Sat, Dec 22, 2001 page8

• Publishing industry under threat

  • By Lin Shin-min 林訓民
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  Taiwan will become the 144th member of the WTO in January. For Taiwan's publishing industry, the effects of WTO accession will be twofold. Within the industry, the doors will be thrown wide open, bringing about more cut-throat competition. Externally, the industry will see the selling off of companies and a movement abroad. Indeed, the first signs of these effects are already visible and there have already been negative repercussions.

  First, government policy on foreign investment in the publishing industry has been relaxed in recent years. It used to be that only native-born citizens could serve as presidents of publishing companies and the amount of foreign investment in such companies could not exceed 49 percent. Such restrictions no longer exist.

  Publishing companies from the US, UK, Denmark, Japan, France, Hong Kong, and Singapore long ago jumped into Taiwan's market by establishing new companies, branch companies, joint ventures or indirect investment. Most of these companies belong to international publishing groups. They control the publication of textbooks for colleges and vocational schools, computer and technical manuals, language reference books, news publications, comic books for teenagers, children's books and educational primers.

  Next year, another wave of foreign publishers will enter the market, publishing newspapers and magazines as well as producing satellite TV programs. For Taiwan's small-scale, low-budget publishers, this will inevitably bring fierce competition. No doubt, before too long, China's investment dollars too will be competing for a share of the market.

  In fact, the Chinese have long been testing Taiwan's publishing market by acting as behind-the-scenes investors in Taiwanese companies, exporting directly to Taiwan, or investing indirectly or as part of a joint venture.

  Just imagine, however, if the output of the country's entire publishing industry fell into the hands of foreign-funded publishers. How would we teach future generations our values, national consciousness and self-identity? The competition and, indeed, possible displacement of the publishing industry that a complete opening up are likely to bring must not be ignored.

  The inevitable effect of WTO entry will be the selling off of the industry at discount prices. Starting last May with PC Home Magazine Publishing Group (電腦家庭雜誌出版集團) and the Cite Publishing Group (城邦圖書出版集團), followed last month by the Sharp Point Publishing Company (尖端出版公司) and the Taiwan Business Week Group (台灣商業週刊集團), four major publishing houses were brought into the stable of Hong Kong tycoon Li Ka-shing's (李嘉誠) greater China publishing platform, the publicly traded company tom.com, through joint ventures, mergers and acquisitions.

  Why should Taiwan's publishing elite, who could carve up the different sectors of the industry among themselves, be forced to sell off their operations to foreigners? Why did they all seek refuge in the same place with capital from Hong Kong's tom.com? Were they acquired at reasonable prices? This wholesale sell-out of 30 or 40 magazines and 20 or 30 book publishers highlights the crisis in Taiwan's publishing industry. What warning signals does this send?

  I've never seen the government show the slightest concern about these issues or state a policy on them. Popular opinion and the media, moreover, can't see the wood for the trees. The media do nothing more than report the overall figures changing hands in these mergers and acquisitions and quote fragmentary and partial accounts from those involved.

  The price negotiations in most mergers and acquisitions are complex and highly technical. They are also the most newsworthy aspect of these deals. This is a battle on many fronts, including the legal, financial accounting and the psychological. Choosing an opportune moment for negotiation and an appropriate method of valuing the company are both very important. Factors such as average profits, commercial reputation, future business prospects, the talent of the publishing team, the financial structure, cash-flow forecasts and past debts or losses are all key criteria for setting a valuation.

  If we look at examples from the US and Europe, publishing groups and media conglomerates spurred a wave of mergers and acquisitions in the industry from the late-1980s to the mid-1990s. Last year, European and Australian media magnates and publishing groups launched a wave of acquisitions aimed at the US industry. A little over a decade ago, Japan also made large-scale acquisitions of US media and entertainment companies.

  Data from the US, Europe and elsewhere show that only rarely was the selling price calculated on the basis of the purchased company's annual revenue. The known prices of US and European mergers and acquisitions in the publishing field generally have a "multiple ratio." The selling price is generally two to five times the annual revenue.

  According to media reports, the nominal prices of the Cite and PC Home mergers have multiple ratios of 1.328; Business Week had a ratio of 1.2; and Sharp Point had a ratio of 0.68. Moreover, at least half the payments were made in current stock or in stock of the company to be formed by the transaction. There is therefore a price differential that comes from a rise in the price of the stock and the risk of a fall in the price of the new stock.

  So if we translate "present value" into "actual value," then the real transaction multiple ratios in the above cases are 0.93, 0.84, and 0.476 respectively. If we compare these kinds of transaction prices to US or European prices, we find there is a difference of a factor between 3 and 10. The suspicion that the publishers were taken to the cleaners is inescapable.

  The creativity, vitality and enthusiasm of Taiwan's publishing industry are beyond doubt, but its ability to turn a profit is often seriously questioned. The people in the industry are also frequently too shy to speak their minds or unwilling to make their real profits and losses known. Capital and financial resources, not to mention expertise in financial management and human resources, are generally insufficient in the industry. The government doesn't provide tax incentives to the industry, and the banks and financial institutions don't give preferential loans. Instead, they throw up obstacles and impede work at every turn.

  Does the enforced sell-out of Taiwan's publishing industry at discount prices imply that publishing's creative value has been exploited or seized by others? Or does it imply death for the independence of the industry and the fall of its status as a "brand name?"

  These are the questions that will dog the publishing industry after Taiwan enters the WTO.

  Lin Shin-min is president of Children's Publication Co Ltd.

  Translated by Ethan Harkness
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