The Asian Wall Street Journal (AWSJ) 15th February 2001

Political News Web Site Struggles To Profit In Malaysia By DOUGLAS APPELL Staff Reporter

KUALA LUMPUR -- The news site was founded to do two things -- offer hard-hitting political coverage, and make money. In Malaysia, that combination can be treacherous.

That became clear to a Malaysian insurance agent recently when he found himself out of a job after placing a banner ad on the site with his company's name. The company says he was sacked for failing to get clearance from the company beforehand. It declined to say whether the firing was also punishment for lending the firm's name to a publication that isn't afraid to criticize the government.

Last week, Malaysiakini ran into new political obstacles. After a magazine reported the start-up had received funding from hedge-fund guru George Soros -- a despised man in many parts of Southeast Asia -- Deputy Home Affairs Minister Chor Chee Heung urged that Malaysiakini reporters be barred from covering government events. The threat is a serious one for an electronic-newspaper that lives on political coverage.

Such minefields could derail a company that would otherwise be a prime candidate to succeed in the New Economy sector that Malaysia is eager to promote. Prime Minister Mahathir Mohamad talks proudly of megaprojects like the Multimedia Super Corridor, and of plans to foster a "knowledge economy." About a year ago, Malaysia launched Mesdaq, a new stock exchange to help fund local technology companies.

Malaysiakini is, in effect, a test of just how much the government is prepared to loosen its iron grip on the media to meet its commitment to nurture high-tech. The company's managers haven't given up hope yet. Politics may complicate efforts to make independent journalism a commercial success here, but "we can do it," insists Chief Executive Officer Premesh Chandran.

The company has already made inroads in the local media market, exploiting the government's "hands off the Internet" pledge, which exempts online outlets from the annual licensing requirements for mainstream media. Malaysiakini attracts more than 100,000 visitors a day with the sort of coverage critical of Dr. Mahathir's government that is rarely found in the country's major dailies. Some recent headlines: "Pro-Malay Gathering Turns Into Anti-Mahathir Rally" and "Anti-Corruption Agency Urged to Investigate Sarawak Chief Minister's Alleged Abuses."

But the independence that attracts readers also scares off some advertisers and investors. The income profile of Malaysiakini's audience -- only a small percentage of Malaysians have access to computers and the Internet -- should make it an attractive venue for online advertisers. Yet, the perception of government hostility toward the e-newspaper is a deterrent, says one advertising industry executive who declined to be identified. That view is seconded by an executive at a multinational company, who, also requesting anonymity, professes admiration for Malaysiakini's reporting.

The case of the insurance agent illustrates why the fear exists. In an article about Malaysiakini in The Asian Wall Street Journal last August, Islamic insurer Takaful Nasional Sdn. Bhd. was cited as one of the Web site's advertisers. Takaful responded with a letter to the paper denying it had any links with Malaysiakini.

In the letter, Kamaruddin Sharif, principal officer with Takaful, explained that the company dismissed the employee for using the company's name without its authorization. Noting that Takaful is government-owned, Datuk Kamaruddin pointed out that the free banner ad hadn't contributed to Malaysiakini's revenues.

Datuk Kamaruddin didn't respond to requests for further comment on the employee's dismissal.

Malaysiakini's approach to the news could affect its financial prospects in other ways. For example, worries about a government clampdown may deter strategic investors or make it difficult to list the company's shares, says Ian Yoong, a financier with CIMB Securities Sdn. Bhd in Kuala Lumpur.

So far, though, the online paper's problems have been rooted more in the perception of government distaste for the site than in any official action against it. "The government has basically kept its word not to interfere in the Internet," says Mr. Chandran. He sees growing evidence that even people within "the establishment" see the need for "something like Malaysiakini."

Now in its second year of operation, Malaysiakini -- like most of its Internet brethren globally -- isn't generating enough revenue to cover its operating costs of 80,000 ringgit ($21,053) a month. The company seeks equal chunks of revenue from advertising, content sales and technology joint ventures, and hopes to break even by the end of this year and be profitable in 2002, company officials say. A local stock market listing could come sometime later.

For now, though, the company needs funding. It is "on the verge of closing a deal to sell an equity stake to an investor who shares our values of promoting independent media," Mr. Chandran says. He declines to elaborate on the identity or location of the investor.

Financing became a politically perilous issue this month, when the Far Eastern Economic Review reported that Malaysiakini had received funding from George Soros, whom Dr. Mahathir has singled out as the villain behind Asia's financial crisis in 1997. A few days later, Mr. Chor, the deputy home minister, said organizations without government-granted media accreditation, such as Malaysiakini, should be barred from covering government events.

Malaysiakini denied the report in the Review, which is owned by the same company that publishes this newspaper, Dow Jones & Co. The site said it hasn't received any money from the international financier. The Review later issued a clarification, saying Soros money went to the Southeast Asian Press Alliance, or Seapa, which in turn funded Malaysiakini. Seapa, however, said the Soros money was used for a project unrelated to the Malaysian news site. The Review has declined to endorse assertions by Seapa and Malaysiakini that the site received neither direct nor indirect funding from Mr. Soros. Seapa is a nonprofit organization that promotes press freedom in the region.

Malaysiakini Editor in Chief Steven Gan says he is bitter over the Soros episode. It could undermine the credibility that is essential to Malaysiakini's success, he says, adding that it will be months before the damage can be assessed.

Meanwhile, Mr. Chandran is emphasizing the positive. The government, he points out, seems split over Mr. Chor's recommendation. An aide to Deputy Prime Minister Abdullah Badawi, who heads the Home Affairs Ministry and is Mr. Chor's boss, says Datuk Abdullah will continue to allow Malaysiakini reporters to attend his functions.

But the signals are mixed. Information Ministry parliamentary secretary Zainuddin Maidin told reporters Sunday that "Malaysiakini (journalists) are barred from covering press conferences not because they are critical of the government, but because their credibility is in doubt." Datuk Zainuddin cited the alleged Soros financing as proof.

Meanwhile, Malaysiakini will continue to operate in the "gray area" that exists because of the government's pledge to promote the Internet in Malaysia, says Mr. Chandran. "The government doesn't want to legitimize us, but at the same time they're allowing us to operate," he says