Magazines in China's Media Mix | The State of the Market | Another Country | The Flight to Online | Perception vs. Reality                                        

Magazines in Chinas Media Mix

Some images seem to transcend countries and cultures.  The parable of the blind men in a room with an elephant is often invoked by writers on China to acknowledge the best they can do is to explain part of the whole.  The blind man is often invoked in China, which is rich in its own folklore and parables.

When explaining why Rolling Stone magazine came under government scrutiny and had its status changed, one commentator said it was just another case of a blind man on a blind horse.  Perhaps this parable is more damning than the one cited above. The gist was the license holder and the local publisher of Rolling Stone didnt have a clue.

Just why the magazine was placed under government scrutiny, however apocryphal--and in China its bound to bean interesting perspective on magazine publishing in China. The purported shutdown was announced with some exaggeration in the Western press.

This much we know: Rolling Stone was published with great fanfare in China in early March under a license with One Media in Hong Kong.  Newspapers reported that the magazine was a complete sellout.  Some vendors suggested the good sales were due to the baseball cap cover mount with the magazine logo. Others suggested it was the cover photo of Cui Jian, the godfather of Chinese rock and roll who had received rough treatment from the government since he played for students during the uprising in Tiananmen Square in 1989. His most famous songNothing to My Namewas an anthem for the protestors.  The magazine did not mention his previous life. 

Still others suggested the magazine sold out because it contained an article about Muzime, a Chinese blogger famous for her sex diary.  Or perhaps the Irish rock band U2 was a draw.

Of all the Western magazines launched in China during the last decade, Rolling Stone probably faced the most daunting task.  It had to stay clear of the censors and, at the same time, as noted in the Wall Street Journal, chart Chinas cultural influences in a way that satisfies increasingly plugged in readers. The government is the final arbiter and a habitual self-censorship usually keeps magazines out of harms way.  Wenner Media, US publisher of the magazine did not sign off on the final product.  This is the bargain one makes to enter China.

While there was apparently little internal controversy in putting Mr. Cui on the cover, it did create a lot of buzz.  Experienced China hands took this in stride. Chris Wu, general manager of content for News Corps Channel V Chinese music network, said in a Wall Street Journal interview: Whether it will last, we dont know.  As usual in China, you might do this for the first two issues and then get a letter.

A few weeks after the launch an official with the Shanghai Press and Publication Bureau announced that authorities had dissolved the publishing agreement with the local partner.  No particular reasons were cited, except there was a problem with formalities.  The official insisted that the magazine had not stopped publishing: what we stopped was the publishing cooperation between Rolling Stone and Audiovisual World, the magazines local partner.

As is usually the case in China, it was not clear whether the magazine really had a problem with paperwork or was being targeted for its content.  The Shanghai Press and Publication Bureau indicated, according to the Taipei Times, that Rolling Stone might be better off teamed with a stronger local partner than Audiovisual World, a small player in Chinas publishing industry.  To be fair, the government is concerned about granting licenses to publishers who dont have the necessary infrastructure for success.  The magazine field is littered with underperforming and undercapitalized titles.

The only article dealing directly with politics was, as noted, one on the influence of rock music on ending the Cold War.  It is worth remembering that during the Cultural Revolution in the 1970s the Rolling Stones were barred from China and considered by authorities to be spiritual pollution.

So this change in the magazines status produced something of a parlor game in China.  The official view was that there was a problem with paperwork; the partners had not received the necessary approvals. Other views followed on Chinas gossip circuit. The magazine was targeted because the Hong Kong license holder boasted about circumventing government regulations.  Better still, the Communist Party has a long memory and still thinks of rock music as spiritual pollution. 

It just so happened that the Rolling Stones, barred from China thirty years earlier, were making their debut in Shanghai about the same time the magazine was caught in the crosshairs.  Is it possible that someone in government confused the magazine and the rock bandeven after Mick Jaggers rendition of a toned down Brown Sugar thought enough is enough?  Many thought this exactly the case.

In 2005 Jonathan Ansfield wrote in Newsweek International that at the propaganda bureau, tea-drinking retirees from the party papers still sift through fat stacks of papers, searching for offensive reportsalmost always after press time. When the bureau issues advance orders, they tend to trickle out slowly, by word of mouth, rather than by blast fax or e-mail.  This report does not conjure up images of buttoned-up censors with fingers on the media pulse. 

(Jeff Sprafkin, a reliable media specialist based in Shanghai reports that Rolling Stone does not seem to be appearing on newsstands in the original format. One Media appears to be publishing a reformatted magazine with the title of Ming, bearing little or no relation to the original). 

Jacques Rougeaux, a media and distribution specialist in China, suggests there might be another story behind this story, setting the climate for the Rolling Stone decision.  Rougeaux notes that in the summer of 2005 Supergirl, a clone of American Idol, attracted 400 million viewers and millions voting on SMS for a girl who didnt fit the standards of the ideal young Chinese usually imposed by the Party on the masses.  Apparently the girl looked like she just stepped out of MTV, with short hair, jeans, and chainsand singing in English.  Rougeaux notes that its not the girl or pop culture that is the problem but the extraordinary instant impact of mixing these mass media technologies.  Given how pervasive SMS is in reporting local problems and camera phones for sharing pornography, it is mildly ironic that a watered down version of an American counter-culture magazine gets the attention.  But it was, after all, an import. 

I heard all the above opinions relating to Rolling Stone cited during a recent trip to China and most off the record.  Interesting as they might be, the real issue is the Byzantine world that international publishers can find themselves in China.  China has every right to dictate the terms and conditions of entry by international publishers, though Journalists Without Borders claims China is in violation of the World Trade Organization agreement (and thinks the China media issue should be on the table for the next round of talks).  International publishers in China know that by law the government owns the content and is the editor of last resort. But it is not unreasonable for foreign publishers to ask for more clarity from the General Administration of Press and Periodicals (GAPP), the governing department, regarding license procedure, waiting period, available licenses and the like.  This would produce a number of salutary effects, including less reliance on the gray market and questionable magazine licenses.  Such a policy would also permit normal magazine brand development.

FIPP, the international publishing body, will hold its World Congress is Beijing next year, and it would be the perfect opportunity for Mr. Long Xinmin, the new minister of GAPP, to announce before the Congress and the world a clear statement of media policy for foreign publishers.  This would be especially useful because since last September there have been conflicting regulations from the government and unofficial sources.  He said after his appointment in December 2005 that the government should strengthen its management of the publishing industry, that it should further boost the development of print in the rural and under-developed areas, and the Chinese publishing industry should see the Internet as an historic opportunity rather than a threat. Mr. Long seems to clearly understand the changing media environment in China.  Foreign publishers, through direct or indirect investment, can be supportive of these objectives. 

Equally important is the weight, both literally and symbolically, magazines are given by government officials.  Given their ages it is reasonable to assume that most Communist Party officials are products of the print generation.  They seem to place an inordinate focus on print and especially on foreign magazines that might upset the cultural applecart.  This is interesting for a number of reasons.  The big international brands aside (Cosmopolitan, Vogue, Elle, etc.), the magazine market in China seems to be slowing.  The reorganization of domestic magazines has not gone the way officials expected. International brands have grown stronger. Only a few domestic brands appear able to compete successfully for advertising.  China simply has too many unprofitable magazines.  A reorganization and consolidation of existing titles is badly needed, but this is a sensitive political and economic issue.  There are many jobs at stake.  Moreover, the shift to digital magazines, currently very crude, is gaining momentum. No long history of consumer magazines exists in China and there is no legacy to protect.  So the shift to digital is without the usual obstacles and restraints. With the advent of new mobile technology, such as 3G, there is some concern that the younger generation will bypass or leapfrog over magazines altogether.  With 140,000 Internet cafs in China (with an average of one hundred PCs in each), it is obvious where the Chinese are going for their community.

However, with all the talk about the need for clarity in Chinas media regulations it is important to note that most international publishers are already present in China.  A partial list of publishers includes: Bauer, Reed, Advanstar, ESPN Magazine, Time Out, VNU, Highbury House, Future, CMP, Northern & Shell, Primedia, Technology Review, Egmont, Gruner & Jahr, Hachette Filipacchi Media, Hearst, International Data Group, McGraw-Hill, National Geographic Society, Burda, Axel Springer, Rodale, EMAP, Dennis, and Cond Nast.  Add the book, entertainment, music, data, video, paper and printing companies and one sees a thorough representation of international media businesses in China.

So China magazine publishing is open to informational and lifestyle content but is severely restricted in other areas.  Foreign entities cant produce or control content.  By rote magazines stay clear of sensitive matters. With few exceptions grandfathered in, foreigners cant own businesses or hold equity stakes. The government does not want and will not permit foreign-generated content to report on internal Chinese matters.  Thus the news magazines are kept out (Newsweek Select focuses on lifestyle issues). Forbes, Fortune and BusinessWeek all stay clear of sensitive matters.  As a matter of fact, both Forbes and Fortune operate without licenses per se, but that is really not an issue for such important global brands.  Moreover, Fortune just celebrated its tenth anniversary, publishing out of Hong Kong and is something of an icon.  It is certainly highly respected.  

As has been widely reported, search engines such as Google, MSN, and Yahoo have agreed to block from their sites sensitive terms such as Democracy, Tiananmen Square, Free Tibet and the like.  Magazines that have been kept out are generally those that address sensitive issues or have been a stone in the Party shoe in the past.

At the FIPP meeting in New York last May, a Chinese delegate raised an issue during a panel that explored the ill-fated Newsweek story on the desecration of the Koran. He asked about the balance between journalism and responsibility to the social order. The question, cited in a number of international gatherings since, was more memorable than the answer.  More to the point, it could serve as a synecdoche for Chinese government media policy.  Social order comes before freedom of the press or a vigorous exertion of press prerogatives.  This in a nutshell is Chinas media policy.  Like it not, the government has emphatically put media ownership, behavior and responsibilities within the context of socialist culture. The State Council has encouraged and supported non-public investment in entertainment, performance venues, museums, Internet connection service venues, travel services, arts management and the like.  As of December 2005, the door has been opened to investment in such diverse sectors as the distribution of cartoons (though not the creation), online games, movies, magazines and newspapers. Foreign companies can start and operate and advertising business and can construct and manage cable TV networks as long as the government owns 51%.

At this writing, the government has cancelled all screenings of  the blockbuster movie The Da Vinci Code.  According to the New York Times this was a concession to Chinese Catholic groups that warned the film threatened social stability. The film has been in distribution about a month and had done quite well for an import.  Protests by Chinas official Patriotic Catholic Association and a small demonstration in Hebei Province apparently prompted the government to re-consider, but only after the state run distribution company had recouped its investment.   

By culture, the Chinese government generally means popular culture, and has encouraged foreign investment in the apparatus, the backbone and the overall structure of diverse businesses.  By statute foreigners are not permitted to create and distribute content. Nothing could be clearer: Non-public capital can not invest in, set up or operate a news agency, newspaper, magazine, radio station or the Internet nor can it operate import businesses in these sectors.

But some ambiguity exists.  National directives will be interpreted at the province, regional and local levels and this has long been a point of contention and confusion. In the retail sector, for example, hundreds foreign retailers, wooed by local authorities, entered China without official government approval.  The real issue for the government was that many retailers came in early without supplying any capital.

In a country where some domestic publishing companies are quasi-public, what is meant by non-state capital is already the subject of debate.  Magazines have not been much affected by these new regulations except the gray area of questionable magazine licenses.   Disney and News Corp. had more at stake because they wanted to get into the television content business.  AdAge China reports that Disney just announced entrance into Chinas hot gaming market, signing a deal with Shanda Interactive to develop a game based on Disney characters.  The best estimate is that Chinas serious gaming population will grow from the current 30 million to 80 million in five years.  Disney is known in China, having licensed its characters through Egmont which formed a joint venture twelve years ago with Childrens Fun Publishing Company in Beijing.  The Disney theme park in Hong Kong has not lived up to financial expectations.

The Chinese government doesnt want foreigners in the domestic content game.  In the last year it has issued more strenuous versions of existing regulations.  It announced recently that it was not offering any more licenses in the near term accept for science and technology magazines.  GAPP introduced an internal rule that apparently means sports, entertainment and fashion magazines could not expect immediate approval to enter China.  One reason offered for this new ruling was to help Chinese publishers expand their foreign sales to balance the influx of titles into China.  This is not likely to happen any time soon.

The truth is never completely obvious.  China probably has thousands of science magazines, journals, newsletters, newspapers and the like and few appear to be making any money. International titles such as Scientific American and Newton are published in China and perhaps the population would be better served if these enjoyed wider distribution. From a cultural and political perspective science and technology magazines are safe, though a few years ago Chinas Minister of Science objected to a Scientific American article that placed the original man in Africa and not in China.   

There is a lot of huffing and puffing about magazines in China.  International brands continue to be published. Just recently the Chinese edition of Merediths Better Homes & Gardens, under a license agreement with SEEC publishing in Beijing, was issued.  By any standards, Chinese or American, it is a beautiful edition with clear branding and rich article mix, including a stunning history of magazines editorial.  This magazine can stand proudly by the American parent.  And SEEC is to launch an edition of Sports Illustrated, well in advance of the 2008 Olympics.

Trends, a Beijing based company that publishes Hearst, Rodale, Emap, National Geographic and other titles, is generally considered one of the best domestic publishers in China, perhaps the gold standard.  Not only did the company form great partnerships, including with IDG, but it also vigorously developed its own brand in the shadow of some of the worlds strongest titles. Trends is ubiquitous in the larger cities, filling the market with its own titles in attractive advertising categories and raising the marketing ante with cover mounts and brand exposure.  So China is not without success stories.

And despite the dire predictions and drum roar of regulations, other announcements are pending at this time.  The Shanghai-based China Publishing Group is apparently shopping official magazine licenses to major international publishers, suggesting a change in direction or a test by GAPP. The point is the situation hasnt changed all that much. When magazines, international and domestic, flex their muscles or publishers exploit the grey market too publicly, the government cracks down and edicts fly.

But the spring shower of government regulations and the chest-thumping by Western newspapers tend to obscure an important issue.  Though magazines are a part of the Communist Partys archetypal framework and power base, they are becoming less important to the population at large, especially the youth. Of course, international brands are doing very well and might skew the overall picture.  But even here the competition is getting stiffer for an advertising pie that is not growing at a much slower than the 8% rate of the economy. As I will discuss later, the rapid proliferation of magazine cover mounts not only tells how competitive the top end of the market has become but also how quickly the lifestyle sector has taken on the marketing practices of the West. 

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The State of the Market
 

There are 9,500 magazines published in China, a number that is neither revealing nor instructive nor certain, because it includes so many titles supported or sponsored by the government, institutions or state entities.  I am told there are more than 4,000 titles in the natural science area, considered broadly, and this number fairly underscores the vast number of state-related institutions that are in the publishing business.  That number has been fairly constant for a few years, suggesting the governments initiative in 2003 to reduce the number of command subscriptions and other subsidies has not been successful.

In January 2006 Qi Yongfend, director of Chinas National Development and Reform Commission (NDRC) noted that the ongoing restructuring of Chinese publishing was at a stalemate. He was quoted on the World Wide Media English language site that a primary problem is the conflicts of interest behind the restructuring.  Simply put, government supported publishing houses didnt not want to give up the support and resisted it.  The government, Mr. Qi observed, did not make clear how the new for-profit businesses should operate.  After decades of ideological management, the change was not easy. Since the government is reluctant to permit direct foreign investment in publishing, the restructuring measures were nothing more than empty words, says Qi.  The restructuring would result in considerable loss of jobs but the government has made no allowance for this expense. 

Zhang Bohai, Chairman of China Periodicals Association notes that there exists a state of slow growth for the China periodical industry for many years.  For nearly twenty years the total annual circulation volume of Chinese magazines has been wavering between 2 and 3 billion copies.  The average magazine purchase per capita per year has never reached more than three copies. Judging from the constituent parts of the China periodical industry, circulation revenues are the major pillar of the industry where magazines aimed at the mass market with a low cover price constitute the majority (Magazine advertising revenues are estimated at slightly under $500 million).

Chinese magazines, largely the general interest and leisure interest titles which require only simple and easy reading, can still attract many readers, but we should take note of the much faster growth of online readership.  The online readership in 1999 was up 3.7% and increased to 28% of the total market in 2005. In the long run the print version of Chinese magazines will have to face competition from online reading and the potential crisis of losing readers.  The Chinese periodical industry is slow in using the Internet and changing the business model.

The China magazine market is now shifting from a peaceful and balanced co-existence to an unbalanced development in which the expansion of big titles is taking up more market shares and squeezing smaller titles out.  The brand titles that have already secured their footholds in the marketplace are growing bigger and bigger, with a monthly circulation of over ten million copies and tremendous advertising revenues. The rigorous law of market competition and survival of the fittest has gradually come to rule the magazine market in China.

There is a severe shortage, Zhang adds, of highly qualified creative talents for the Chinese periodical industry, and there is an obvious phenomenon that many Chinese magazine are getting assimilated both in content and form.

Considering Zhang Bohais close association with the government in general and GAPP in particular, his remarks seem all the more blunt and impressive.  The segmentation of the market is very much in evidence.  Some observers say fewer than 10% or 1,000 of the total magazines are profitable. Others suggest half that number.  This is an impossible calculation given the ubiquity of sponsorship and government support. The top 100 magazines take 95% of the advertising revenue with the lions share going to the international brands. While international companies such as Hearst, Hachette, Cond Nast and others have helped transform the top end of the market, these salutary business effects have not filtered down to the rest of the industry. To be sure, there are domestic Chinese magazines that have found a foothold and seem to prosper in this new world of publishing. But that is a very short list that would include Caijing, iLook, Modern Weekly and a few others.

The government has the best of intentions in 2003 when it announced a reorganization of the industry and the gradual withdrawal of government support. In fact 395 magazines and 262 newspapers went out of business. Nine-four magazines switched to free distribution.  Since that time, as Mr. Qi noted there has been considerable resistance to closing down more publications.  Not surprisingly, much of the resistance appears to be coming from provincial publishers who under the centralized media organization in the 1950s enjoyed certain publishing prerogatives. Local publishers are reluctant to give up this prerogative and the power it connotes. 

The governments efforts to group publishers together in a regional consortiumsuch as the China Publishing Group in Shanghaito improve business practices, develop scale and better compete with the international brands is still a work in progress.  As Mr. Zhang notes the market forces appear to have taken over and the old days when publishing was steady and more sensitive to government edict are probably over.  China can certainly dictate what is published and what gains entry to the country. But the international and leading domestic brands have already created a parallel operating universe.

I heard from countless Chinese that the launch of Vogue last September raised the bar for Chinese publishing because the magazine was so well-designed and so powerfully introduced into the market.  In fact, all leading titles have been doing the same thing for the last ten years. The push to develop brands, cross-platform selling, digital versions, and subscription marketing programs seems unrelenting and more vital as competition at the high-end increases. But these initiatives also signal the growing demarcation between the upper end and the more down-market, general interest magazines.  And the latter are where government power and influence resides.   The general-interest publications, mentioned by Mr. Zhang, such as the Family Group titles in Guangzhou have served an important social good especially in rural areas.

Censorship and self-censorship remain an important issue for magazines in China.  But other issues are no less important.  The broad category of magazines seems to be losing ground. The push to digital is uneven but relentless.  In terms of advertising share mobile is just beginning to make its presence felt.
 
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Another Country
 

In a China, as in most countries, when you leave a government enclave, the world seems very different.   Consider Huang Hung, CEO China Interactive Media Group(CIMG), publisher of  iLook, a fashion magazine, Time Out Beijing (in Chinese and English) and Time Out Shanghai.  The company also operates a TV Fashion Caf, a radio program and a club. Ms. Huang, a Vassar graduate, an inveterate blogger, a champion of emerging China fashion, and an outspoken critic of GAPP and other government institutions who in her opinion have missed the boat.  She noted that I dont want to do business in the traditional Chinese way; to hobnob in bathhouses and drink myself silly.  When she met some resistance from authorities regarding gay and lesbian listings in Time Out Beijing, she put the listings within the context of human rights. It worked.

She is not much more temperate about the state of fashion magazines in China. If you hang the covers up on the wall, they all look alike.  The inside pages are much the same too.  She is currently overhauling iLook, bringing in a new editor over the tears of her staff.  In some respects she is a magazine nationalist and embraces the notion that Chinas rising should be reflected in magazine layout, point of view, typefaces and overall design.  She mentioned an art director who was using only a few dozen Chinese fonts when there are thousands available.  We have not begun to present Chinese fashion and beauty in a manner consistent with our history. Huang is a strong supporter of print, suggesting magazines give people identity. But she is exploring digital editions because they make so much economic sense. And they are currently less subject to the vagaries of regulation.

Though she acknowledges that the foreign fashion magazines have been very successful, she suggests that the foreign language and association might become a burden as China looks inward and demands more locally-produced product, including fashion. China Sheek and China Fashion are much in demand, as our Chinese and Asian women for magazine covers. Huang adds that that Lancome, Este Lauder, LVMH and others are eager to develop home-grown China fashion to lend authenticity to their increasingly diverse product mix.

She says that the global cosmetic companies are pushing audits because they too are concerned about the exaggerated circulation claims. Ms. Huang appears not to favor the proliferation of cover mounts for fashion magazines as they raise the cost of production and put the gift before editorial.  Huang thinks the relationship between editorial and advertising in these titles is often too close.

She became a blogger almost by chancean irony of life as she calls it and has already received 15 million hits that accumulate at about 200,000 more a day.  She cant afford to stop writing her blog now that it has become a good source of new subscriptions and advertising revenue.  Subscriptions tripled when offered on her blog.  They are not inexpensive.  Annual subscriptions to Time Out Beijing and iLook cost approximately $10 and $18 respectively.

Ms. Huang suggests that there is much to be discovered in China and that the current fashion magazines have really not tapped Chinese creativity. Others have said that the

Chinese language requires using part of the brain not used by speakers of Western languages.  Huang makes the same point about the emerging Chinese design ethos.

This woman is something of an anomaly in China and not just for her outspokenness.  She runs a quasi-private company supported by American investors by way of the Cayman Islands. That it itself is unusual in China.  But Ms. Huang is also very savvy about the changing publishing business model and the equally changing behavior of Chinas youth.

Whatever is happening at the GAPP and other government ministries the Chinese magazine industry is being transformed in large and small ways.  Melvyn Goh, CEO of the M (Morningside) Group Inc., consisting of Harvard Business Review, Forbes, and Information Week, is another Western-style publishing executive who is completely comfortable in the cross-platform, cross-marketing, digital publishing universe. He is scornful of cover mountsconsumers buy magazines for the eyeliner and the practice devalues magazines, is testing print on demand, and considering demographic editions for his magazines.  The M Group is focused on serving one of the fastest growing consumer groups in Chinathe rich, business elite. The company has other holdings, as wide-ranging as ownership in China National Geography and Little Sister, an online community.  The M Group understands and uses types of engagement and accountability research.  The company knows these are the metrics that soon will be a part of the publishing scene.  In fact WPP Group Ogilvy & Mather just appointed Tim Broadbent, advertising effectiveness director for China and Asia/Pacific to help provide marketers with a more measurable return on investment.

Melvyn Goh acknowledges that the greatest need in China publishing today is training people to understand the best business practices and the new technologies.  But if you cant provide him with this information on streaming videos, podcasts, and mobile devices, dont bother.  Morningside made an early investment in training and staff development and that commitment has paid dividends providing a large talent pool for future initiatives. This is the speed which some parts of the media business are changing in China.

For everyone who talks about censorship in China, there is one magazine that seems to prosper in spite of restrictions.  Caijing, a business and finance magazine published by SEEC in Beijing, has won local and worldwide acclaim for its hard-hitting editorial, especially that focusing on corruption among Chinas new capitalists. Though it has been closed down in the past and warned by the government on many occasions, Caijing continues to serve in the role of watchdog. That the government is usually not unhappy that a magazine takes on the greedy and the criminals in the business world doesnt diminish Caijings accomplishment heralded by The Financial Times and the WSJ.   Caijing has been singled out for its early reporting of SARS, the Avian flu and the health crisis.

According to Daphne Wu, General Manager of Caijing, the magazines editorial staff jealously guard their prerogative. They provide no future editorial calendar for sales staff to sell against.  They resist any selling of advertising adjacencies.  China has a long history, according to her, of somewhat lazy reporting, with reporters providing packaged information that is little more than a companys press release.  Caijing moves against this tide.  I think Caijing is the first magazine in China to request editorial guidelines from the Association of Magazine Editors (ASME) in New York.    

Whether they like or not Chinese newspapers have been forced for competitive reasons to report the news more aggressively, but with a twist.  Newspapers engaged in the practice of yidi baodao which literally means reports from other places.  As Newsweek International reported the Beijing News, one of the best in this kind of long distance reporting, was chastised by the government for its investigations in neighboring provinces (in this instance a massacre in Hebei province).  The government still fires and jails reporters but it cant easily police a country awash in mobile devices, including a mobile phone camera that first captured the Hebei incident.

In the twenty five years since the opening of China, the government has aggressively sought new technology and tried to mitigate any negative effects it might have on socialist culture. The government has done just this with technology companies that has helped China produce on of the most sophisticated Internet firewalls anywhere in the world (link to censorship articles: http://www.magazine.org/international/031606.html). 

The technology companies, like publishers, insist they must obey the law of the land.  No foreign technology company is deeper into China than Microsoft which just announced it will build five pilot information centers for farmers to help gain access to agricultural and market information, as well as long distance learning.  According to the China Daily Microsoft said it would help train 1,000 instructors and 20,000 software engineers, and offer online courses to another 50,000 engineers.  One way to get a sense of Chinas future is to follow what the technology companies area doing.

Of particular interest in China is the commitment to search technology and the emergence of Baidu, a public, search company listed on NASDAQ (BIDU).  The company, registered in the Cayman Islands, was established in 2000 by co-founders Robin Li and Eric Xu, Chinese nationals educated overseas. Small in comparison to US search engines (Baidu generated $16.9 USD in revenues for the First Quarter 2006), Baidu, as the leading Chinese language Internet search provider is positioned very nicely. Google apparently noticed this and bought a 2.6% share in the company last year. Baidus biggest shareholder is Silicon Valley Venture capital firm, Draper Fisher Jurvetson, which owns 28.1% of the company.

There are approximately 311 million English language users of the Internet which is about a 28% penetration of the English-speaking world.  China has a reported 132 million Chinese language Internet users or about a 10% penetration.  Since Internet usage is growing at three times the rate in China as in the English-speaking world, Baidu can take advantage of the natural Internet usage growth in the next five years without excessive acquisition costs.  The company is equally well-positioned to exploit the fast-growing mobile market.

Peter Wang, Baidus Director of Brand & Marketing, remarked that search and online community has particular appeal to the Chinese because they are naturally shy and like the inconspicuous nature of the online world.  Baidu is a young, fast-growing company. It has 1400 employees at an average age of twenty-five.

As with other media in China, Baidu, a listed company, operates within the world of government media regulations, though that doesnt seems to register as a drag on its growth or profits.  Mr. Wang did acknowledge that GAPP has asked them to assist newspapers to better design their sites to attract and keep visitors.  Perhaps the most instructive part of this story is the governments acknowledgement of search engines aggregation of online content. A number of newspaper editors said they were more concerned about the search engines than Party censors. This is not an insignificant issue in a country where newspapers have long been an important arm of the government and support.

The name Baidu, which was taken from a poem written during the Song Dynasty in the 12^th century, refers to the search for ones dream, while confronted by lifes many obstacles.  The company does not have a public mottosuch as Googles Do No Evilbut does appears sensitive to unrestricted scraping of web site content and Intellectual Property Rights.  Baidus positioning, in name and focus is Chinese with all its cultural overlays, including considerable attention to the literatures of ancient cultures.

But it is also a hard-driving technology company that has just signed an agreement with Nokia to imbed search technology in mobile products.  The advent of third generation mobile, which is getting increased attention due to the upcoming Olympics, should have a significant impact on search.  China is expected to have 220 million wireless search users by 2010.

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The Flight to Online
 

With the rapid development of mobile platforms and local search, anyone in the content business must take notice.  I had a conversation with Josh Xu, deputy country manager for CNET China which publishes a number of magazines and websites, in the gaming and technology areas that could have occurred in Paris, New York, or New Delhi.  We were discussing the brisk movement of content online.  CNET in Beijing seemed particular concerned about the future of its print properties.  The company fully expects in five years more revenue will be coming from its online business than its print.  I suggested International Data Group was a good model to watch. 

I encountered no publishing or media company in China that was not experiencing a certain amount of angst due to the changes in technology, advertising spending, and consumer tastes.  One of the ironies of government press regulations is that they are often a distraction, taking the focus off the main business of building brands and customer relations.  For example, Maxim China, published by SCMP Magazine Publishing Ltd, has the look, feel and demeanor of the original but doesnt have the Maxim name on the cover or the table of contents.  But the Maxim name is written all over the sales presentation and the language, well, is familiar: Propelled by the dramatic social changes in todays China, the new generation of young men is leading a life unprecedented and unimaginable to the generations past.  Aged from 25-35, they are better educated; marry late; most of them the only child in the family; with a highly disposable income of RMB 5,000 per months (about $620 USD) or above.  They have more choices; they have diverse interests; they are masters of their marvelous lives.  They are the M generation.

Given the issues related to magazine licensing, especially the lengthy waiting periods, more publishers seem to be going the quiet route, not pushing too hard for brand prominence on the cover, something that has long been an issue in China. Axel-Springer and Bauer are just two of the companies that have opted for this approach for a number of their titles.

Zhang Bohai noted earlier that the magazine business was segmenting into two groups: the general interest domestic magazines, largely appealing to a rural audience and the international lifestyle titles.  As Mr. Zhang noted the international brands are receiving the lions share of advertising.  While this is accurate it doesnt fully explain an equally fundamental issue: that online ad growth is taking its toll on traditional media.  Business Week Online reports that After two decades of surging ad and circulation numbers, newspaper ad sales on the mainland fell 5.1% in 2004, while at magazines they dropped 16.5%, according to a Tsinghua University report.  Page growth for business magazines has been flat, though IDG titles such as PC China have been strong.  Internet advertising accounts for only 2.3% of total media spendingabout the same as magazines, but has grown more than 75% annually for the last three years.  The West is also experiencing this migration of ads online but has a much more substantial magazine business in place.  Moreover, Western publishers are catching up fast with multi-platform and cross-media selling opportunities and taking a significant share of online dollars.  The same is not true as a rule in China.  Not surprisingly, the most frequent question I heard from publishers in China:  How to sell advertisers across print, online and other platforms? 

The story-within-the-story is that companies such as Motorola are launching youth-related mobile products exclusively online.  The list of international marketers investing heavily in the Chinese web include: Tiffany, Procter & Gamble, Olay, Hugo Boss, and General Motors.  Stella Chou, Managing Director, Childrens Fun Publishing Co, LTD, said Everything is possible in China; nothing is possible.  It depends how you do it.  She was speaking in reference to the Rolling Stone incident but was citing a general truth in China, especially in regard to government regulations.  Arum Kumar, strategic planning director at Starcom Worldwide, P&Gs media planning agency, said in BusinessWeek Online that The Internet allows you to do things other media cant do.   This is particularly true in China because the Internet, while not free of censorship, is such a fast-moving, dynamic medium that it is developing, unlike most magazines, in an open, free-wheeling, consumer universe.

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Perception vs. Reality
 

Some of Chinas truths are large and unmistakable. The country is undergoing one of the largest migrations in recorded history. The recently completed Three Gorges project, despite the human cost, is being touted as another wonder of the world.  The rural/urban divide is apparently deepening.  The accumulation of wealth in some quarters is unparalleled.

It is tempting to transpose these large economic facts to the media business.  And dangerous.  I hear in Zhang Bohais comments a certain resignation.  With few exceptions the imported brands have seized the day and the advertising.  One set of magazines exists in the modern world; the other largely in the world of party politics.  And under these circumstances, as Yeats noted, the center cannot hold.

For all the good news coming out of China, much of magazine publishing is still decades behind the West.  In advertising revenue alone America generates about 50-60X the China number.  With few exceptions, such as the business magazines, magazines are not audited in China, though BPA has done a fine job spreading the word and signing up the business magazines and other clients.  Universal auditing seems an important step for magazines in a country as important as China.  Conventional wisdom suggests that you divide published circulation numbers by four or five.  Printers in Beijing and Shanghai dont see many print runs for upper end magazines over 100,000.

Few speak confidently about distribution.  The Post Office holds a monopoly and is the country central subscription agency, though most publishers are building a subscription base.  (WWW.baotao.com/Redhorse is becoming a factor in online subscription building). Local post offices are getting more aggressive in this sector.  The Post Office, one of the remaining legacies of Chairman Mao, is a giant bureaucracy combining national distribution, wholesale, retail, logistics and subscriptions.  It badly needs a reorganization plan.    

Most publishers use a combination of local distributors and their own systems.  National distribution remains an issue because, in part, the strong and sometimes competitive distributors at the regional and province level.  While Hachette Distribution Services, recently reorganized, is deeply involved in these challenges, outside investors have not jumped at the chance of equity ownership in the sector. 

For obvious reasons it is very hard to monitor national sales in Chins.  When one foreign publisher asked a local distributor how he could accurately monitor national sales figures the advice:  Send 1,000 people into the country to hand count magazines at perhaps 100,000 kiosks.  No knows for sure as the number of kiosk and bookstores are often lumped together. 

Even with all the difficulties, some aspects of Chinas distribution system, already visible, is the gradual decline in sidewalk kiosks and more distribution through the supermarkets and convenience stores.  This is expected to continue.

Some of the customary ingredients associated with a successful magazine industrywidespread audits, a robust national distribution system, data bases for subscription building, and reader and advertising researchare underdeveloped in China. The upper end of the magazine market is maturing and is already engaging in tacticssuch as widespread use of cover mounts, associated with some Western markets.

Free metro magazine-type supplements and newspapers, common in the US and European countries, are being tested in Beijing and Shanghai and seem destined for dozens of other cities.  This builds on a custom in China. The major newspapers are still posted on bulletin boards near metro and bus stops for the general public.

China imports most of its coated paper.  From an environmental point of view, China can be a grim place with 16 of the worlds 20 most polluted cities. On the other hand, theres a nascent environmental movement, spurred in part by the Olympics, surfacing in China.  Printers have recently been informed that Wal-Mart China, which prints millions of catalogs for its fifty-four stores and general distribution, recently put printers on notice that they are interested in testing post-consumer recycled paper for these items.  In itself this event might not be of great import, but it could become a factor if Avon, Carrefour, Mary Kay and other companies get on board. 

Jeff Sprafkin, President Media-Pacific in Shanghai, notes that reader engagement levels appear to be slipping for traditional print media outlets.  This likely has little to do with government policy and more to do with the barrage of content platforms being made available for the fast-growing middle class. The profound generational gap between parents born during the Cultural Revolution and their children born during a time of rapid economic expansion is reflected in their media uses.  In large measure magazines have not yet become a staple for this generation who are swamped with new content platforms including mobile, indoor LCD TV, SMS, infomercials, product placement, and custom publishing.  Sprafkin notes that, in this time of so many options for advertisers, unique, targeted readership gains value.  He also suggests that in time of pervasive government regulations and increasing competition in the print sector magazine publishers should enter China with an understanding from the beginning that they must compete in a multi-platform environment, whether it includes magazines plus consumer events and exhibitions, a book series, and a newspaper partner for local editions and guides. 

This advice, dictated in part by the regulatory environment and in part by changing consumption media habits, also reflects the realities on the ground.  Magazines are the center of too much government regulation and other platforms, including billboards, have fewer content restrictions and are getting the attention and the investment.

Jacques Rougeaux postulates that given the pronounced distribution problems faced by print media in China, digital products may dominate the market faster than in other countries.  He reports a mass distribution of digital magazines to millions of subscribers with some operations financed by foreign capital (the Carlyle Group).  Most of these net publishers and net distributors simply scan and copy paper magazines with little attention to copyright.                                                                                        

So this is China; everything exists in contradiction.  At Beijings largest bookstore endless shelves of books by Mao Ze Dong and Deng Xiao Ping, under the heading The Construction of the Communist Party reside next to a section of business books titled Peace of Soul.  

Chinese Heritage magazine, with the familiar National Geographic border sits next to Chinese National Geography, an even earlier knock-off of the American magazine. And next to that is the genuine American National Geographic, published by Trends, called Cultural Geography but without its actual logo and familiar markings.

In China there are rules for practically everything, including advertising.  According to Publicitas China an advertisement containing any map or graphic must be censored by the China government.  It will take 12 working days for censorship.

This is just another reason navigating through Chinas media scene is so challenging

The map does not always fit the territory.

Charles McCullagh

cmccullagh@magazine.org

Magazine Publishers of America

New York

June 20, 2006