Brand Health Check... Long-term view needed for Tom Group's future

The company, controlled by Hong Kong tycoon Li Ka-Shing, delivered net profit of HK$32 million (US$4.1 million), down from $260 million one year earlier. Much of this drop was attributed to the fierce competition faced by Tom Online, whose business revenue accounts for 47 per cent of the group’s total.

om Online has been hit hard by the Chinese Government’s increased regulation of wireless value-added services, along with fierce competition in mainland China’s internet market.

The deteriorating performance of Tom Online has prompted some drastic action; shortly before the results announcement, Tom Group announced that it would spend US$200 million to buy out and de-list Tom Online. In addition, Tom Group is also set to sell its sports-related services, after that division’s income declined by nearly 46 per cent following a restructuring in the first half of 2006.

Amid this turbulence though, few are concerned about Tom’s long-term health. The group’s publishing services division turned a healthy profit last year, and its outdoor operations remain stable. Even Tom Online is viewed only as a victim of the shift in regulatory policy. “It basically had to change its whole charging structure,” explains one analyst. “But end user demand is still pretty strong.”

Tom’s growth strategy, adds the analyst, is likely to pay off in the longer run. Last year, the group made a series of strategic divestments, which included swapping shares from newspaper Yazhou Zhoukan to Ming Pao and selling 35 per cent of Tom Outdoor to Singapore Press Holdings.

Other key moves the group has made in recent times include a high-profile web auction venture in China with eBay, which will see the launch of an internet trading side under the Tom Eachnet brand. However, speculation has recently emerged that even the EBay deal may be coming apart.

Fact Box 

Tom Group’s net profit plunged 88 per cent in 2006, due to fierce competition in China’s Internet market.

The group is to buy back Tom Online, due to the company’s deteriorating performance.

Tom is selling its 49 per cent stake in the loss-making China Open promotion for HK$120 million (US$15.5 million) and is exiting the sports marketing business.

Rachel Catanach, general manager — Hong Kong, Waggener Edstrom Worldwide

Tom Group’s recent announcement of an 88 per cent drop in profit because of a huge loss within its sports-related services and a revenue downturn from 65.7 per cent-owned Tom Online proved once again that internet companies can win big, but they can also lose big — and in quite a short time.

Tom Online has been a major revenue earner for the group, but due to new Government restrictions on mobile content marketing, its profit fell sharply last year.

Tom Group responded by announcing in March its intention to acquire Tom Online. This was well received by the market, with both stocks rising on the news. In an effort to further stem the tide, Tom Group has said it would sign agreements to sell some of its sports services before terminating them.

Both the halting of its sports services and the Tom Online buyout announcement are a good start, but Tom Group needs to continue to demonstrate to the market that it has a solid strategic plan to rebuild profitability. Eyes will be on Tom Online’s joint-venture with eBay China. In the short-term, however, Tom Group’s traditional media assets may be its saviour as it looks where to place its next big bet.

Warren Wang, general manager, FutureBrand China

Despite being a leading media conglomerate in Greater China, Tom Group is better known through Tom Online as a Hong Kong internet company which provides value-added products and services. Tom Online also has e-commerce business co-branding with eBay, and a vast user base in collaboration with Skype. Both partners are top internet brands with great brand assets. 

Tom Online is the biggest revenue contributor to the group, while its publishing, TV and entertainment divisions started to pick up in 2006. The connection of Tom subsidiary brands CETV and Huayi Brothers to parent brand is not well known, but both command massive audiences and wield great influence in China. 

Tom Group’s diversified media coverage and strong reputation should be seen as a strong competitive advantage in the mainland’s media arena. Tom Group needs to re-evaluate its master brand and business portfolio in relation to industry drivers, in order to maximise relevance, credibility, differentiation and sustainability.

Communicating a consistent message with its audiences may increase reorganisation and connection, and allow Tom to grow brand loyalty.