11. Shanghai Media Group

Revenues 2019: RMB 219.280 billion (€ 28.350 billion)

Overview

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Shanghai Media Group, often simply referred to as “SMG,” is one of China’s largest and most successful media conglomerates. The group’s presence now spans publishing, television, radio, internet, e-commerce, film, console gaming, tourism and live entertainment. While few internationally may have ever heard of the media group – the way they might recognize the name “Disney,” for example – it is increasingly a force behind globally successful media products consumed by all, including the 2019 computer-animated adventure film Abominable. The group also holds some of the most iconic properties in the city of Shanghai, including the Oriental Pearl TV Tower, the International Convention Center and the Mercedes Benz Arena. The group holds a 20 percent share of the Shanghai Disney Resort.

General Information

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Headquarters:
298 Weihai Road
Shanghai, 200041
China
Tel.: 0086 21 62565899

Branches of trade: Broadcasting, Media and Entertainment, News, Publishing
Legal form: corporation (private)
Financial Year: 01.01-31.12
Founding Year: 2001

Tab. I: Business performance (RMB bn.)
201820172016
Revenue219.28247.06277.83
Net Income12.567.8728.75

Stock price Shanghai Oriental

Pearl (year end, in CNY)
10.2412.8217.92
Employees14,628n/a17,200

Executives

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  • Wang Jianjun, President & Chairwoman
  • Gao Yunfei, President & Director
  • Teng Junjie, Chairman Board of Supervisors
  • Ling Gang, Senior Executive
  • Lixing Lu, Deputy Director, General Office

History

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In the mid to late 1990s, as China’s economic development accelerated and it looked to join the World Trade Organization, one clear concern of the Chinese Communist Party leadership was that the opening up of the country might leave its backward and state-dominated media sector vulnerable in the face of fierce international competition from foreign news conglomerates like Newscorp and Time-Warner. This was sometimes referred to as the “coming of the wolves.” Given the strategic nature of media for a ruling Party determined to maintain control of public opinion, the country’s leaders opted for a path of commercial media development and consolidation under a strict regime of political control. Under this policy of commercial media enlargement, or “media strengthening,” local and national Party-run media were encouraged to form larger domestic media groups holding an array of media products, from commercial tabloid newspapers and magazines to television and radio stations. As Xu Guangchun, deputy head of the Central Propaganda Department, wrote, invoking metaphors of military struggle on the high seas: “We must accelerate to build [media] groups, strengthening our country’s real competitiveness in the media industry, ultimately creating diverse and multi-functional, cross-regional and cross sector large-scale media groups, serving as ‘aircraft carriers’ and ‘joint fleets’ for China’s media industry, meeting the challenge posed by major media groups overseas.” To compete, in other words, China needed its own Newscorps and Viacoms, run by its own politically trustworthy generation of Rupert Murdochs and Sumner Redstones.

Of the many state-linked media conglomerates operating in China today, the Shanghai Media Group (SMG) is perhaps the most successful example of the process of “media strengthening” begun in the 1990s. For many years, SMG had its own Murdoch of sorts in the person of Li Ruigang – a Shanghai native and graduate of its leading university, Fudan, who even years later, having left the group, cannot shake association with it. By 2006, when Li Ruigang controlled an empire including five newspapers, 13 television channels, 11 radio stations, and a constellation of internet and mobile TV ventures, the Los Angeles Times could report that Li was “blazing a trail that Redstone and Murdoch might have to follow.” The same year, the New York Times described SMG as a “budding Chinese conglomerate with a striking number of tentacles in media and entertainment and a thirst for partnerships with foreign companies chasing the dream of Chinese fortunes.”

The transformation resulting in the creation of SMG began five years earlier, in 2001, with the merger of a constellation of state-owned media outlets into a media group under the umbrella of the even larger Shanghai Media & Entertainment Group, or SMEG. As was the case with all local media and broadcast groups, SMG was “born from the government,” as Li Ruigang later said, and its process of mergers and restructuring into a business group were carried out with the encouragement of the government. In early 2002, shortly after Li became CEO of the group – “viewed by his peers as too young and naïve” – Shanghai’s principal media groups were combined with various arts and culture groups (such as performance troupes) and other assets. The merger resulted in five segments: media, live performance, sports, technology development and investment. Key assets on the media side included Shanghai Television (STV), Shanghai Oriental Television (OTV), Shanghai Cable Television (SCATV), the Shanghai Radio Station (SRS), and Shanghai Eastern Radio Station (ERS), all state-run stations with “sub-provincial” ranking (a reflection of their position within the government bureaucracy). In addition to 14 arts troupes and array of sports teams and clubs, the group had diverse real estate holdings, including a large stake in Shanghai’s iconic Oriental Pearl Tower.

Formal mergers were the easy part. Much tougher was the transformation of these various media outlets within Shanghai’s official media landscape into a bona fide media company. Though Li Ruigang emphasized in the early days that SMG was still a “local media [group], with its assets and source of revenue still rooted in Shanghai,” the group was already undergoing a rapid transformation of its business, and exploring opportunities overseas. Among the group’s early changes was the 2003 remaking of the locally focused Shanghai Television as Dragon TV (sometimes affectionately called “tomato TV” owing to its tomato-shaped logo). Capitalizing on a booming commercial culture and advertising market, SMG had also launched Channel Young, a youth-oriented channel focusing on lifestyle. Another new venture was China Business Network (Yicai Media Group), a cluster of what would become quite influential business media, including Yicai TV, China Business News and China Business Weekly

By 2003, Li was hard at work establishing relationships with major media conglomerates across the world, all of whom viewed him as a possible route of entry into a market with huge potential. In 2003, SMG attended the MIPTV Media Market in Cannes for the first time. By March 2004, SMG had struck an agreement with Viacom to produce children's programming for the Shanghai market. Announced with a visit by Redstone to Beijing, the deal was a milestone for both SMG and for foreign investors – the first joint venture following China's opening of TV production to foreign investment. Even official state media noted that the tie-up "marks a further opening up of China's sheltered media sector." Also in 2004, SMG teamed up with Universal Music to form a joint venture to focus on the development of mainland Chinese artists and talent – another key step in SMG’s growing status as a creative force in entertainment. By this point already, SMG and Li Ruigang had become virtually synonymous with foreign hopes of accessing the Chinese media market. “He’s a friend of mine,” Redstone later said of Li. “We consider him a visionary and pioneer, a key driver to bringing foreign content into China.” In 2005, SMG began co-producing children’s programming for distribution through 30 Chinese cable channels under a joint venture with Viacom’s Nickelodeon.

But SMG’s transformation was a difficult process. One of the most intransigent problems was still how to dismantle a bureaucratic culture in which obedience to government orders was the surest path for career climbers. Creating a more creative business culture capable of making entrepreneurial decisions meant encouraging earthquakes. While asset restructuring was a relatively straight-forward matter, changing the internal operating mechanisms of the group and “unleashing new development energies" resulted in “quite a few shocks,” said one Shanghai media expert. Work processes, organizational structures, colleagues and bosses all had to change. One factor constantly pulling back against change was SMG’s advantage as a government-linked group, and its longstanding local monopoly. Li Ruigang stressed in 2004 that local market competition was an open question for the future, but that the priority in the transition was “to first clearly ascertain what our core media resources and assets are, and how we can effectively develop and use those resources.” Tellingly, despite his entrepreneurial character and mandate, Li still insisted on calling himself a “civil servant.”

Government regulations were another constant hurdle for the group, its powerful government backing notwithstanding. Regulations could be inconsistent, even capricious, given the leadership’s interest in balancing the risks and benefits of greater cooperation with foreign media groups. Li discovered this quickly as he achieved success developing ties and partnerships overseas. In 2005, China's broadcast regulator, SARFT, issued new regulations preventing foreign companies from purchasing domestic channels and other media outlets, as China spoke increasingly of “cultural security.” This stemmed in part from a new conservatism on the part of Chinese leaders coming out of what they viewed as the tumult of 2003-2004, when more aggressive reporting on the SARS epidemic and other major stories had underscored the professional restiveness of a new generation of competitive and commercializing media outlets. SMG was forced to put on hold a number of plans to partner with foreign media groups and raise overseas investment -- a point of frustration for Li Ruigang. “You know, I have a lot of ambitions, to be frank,” he said in 2006. “I want to do a lot more.... But I feel there are still some limits." He continued to refer to SMG as “a media arm of the government.”

SMG continued to achieve success as a provincial-level media group, expanding into new areas of content production and distribution, and proving itself one of the most creative of China’s domestic media groups. But the group also struggled to expand on the national stage and move beyond its local monopoly status. Shanghai, a market known, in comparison to Beijing and particularly Guangzhou, for its “timid media system,” “economically rich but politically tame,” accounted in 2007 for one-sixth of China’s growing advertising market.  The group increasingly excelled in creative content areas outside the dangerous terrain of news and information, and in the relatively safe area of economic and business news. In 2006, SMG’s China Business Network formed a strategic alliance with CNBC. By 2007, SMG was the clear national leader in China in the rollout of IPTV through its digital media subsidiary, BesTV, a joint venture with Microsoft for which SMG was the content provider. That same year it launched a brand new English-language TV channel in an effort to reach a more global audience, only the second English-language channel in the country at the time. It also partnered with companies elsewhere in the Asia Pacific regions, joining for example with Singapore Telecommunications Limited (Singtel) for the launch of its pay TV service. By 2008, SMG reported total revenue of 878 million dollars, and profit of 100 million.

The next major shift for the group came in October 2009 as it underwent another round of restructuring in a bid to welcome private capital. This was part of a renewed bid by the Chinese government to encourage the enlargement and strengthening of Chinese media groups as a matter of national competitiveness. Under the arrangement, the SMG group was merged with its parent group, SMEG, and (politically sensitive) broadcast and news operations were separated from production departments in entertainment areas – freeing up the latter for private and foreign investment. The former remained under the control and oversight of the Shanghai committee of the Chinese Communist Party.

After this point, SMG underwent a rapid acceleration of creative and lucrative partnerships. Beginning in 2012, the group – along with China Media Capital (CMC), a state-backed investment fund Li Ruigang created in 2009 – formed Oriental Dreamworks, a Chinese film production company (not Pearl Studio), with Universal Pictures subsidiary Dreamworks Animation. In 2013, SMG began what would become a long and fruitful partnership with Disney, as BesTV, its IPTV operator, formed a joint venture with Disney for the production and distribution of digital entertainment. The partnership was deepened the following year as SMG and Disney announced that they would extend their “strategic relationship” to include the development of television content, film co-production, content distribution and marketing cooperation. In 2015, SMG formed a joint venture with the UK-based Freemantlemedia for co-production of entertainment products for the Chinese market. In addition to co-productions and joint ventures, SMG inked a number of content-sharing agreements, including with the Australian Broadcasting Corporation (ABC).

SMG entered a new era in 2015 with the departure of Li Ruigang as CEO, and his replacement with Wang Jianjun, who joined the group after a long career in Shanghai's Information Office. One clear shift since the 2014 restructuring has been a shift of focus to development of SMG’s presence in the "internet ecosystem," with internet TV at the core. The group initially had a goal in 2014 to reach 30 million monthly active users of online TV within three years. But this was mostly focused on over-the-top (OTT) media services, and the company soon recognized the urgent need to shift from to mobile services. As Wang Jianjun explained, SMG initially had tried to build up their mobile-based business through the existing platforms offered social media platforms such as Sina’s Weibo and Tencent’s WeChat. It eventually recognized that it needed to have “more concentrated flagship products on the mobile end." In June 2015, for example, SMG began working on a "BesTV" app for video streaming on mobile phones. These mobile-based services now enable distribution of content through SMG partnerships, such as that struck with the US National Basketball Association in 2016, via mobile as well as other platforms.

Another key development for SMG in 2015, giving it a huge potential advantage on the technology side, was a 193 million dollar investment by the tech giant Alibaba in SMG subsidiary China Business Network. Part of a media buying spree by Alibaba, the investment could potentially allow CBN and Alibaba to integrate financial news services with data analysis, creating a real data-oriented financial information provider in China that could compete with dominant players in the field, notably Bloomberg.

Management

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Despite Li Ruigang’s departure from SMG in 2015, his personal association with the group has been difficult to shake. This owes in part to his personal charisma, and in part to his importance as a both a key actor in the commercial reform and expansion of Chinese media. “In China’s media sector”, one Chinese publication summed him up in 2014, “Li Ruigang is without a doubt a mysterious presence.” But Li’s role at SMG always forced him to be a mask changer, at one moment the media investor and entrepreneur, and the next moment the civil servant, cautiously bearing in mind the priorities of the government. It may seem incomprehensible to those less familiar with China’s media terrain that Li was appointed in 2011 as deputy secretary general of the Shanghai Municipal Party Committee and director of its general office, placing him right in the core of local power in China’s largest city, even as he remained active at SMG and a symbol of innovation in the media business. One business publication referred to Li quite aptly as “an entrepreneur within the system.” Said Meng Jian, associate dean of the School of Journalism and Communications at Fudan University: “Li has been a reformer.“

Li is certainly a tough act to follow, but SMG’s next generation of leaders have clearly remained less visible in the media. What they do share with Li, however, are pedigrees as “within the system” media executives with backgrounds in either production at state-run media outlets, and/or within the government’s media regulatory system.

The current chief executive of SMG, Wang Jianjun, joined SMG in September 2010 after a long career at Shanghai's Information Office. She began work in the Shanghai government shortly after completing her undergraduate degree at Shanghai’s East China University of Political Science and Law. She later obtained a master’s degree in economic management at the Central Party School, the official institution offering continued education for serving CCP officials. She has noted in her personal bio that she "spent more than two decades serving in key roles in Shanghai's government, trailblazing in public communication, promotion, and branding,” and that she “played a prominent role in the organization of the promotion of the 1999 Fortune Global Forum and the operation of media coverage of the APEC Summit Shanghai in 2001 as well as the World Expo in 2010." Joining SMG as managing director right as the Shanghai World Expo wound up, Wang Jianjun reportedly worked closely with Li Ruigang in the implementation of the post-2009 merger of SMG and SMEG. She was appointed as SMG’s chief executive in January 2015, though Li Ruigang stayed on as the group’s top Party official until 2017, focusing his energies on his China Media Capital investment fund. But Wang Jianjun has been far less vocal than Li, and even since her high-profile appointment, little information about her has appeared publicly.

SMG’s director and president, Gao Yunfei, spent his early career from the late 1980s through the 1990s at Shanghai Television Station, working in both television drama and news production. For nearly three years from 1994 to 1997, he was an anchor for “News Perspective,” one of the station’s signature news commentary programs. In 1998, he was appointed to Shanghai’s propaganda department, but again found his way back into television in April 2000 as he was appointed deputy director of Shanghai Cable TV. From 2013 to April 2016, Gao served as deputy director of the Wenhui Xinmin Press Group, one of Shanghai’s largest state-run press groups. Gao is a career press official, like Li Ruigang and Wang Jianjun operating between the political bureaucracy and the world of the media business. When asked in May 2019 what ideas and policies would guide SMG's ongoing reform, Gao played the perfect official, first paying lip service to Xi Jinping's recent speech to commemorate the 40th anniversary of China's economic reforms. Even as he spoke of SMG’s business interests, and of new developments such as 5G, he stressed the sense of responsibility to the leadership, and to the priority of “media strengthening,” a reference to the 1990s-era notion of domestic media development as a strategic priority for China.

The current chairman of SMG’s board of supervisors, Teng Junjie, is one of the key figures at the group involved in the film production side. Through his long career in the state-run media industry, Teng has directed many official documentaries and live events, and he has a strong reputation in China as a director within the Party-state media system. He was the chief producer in 2001 of the opening ceremony of the Asia-Pacific Economic Cooperation forum (APEC) meeting attended by U.S. President George W. Bush, and also the lead producer in 2010 of the opening and closing ceremonies of the Shanghai World Expo. Teng has also spoken frequently about the importance of expanding the influence of Chinese traditional culture overseas. He has produced and/or directed a number of films in the musical theater and traditional Chinese opera styles, some dealing with Chinese Communist Party history – for example, a 2018 Chinese-language version of the 1972 Soviet war drama "The Dawns Here are Quiet" made to celebrate the 70th anniversary of diplomat relations between Russia and the PRC. He is also the chairman of the Shanghai Television Artists Association, an official organization of television industry professionals.

Business Divisions

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Shanghai Oriental Pearl (Group) Co., Ltd.:
This SMG subsidiary, with scores of companies under its umbrella, has four business units focusing on media and internet; film, TV and entertainment; culture and tourism; and video shopping. In the tourism business, one of its core real estate assets is the iconic Shanghai Oriental Pearl Tower. It is also the parent of subsidiaries BesTV, a converged media platform offering mobile TV content, and both the production company SMG Pictures and program distributor WingsMedia. The group is listed on the Shanghai Stock Exchange.

Yicai Media Group:
The financial news arm of  Shanghai Media Group, formerly known at China Business Network. In 2015, Jack Ma’s Alibaba Group took a 30 percent stake in Yicai Media Group, which now partners with Bloomberg, Dow Jones, Nikkei and other global media services to provide Chinese news globally. 

Shanghai Film Group Corporation:
A film, animation and documentary production company created in 2001 through the merger of several important local film studios in Shanghai. The group has worked closely with Paramount Pictures on the co-financing of major American productions such as Jack Reacher and Star Trek: Beyond.

Dragon Television:
A provincial satellite TV station launched in 1998 as "Shanghai Television" but rebranded in 2003. The channel broadcasts overseas in North America, Japan, Australia, and Europe.

Commitment in Europe

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In 2010, SMG subsidiary BesTV struck an agreement with France Telecom’s Orange to work together on multimedia content services for television, PC and mobile. Following a new co-production treaty between China and the UK in July 2015, SMG blazed the trail by working with the BBC to make Documentary Earth: One Amazing Day, the first feature film produced under the bilateral treaty.

Another of SMG’s partners in Europe is Switzerland-based SPB TV, a company that offers end-to-end OTT and IPTV solutions. Under a 2015 agreement, SPB TV broadcasts SMG’s live television programming on Dragon TV International through its own live mobile TV service. The following year, the two parties reached another agreement for SPB TV to broadcast video-on-demand content from China through its global applications. Also in 2016, SMG signed an MOU with JSC Gazprom media, Russia's largest media holding company, for strategic cooperation in the development and distribution of movies, TV and digital content.

Current Developments

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SMG continues to be an important player in global film production, along with China Media Capital (CMC), the public equity and venture capital firm started by SMG’s former star executive, Li Ruigang. In 2019, the group announced a cooperation with the UK’s Secret Cinema to introduce to China the phenomenon of “immersive cinema,” in which audience members are assigned characters and interact with the film. This latest cooperation is again a reminder of how creative and forward-thinking this state-run Chinese media group can be. SMG has also actively pushed technology development in the film and television field, investing heavily in areas such as 8K resolution, currently the highest resolution under the UHDTV high-definition television standard. In September 2019, SMG started operating a new state-of-the-art image and footage fusion and processing lab in Shanghai, located within one of the group's signature properties, the Mercedes-Benz Arena. The facility, which includes two large projection halls for 8K high-definition films.

In terms of content distribution, SMG is developing further in the area of mobile social applications, seeking to capitalize on China’s booming mobile internet. In 2019, for example, SMG launched hundreds of new mobile-based online courses via its Ajmide mobile social application for audio – tapping into a market of more than 20 million online learners and growing in China.

While SMG has long been associated with the creative potential and entrepreneurial spirit of Chinese media struggling into the 21st century, it has not been immune from the more cautious attitude now found in the United States and much of the West toward Chinese state influence. In August 2019, YouTube disabled more than 200 channels that it said were spreading disinformation about protests in Hong Kong. The video of a comedy routine posted by Shanghai Media Group to its YouTube channels bore the label: “SMG is funded in whole or in part by the Chinese government.”