5 reasons tech and media companies merge

I am sure everyone in the news media industry has read about tech giant Alibaba Group’s US$266 million acquisition of the South China Morning Post (SCMP) Group by now.

The number seems big, but, putting things into perspective, Alibaba’s market capitalisation is more than US$150 billion and its founder Jack Ma’s fortune is estimated at US$22.5 billion. Chump change.

While there were doomsayers who were pessimistic about the future of the editorial integrity and independence of the SCMP newspaper and other media assets, time will tell.

Mr. Ma himself said in an interview with The Wall Street Journal that there was no basis to think the SCMP would lose editorial independence while under the ownership of the e-commerce company he founded.

“Trust us. Why do people have to think that if we have it, it will lose its independence? Why not with others?” he asked. “We also read the newspapers. We also want media independence and fairness. What basis is there that, with us, there will be no more independence?”

From a business perspective, I think the acquisition makes sense for both companies and may be the sign of more similar deals to come in the tech and news media space.

Why do I say this?

I have worked for both a traditional news media company in transition to the digital age (Singapore Press Holdings and News Corp), as well as an Internet company looking to leverage content (migme, an Australia-listed social media platform where I am currently the global head of content).

I can see synergy on both sides. On a much smaller scale to the Alibaba-SCMP deal, migme recently acquired a news media company in Indonesia, too, although it’s a purely online one – Hipwee, a content portal focused on entertainment, relationships, and travel.

What are the synergies when a tech company acquires a news media company? Here are five advantages.

  1. Better understanding of community building.

    News media companies like SCMP that have a long editorial and readership history have a strong reputation and solid base of loyal readers to tap into to convert into engaged online communities. This is one area in which I find traditional news media companies particularly weak, while tech companies are particularly adept.

  2. Better online monetisation.

    Maybe setting a paywall around your online subscription is not the way to go. Maybe there is a better way for news media monetisation. If a news media company cannot figure it out, a tech company that makes all its profits online has got to be able to figure this out.

  3. Access to a captive audience.

    This is similar to point one above. By acquiring a news media company like SCMP, it unlocks a large pool of loyal, committed readers for Alibaba. With better online data management and collection tools, this is a gold mine waiting to be unlocked.

  4. Access to global platform/markets.

    Most traditional news media companies tend to be geo-specific, operating only in fixed markets, thriving on hyper-local content. This might be linked to distribution channels and political landscapes for the printed editions.

    Tech companies, on the other hand, usually need to expand quickly across a large geographical area to tap into economies of scale. When you marry the two, the news media company can get a boost by tapping into a global platform and/or markets.

  5. Melting pot for talent.

    Having worked at both news media and tech companies, the talent pools are quite different and I believe each side can learn from the other. The news media industry and the tech space are converging, but no one really knows how it will pan out yet. It takes visionaries like Jack Ma to lead the way, and maybe this Alibaba-SCMP partnership is the trigger.

About Alvin Lim

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