Caixin
Sep 26, 2011 03:38 PM

New Media Hopeful Phoenix Rises, Then Falls

Microblogging and online video are the next frontiers for a broad-based media company strategically sandwiched between the popular Phoenix TV network and China's mobile phone and Internet providers.

Phoenix New Media Ltd., a spinoff of Phoenix Satellite Television Holdings Ltd. that listed on the New York Stock Exchange in May, recently launched an all-new service called Kuaibo (Quick Blog) designed to compete with China's Weibo and QQ Microblog services.

The company plans to invest 20 million yuan in Quick Blog by the end of the year, said CFO Liu Qianli. The service is billed as an interactive, personalized alternative to Weibo and QQ.

An existing cornerstone is the company's wireless media service, which offers paid subscribers original content such as culture and history shows, along with access to Phoenix TV news programs.

Phoenix New Media is controlled by Hong Kong-based Phoenix Satellite Television, whose key stakeholders include China Mobile Hong Kong and international media mogul Rupert Murdoch's News Corp.

Phoenix TV also produces a print magazine called Phoenix Weekly, an 11-year-old general-interest publication, that's available in e-journal form to Internet and mobile phone subscribers.

Phoenix New Media raised US$ 160 million by selling New York-listed American depository shares, although the value plummeted to less than US$ 6 a share in late September from a high of more than US$ 13 in early June.

Indeed, on the day Quick Blog was launched September 9, the company's share value fell to US$ 5.40, less than half the US$ 11 IPO price.

Liu
(Liu Shuang)

Win or lose, Phoenix New Media appears committed to building businesses in unexplored territory. CEO Liu Shuang has frequently told investors that the business model is based on "new media spun off from traditional media." And he's quick to add, "There is no precedent."

Follow the Trend

Phoenix TV enjoys good relations with the Chinese government as one of the few, privately owned broadcasters whose programs are allowed on the mainland. Thus, from the start, Phoenix New Media has banked on its parent's advantage while moving beyond web-based services into the wireless arena and microblogging.

China's No. 1 web portal Sina.com launched its Weibo service in 2009. So far it has not been profitable, yet the microblog has more than 100 million users. Its popularity has helped Sina undergo a metamorphosis from a company specializing in online media to become the most sought-after networking platform on the Internet.

Phoenix New Media launched a microblogging product in June 2010. One company executive said the service followed Sina's lead but could not muster enough popular support.

Initially, CEO Liu "was not optimistic about microblogging" and sought to steer the company into traditional, media-portal waters, a company executive told Caixin. He saw it as "a fragmented mode of information transmission."

In a recent interview with Caixin, the CEO said he now admits underestimating the potential of microblogging and Weibo's value.

"I also underestimated social change," he said. "Weibo tallied with this change. Whether you like it or not, that is this era.

"As a listed company, we have to embrace trends of the times."

Initially company executives saw a golden resource for the company's microblog in its stable of Phoenix-brand personalities, including well-known news anchors and TV show hosts.

The TV personalities were asked to start microblogging to connect with their fans. But "even our own employees did not use the microblog," said one company employee. As a result "our user base was small and our experience poor. We couldn't keep up (with Sina) in terms of technology and product design."

The company switched gears and started building the Quick Blog platform last February.

Wang Yulin, an executive vice president overseeing the project, said it was a wholly new direction for Phoenix New Media which "is not a company driven by new products and new technologies."

CFO Liu calls the microblog service "a subject-oriented, high-quality and content-driven product" that will focus on "personal interests" to attract an elite crowd and for which "advertising will make up the bulk" of revenues.

A similar, U.S.-based alternative microblog called Tumblr.com, founded in 2007, offered a pattern for the Phoenix product to follow. Tumblr incorporates graphics, audio and video, and offers enhanced interactivity along with subscription and forwarding capabilities.

"Quick Blog is a strategic deployment," said CEO Liu. "We must participate in this social networking battle. We can't miss out."

Video Search

Phoenix New Media is also betting on the video content business, particularly news content with a style most viewers like and short clips suitable for mobile phone, wireless services.

Currently, most of the company's video-linked revenues come from pay-on-demand products including Phoenix TV programs. The model goes against the grain of other online video providers in China such as youku.com and tudou.com, which rely on advertising.

Last year, though, paid video services accounted for only 5 percent of the company's US$ 81 million in revenues, according to its stock market prospectus. Nevertheless, CEO Liu sees plenty of opportunity for growth.

"According to a report by the state-run consultancy China Internet Network Information Center," he said, "online video advertising revenues will reach 10 billion yuan within the three years. Currently, it's less than 2 billion yuan."

Liu said the company could first build a subscriber base and then switch to an free model paid for by advertising.

And in addition to plotting a revenue course, company executives are searching for the right video entertainment before expanding the content line-up in the second half of this year, CFO Liu said in August.

A company executive told Caixin "whether or not to do entertainment" has long been a subject of internal controversy. Some executives object to the "vulgar content" that other media outlets provide, and want Phoenix New Media to stand out.

Phoenix New Media's prospectus said paid-content services contributed 61 percent, or US$ 49.1 million, of the company's revenue last year. And 87 percent of those funds were generated through wireless services via China Mobile.

The prospectus also said the company shares with mobile operators the revenues generated through services such as mobile phone-delivered newspaper subscriptions, games, video and books.

The long-range goal, Liu said, is to build a company that integrates Internet, video and mobile services.

"Phoenix New Media needs to be the leader in the 'three integrated screens' of mobile phones, televisions and computers," said CEO Liu.

Quick Blog chief Wang agrees that integration is the key to the company's future. "We have TV, Phoenix Weekly, Internet and wireless operations," he said. "What we are thinking about is how to integrate these factors together and amplify media value."

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