe even more challenging because there really are no national distributors to speak of. So consumer media publishers have got to go out and create distribution in the first, second, and third tier cities, pretty much one by one.

MC CUNE: I’ve been speaking today with the Chairman of CCI Asia-Pacific Tom Gorman. He is a 34-year veteran of the China media marketing scene. We very much appreciate, Tom, you having time today to share you insights.

GORMAN: Great talking to you Michael. Many thanks.