SMG splits to float one unit's assets

Market move may hasten similar reform in media competitors

* *UPDATED: 19:45 local time, Oct. 21, 2009 

BEIJING--China's No. 2 media conglomerate, Shanghai Media Group, has split into two units in order to float some of its non-news assets on China's resilient capital markets, formalizing on Wednesday an ongoing restructuring begun earlier this year.

SMG, long controlled by the Shanghai city government, said in a statement that one side of the company henceforth would handle news operations and certain core-technologies, operating as a non-profit public service.

The other side of the new SMG will handle content production, advertising, distribution and "media-related operation and investment," the statement said, adding that this side "will be fully developed and be made more competitive in the market."

Local media reported that the two units would be called the Shanghai Radio and Television unit and the Shanghai Eastern Media Group, respectively.

But an SMG spokeswoman said that the company would continue to be known simply as SMG in English.

In a Chinese web report, the influential 21st Century Business Herald newspaper said of the announcement: "This is not a simple Shanghai SMG internal reorganization, but the reform of China's TV industry."

At the encouragement of the central government in Beijing, SMG president Li Ruigang in February began to shake up the assets of the state-owned enterprise.

Li, an English-speaking Columbia University graduate, insisted that each of SMG's many units -- from Dragon TV to the Shanghai International Film Festival to a home shopping business and an animation studio -- be responsible for its own profit and loss.

"SMG is by itself too big to take public, but we can begin to market our assets and then go out for capital," Li said in June.

In August, SMG was the first of all China's broadcasters to receive official approval from the State Administration of Radio Film and Television to begin moving towards a market-based system, the company said: "With the announcement on Wednesday, SMG becomes a shareholding company with underlying business units becoming full-fledged corporations."
SMG gave no indication when exactly it plans to take its newly reorganized for-profit assets to market.

The Herald said the split is likely to hasten ongoing reorganizations at competitors such as state flagship broadcaster China Central Television and provincial challenger Hunan Satellite TV.

Despite the global recession, China's capital markets have shown continued strength, with the Shenzhen index the world's top performer among large markets so far this year. However, returns on equity investments have lagged growth, hinting at possible investor skepticism when it comes to an emergent sector, particularly one so closely monitored by Beijing.

SMG's 2008 revenues of 6 billion yuan ($878 million) came mainly from advertising. Li spent much of 2009 setting up partnerships aimed at expanding the company's work beyond traditional broadcasting into digital media and content publishing.

In June, SMG launched a broad integrated multimedia brand called Enjoyoung, drawing lifestyle and entertainment content firstly from SMG's popular Channel Youth, which has 136 million viewers in and around Shanghai, China's largest city and financial capital.

Li also continues to build relationships with international media companies such as Viacom, the National Basketball Assn., Hollywood Reporter parent The Nielsen Company, and, most recently, with Japanese Internet company Softbank Group.

The announcement was made at an event at SMG headquarters attended by Li, Sun Zhijun, deputy director of the Publicity Department of the Central Committee of the Communist Party of China; Madame Zhao Shi, deputy director of  SARFT; Han Zheng, the mayor of Shanghai; Yin Yicui, deputy secretary of the party's Shanghai Committee; and Wang Zhongwei, minister of the party's Shanghai Publicity Department.

Li and SMG officials did not reply to emailed questions.