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Hong Kong Protests Fuel One Media Tycoon’s Turnaround Plan

Hong Kong Protests Fuel One Media Tycoon’s Turnaround Plan

(Bloomberg Businessweek) -- Jimmy Lai’s office is unusual for a Hong Kong tycoon. It has none of the ivory carvings, Chinese porcelains, or heavy rosewood chairs meant to convey wealth and success in this part of the world. Only a few pieces of furniture are squeezed into a small room at Next Digital Ltd.’s headquarters in an industrial park.

That’s because Lai, whose publications have championed Hong Kong’s three-month-old democracy movement, and who’s been labeled a traitor by the Chinese government, isn’t a typical tycoon. Where other wealthy Hong Kong businessmen have sought to distance themselves from the protests traumatizing the city, Lai has embraced them. “The more Hong Kong is being encroached by China, the more resonance we have for the people to relate to us, and that has definitely made us more popular,” he says one afternoon in August, explaining how the demonstrations have helped fuel a turnaround plan for his media empire.

Next Digital, which publishes Apple Daily newspapers and Next magazines in Hong Kong and Taiwan, has been losing money for years, hurt not only by the same forces sweeping the media industry worldwide but also by an advertising boycott ordered by officials in Beijing over the company’s support for previous anti-China protests. While the company was already planning to charge readers for its online content, the upheaval couldn’t have come at a more opportune time. More than 1 million people registered to pay 38¢ to keep access to the websites when they went behind a paywall in mid-August. Monthly charges of $6.40 begin on Sept. 2.

“We are a beacon for the idea of freedom and democracy,” says Lai, 71, whose publications have been unabashedly critical of Beijing since before the former British colony was handed back to China in 1997. On a Sunday in August, when an estimated 1.7 million people turned out for a demonstration, the front page of Apple Daily, the second-largest paper in Hong Kong, blared, “See You Today in Victoria Park.”

Hong Kong Protests Fuel One Media Tycoon’s Turnaround Plan

Since protesters took to the streets in June, Apple Daily (no relation to the U.S. technology company) has been sending people with cameras to the front lines of clashes with police and broadcasting live online from tear gas battles, night vigils, and peaceful marches. Daily page views have doubled on demonstration days, to an average 80 million, according to company data, as people log on to find out what’s going on and as Chinese communities in London, New York, Sydney, and Vancouver tune in.

Early enthusiasm for the subscription model offers hope that Next Digital can survive. Shares jumped 132% in a two-week period in June after the company said more than 6 million people had registered for basic access. The stock is up 59% since the protests began in early June, compared with an overall drop of 4% in the Hang Seng index.

The story of Lai’s rise stands out even among the self-made tycoons of his era. He was born in China’s Guangdong province to a once-wealthy family that lost everything after communists took power. In 1959, at age 12, he made a decision that would define his life. That year was the beginning of the Great Famine, which would kill tens of millions of people. When a foreigner coming from Hong Kong handed Lai a chocolate bar as a tip for carrying his suitcase at a train station, Lai decided to smuggle himself by boat into the city that promised a better life.

He slept in the garment factory where he found work, learned the trade, and bought his own factory with some partners using money he’d made in the stock market. He spent time in New York in the 1970s selling his garments, then decided it was silly to allow Western companies to enjoy the brand markup from his clothes. He returned to Hong Kong in 1980 to create his own clothing empire, Giordano, a retail chain similar to the Gap, with outlets across Asia.

The bloody crackdown against student demonstrators in Tiananmen Square on June 4, 1989, hardened Lai against his birthplace. He started Next magazine in March 1990 to serve as a loudspeaker to broadcast democracy to Chinese readers on the mainland and undermine the communist system. It became the most widely read weekly in Hong Kong. In an editorial in 1994, Lai told Chinese Premier Li Peng, considered the man most responsible for ordering the Tiananmen massacre, to drop dead, calling him “the son of a turtle egg with zero IQ.”

The outrage in China led to authorities closing some Giordano stores and threatening to shut the rest unless Lai sold his interest. He did, making $187 million and missing the Asian financial crisis that crushed retailers across the region. Lai used the money to expand his media empire, starting Apple Daily in 1995. “I’m somebody who’s a revolutionary,” he says. “If there were no June 4th, I’m sure I would not be in the media business.”

Lai fretted about Hong Kong’s fate at the time of the July 1, 1997, handover to China. Speaking with a group of visitors who’d stopped by his home the evening before, he said he was worried that everything his adopted city stood for would be destroyed.

Two decades later, he sees alarming signs that his nightmare scenario is becoming real: the dismissal of dissenting voices from the legislative body, harsh punishments for protesters, attempts to introduce a pro-China curriculum in schools, and a proposed extradition bill that would allow Hong Kong residents to be tried in China. Resisting, and using his media empire to do so, is the only thing he says he can do to slow the process of full reunification, which is set to occur by 2047 no matter what the protesters achieve. “You have got to live for something,” he says. “That responsibility gives me a lot of meaning.”

Lai credits his free-market, anti-government-intervention ideals to an “obsession with books that inspire my passion for freedom.” He cites economists and philosophers including Friedrich Hayek, Karl Popper, and Milton Friedman, with whom Lai traveled as part of a fact-finding trip to China in 1993 to observe the country’s transition to capitalism with Chinese characteristics. It was his last trip to the mainland.

Anti-communist and pro-democracy causes aren’t the only topics Next publications cover. Over the years, Apple Daily built a reputation for scoops involving government corruption and tabloid-style coverage of entertainers and movie stars—a recent one concerned a Cantopop star cheating on his wife. Until 2012, it regularly published reviews of pornography. The language can be crude.

Next Digital makes no apologies. “Apple Daily has the voice of Hong Kong,” says Mark Simon, Next’s group director, who functions as Lai’s gatekeeper and consigliere. “It doesn’t have the voice of the Chinese university faculty lounge. Hong Kong is a place where people wear T-shirts that say, ‘Go f--- your mother.’” Next Digital’s editorial staff of 600 “latch on to a story and don’t let go till they’ve wrung it to the bone,” says Simon.

Yet the company has been punished for going too far. After Lai participated in the pro-democracy protests that blocked Hong Kong’s business district for 79 days in 2014, China’s liaison office in Hong Kong began phoning advertisers, telling them that any further advertising in Apple Daily would hurt their business on the mainland, according to Simon. The city’s then-chief executive publicly called on all Hong Kong-focused businesses to boycott the newspaper. As the movement dragged on and began losing public support, so did Apple Daily.

Next has had other setbacks. It tried to start a television channel in Taiwan in 2012 but couldn’t get a license from the government, controlled then by the pro-Beijing Kuomintang party. It tried to sell Next magazine in Hong Kong in 2017 to a restaurateur who never paid. To survive, Next has sold buildings it owned in Taiwan and drawn one-fifth of a HK$500 million ($64 million) line of credit from Lai, who has other business interests, including 14 hotels in Canada.

Investor David Webb, Next’s second-largest shareholder as of last year, says it’s an open question whether people will want to pay for news in a world where they’re used to getting it online for free. He sold shares last year after they were diluted by an employee stock incentive program. “They do still put enough resources into reporting that they do regularly break news,” Webb says. “The proof will be known in the next few months.”

The week the subscription fee was announced, fewer than 3,000 people canceled rather than be charged the monthly rate. A fair estimate of the revenue that could come from subscribers, says Royston Chow, Next Digital’s chief financial officer, is about HK$500 million a year, twice the paper’s advertising revenue last year.

While many in Hong Kong support democratic parties, most of the city’s dozen other newspapers lean pro-Beijing or openly champion the Communist Party. “It’s difficult to withstand the political pressure and survive financially being a pro-democracy media organization in Hong Kong,” says Yuen Chan, a senior lecturer at City, University of London who previously taught journalism at Chinese University of Hong Kong. Demographics alone should support multiple pro-democracy newspapers, she says. “But it’s not a normal media landscape.”

It’s definitely not normal for a media executive to see pro-China protesters outside his home twice a day. The orderly, elderly demonstrators arrive by bus, shout for a few minutes, then are driven away. Direct attacks have included several Molotov cocktails thrown over the gate surrounding Lai’s rented home in an upscale part of town. Visitors there are regularly chased and photographed for Chinese propaganda videos seeking to prove that he’s a “black hand” controlled by the U.S. Central Intelligence Agency to channel funding to the demonstrators.

“This is crazy,” Lai says. “There are 2 million demonstrators on the streets of Hong Kong. How much money would I have to give to get 2 million people to come out?” He says that while he does donate to pro-democracy parties and politicians in Hong Kong’s legislature, he hasn’t given one penny of his own money to support the protesters. “Next media is supporting the movement,” he says, “that’s it.” It’s also odd, he notes, that China is seeking to blame old-guard leaders like him for the protests, which are driven by young people in a seemingly leaderless movement.

That said, Lai and Martin Lee, founding chairman of Hong Kong’s leading pro-democracy party, have solicited help from the U.S. government. Lee traveled to Washington in May to meet members of Congress and Secretary of State Mike Pompeo. Lai met with Pompeo and Vice President Mike Pence in July. “We share the same values,” Lai says, “and we are fighting their war.”

Over lunch at his home, where Lai pours cup after cup of warm rice wine, he talks about his meeting with Pompeo. Lai and his wife are Catholics. When Lai entered Pompeo’s office, he says, the secretary of state told him he’d put aside his daily Bible reading because that day’s passage was long and he didn’t want to keep Lai waiting. Pompeo then asked what the U.S. could do to help. “Pray for us,” Lai says he answered, his eyes tearing up as he recalls the moment, knowing those prayers may take more decades to answer than he has left.

Before the late-August protest in Victoria Park, Lai and Lee milled around near a stage where young people were shouting into microphones to rev up the crowd. The old men weren’t asked to come up. “This is their show,” Lai shrugged. He, Lee, and other members of the old guard clutched the edges of a white banner, which demanded, among other things, that China grant the city democracy, and set off with the other protesters in a heavy downpour. “People want to prove that we will persist, we’re not cowed by fear,” Lai said. “We’re not giving up.”

To contact the editor responsible for this story: Robert Friedman at rfriedman5@bloomberg.net, Jillian Goodman

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