Merceh Co – ACCA SBL Preseen – March 2026

SBL Pre-Seen Analysis: March 2026 Exam Sitting

Introduction

This blog provides a structured strategic analysis of the pre-seen material for the March 2026 sitting of the ACCA Strategic Business Leader, based on the case of Merceh Co.

Its purpose is not to predict the exam requirements, but to build a clear, practical understanding of:

• Merceh’s business model
• Its strategic challenges
• Governance and risk exposure
• Financial and non-financial performance
• External pressures affecting the board

The analysis applies relevant strategic models directly to the scenario and focuses on board-level judgement rather than theory. All interpretations are grounded in the pre-seen, with reasonable inferences clearly identified.

By developing a strong understanding of Merceh’s position, candidates will be better prepared to respond confidently and professionally to any task in the SBL exam.

Area 1 – Understanding the Business Model

Before analysing governance, risk, or strategy, the board must clearly understand how Merceh creates value and where that value is vulnerable.

Merceh Co is one of the five largest magazine publishers in Darland, with a 60-year history and a stock exchange listing. It publishes more than 300 magazines across leisure categories in both print and digital formats.

This is not simply a publishing business.

It is a content production, audience aggregation, and advertising monetisation business operating in structural transition.

To understand its sustainability, we analyse four dimensions:

• Revenue architecture
• Cost structure
• Asset intensity
• Strategic positioning

Revenue Architecture – A Two-Sided Economic Model

Merceh’s revenue model is built on two interdependent streams: reader income and advertising income. This dual structure is central to understanding both its strength and its vulnerability.

Reader-Based Revenue

Merceh generates income through:

Retail sales of print magazines

Print subscriptions

Digital subscriptions

Print sales through retailers provide visibility and physical presence in supermarkets and transport hubs. However, this channel exposes Merceh to declining footfall in physical retail environments and reduced impulse purchases.

Print subscriptions provide more predictable revenue, as subscribers commit to multiple editions over a period. This improves cash flow stability and reduces distribution uncertainty. However, print subscriptions are still exposed to long-term behavioural shifts as readers increasingly consume content digitally.

Digital subscriptions represent Merceh’s transition toward a lower marginal cost model. Unlike print, digital distribution eliminates paper, printing, and physical logistics costs. This theoretically improves scalability and operating margins. However, digital subscribers expect continuous engagement, multimedia integration, and regular updates, not just a digital replica of a print edition.

Therefore, digital revenue is not merely a cheaper distribution channel; it requires a different content strategy and continuous technological investment.

The board must therefore consider whether digital subscriptions are being positioned as a premium experience or simply as a defensive response to print decline.

Advertising Revenue

Advertising revenue is equally significant, and its performance is directly linked to Merceh’s audience size and engagement levels.

Advertisers pay Merceh to access specific reader demographics. In print, this value was historically strong because magazines acted as gatekeepers to niche interest communities. However, digital transformation has weakened this control.

Today, advertisers can reach similar audiences through:

Social media targeting

Influencer marketing

Search engine advertising

Direct-to-consumer digital campaigns

These alternatives often offer real-time performance analytics, precise demographic targeting, and flexible budgets, features traditional print advertising cannot match.

If Merceh cannot provide advertisers with compelling digital engagement data — such as visitor numbers, click-through rates, subscriber retention and audience segmentation — advertising income may gradually shift elsewhere.

This creates structural interdependence:

• If subscriber numbers decline, advertising rates fall.
• If advertising income weakens, funding for high-quality content declines.
• If content quality drops, subscribers leave.

The model is circular and fragile.

For the board, the key strategic question is whether Merceh is repositioning itself as a reader-first subscription business, or whether it remains structurally dependent on advertising in an increasingly competitive digital marketplace.

Structural Industry Shift: Decline of Print Media

One of the most important strategic realities facing Merceh is the structural decline of print-based magazines. This is not a short-term economic fluctuation. It reflects a long-term change in consumer behaviour, driven by digital accessibility, mobile technology, and free online content.

For decades, print magazines were the dominant medium for niche interests such as lifestyle, sport, hobbies, and entertainment. They offered curated, expert-led content that was not easily available elsewhere. That advantage has eroded significantly.

Today, consumers can access similar information instantly through websites, blogs, social media platforms, video channels, and podcasts. Many of these alternatives are free. As a result, the willingness of consumers to pay for physical magazines is steadily decreasing.

This has several strategic consequences for Merceh.

• First, falling print demand directly reduces revenue from both single-copy sales and print subscriptions. Retailers may order fewer copies, reducing visibility and distribution reach. Over time, this may also weaken brand presence in physical spaces.
• Second, declining print circulation reduces the attractiveness of print advertising. Advertisers are primarily concerned with reach and engagement. If readership declines, advertisers will negotiate lower rates or shift budgets to digital channels where performance can be tracked in real time.
• Third, print production involves significant fixed costs. Merceh prints in-house. This means it carries costs related to printing equipment, maintenance, staffing, utilities, and distribution infrastructure. If print volumes fall but these costs remain relatively stable, the cost per unit increases. This reduces margins and increases operational pressure.

Unlike companies that outsource printing, Merceh cannot easily reduce capacity without significant restructuring. This creates operational rigidity.

There is also a cultural dimension to this issue. A company that has operated for sixty years in print publishing is likely to have processes, workflows, and management mindsets shaped by print economics. Transitioning from a print-centric identity to a digital-first organisation requires more than technological investment. It requires strategic clarity and cultural adaptation.

The board therefore faces a difficult balancing act. Print may still generate meaningful cash flow in the short term, particularly from loyal subscribers. However, over-investing in a declining channel could weaken long-term competitiveness. On the other hand, abandoning print too quickly could alienate a core reader base and accelerate revenue decline.

The central strategic question is not whether print is declining. It is how long print remains financially viable, and how aggressively Merceh should reallocate resources towards digital growth.

Digital Strategy and Platform Dependency

Merceh has responded to industry change by operating in both print and digital formats. On the surface, this suggests adaptation. However, the real strategic issue is not whether Merceh is present in digital publishing, but whether it is positioned strongly enough to compete in a digitally dominated media environment.

Digital publishing fundamentally changes the economics of content.

Unlike print, digital distribution removes physical constraints. There are no paper costs, no printing delays, and no logistics barriers. In theory, this allows for faster publication cycles, multimedia integration, and wider audience reach at lower marginal cost.

However, digital publishing introduces new forms of competition and new types of dependency.

Increased Competitive Intensity

In print publishing, barriers to entry were high. A new entrant needed printing infrastructure, distribution networks, retailer relationships, and capital investment. In digital publishing, those barriers are dramatically lower. Anyone with technical capability and content expertise can launch a website, newsletter, video channel, or podcast at relatively low cost.

This means Merceh is no longer competing only with traditional publishers. It is competing with independent creators, influencers, specialist bloggers, and digital-first media platforms.

Many of these competitors operate with lean cost structures and can offer content free of charge, monetising instead through advertising, sponsorship, or affiliate marketing.

This puts pressure on Merceh’s subscription model. If consumers can access similar content without payment, Merceh must justify why its content is worth subscribing to. That justification must be based on quality, credibility, exclusivity, or community value.

Platform Dependency Risk

Merceh relies on a digital publishing platform to produce and distribute online content. While this provides technological capability, it also introduces dependency.

When a business relies on an external platform provider, several risks emerge:

• The company may have limited control over system upgrades and innovation speed. Switching providers may be costly and disruptive.
• Data ownership and analytics capabilities may depend on the provider’s structure. Future pricing increases from the platform provider could affect profitability.

In addition, digital visibility is increasingly shaped by search engine algorithms and social media distribution rules. If algorithm changes reduce the visibility of Merceh’s content, website traffic may decline even if content quality remains strong.

Reduced traffic can lead to lower advertising revenue and weaker subscriber acquisition. Importantly, these algorithm changes are outside Merceh’s direct control.

This creates strategic exposure to external digital gatekeepers.

Data and Analytics Capability

Digital publishing offers a major opportunity that print never could: data.

Through digital subscriptions and website traffic, Merceh can gather insights into:

• Reader behaviour
• Engagement patterns
• Popular topics
• Time spent on content

Conversion rates from visitors to subscribers

If used effectively, this data can strengthen:

• Advertising pricing power
• Content strategy decisions
• Subscriber retention initiatives
• Targeted marketing campaigns

However, digital transformation is not automatic. Having a digital platform does not guarantee effective data exploitation. The board must consider whether Merceh is using analytics strategically, or merely operating digitally without extracting full value from audience data.

Strategic Positioning Question

The key issue for the board is whether Merceh’s digital strategy is defensive or proactive.

A defensive digital strategy simply replicates print content online to avoid losing readers. A proactive strategy reimagines the content model for digital consumption, including multimedia integration, personalised content delivery, and community engagement features.

If Merceh’s digital presence is primarily an extension of print, it risks falling behind more agile, digital-native competitors.

The digital transition is not merely about distribution. It is about redefining how value is created in a content-driven business.

Cost Structure and Operating Leverage

Understanding Merceh’s cost structure is critical because strategic flexibility depends heavily on how easily costs can adjust to changes in revenue.

Merceh operates in a business with a significant fixed cost base. While digital publishing reduces some physical costs, the overall structure still reflects its legacy print origins and its scale as one of the largest publishers in Darland.

High Fixed Costs in Print Operations

Printing in-house creates substantial fixed commitments. These include:

• Specialised printing equipment
• Maintenance and technical staff
• Factory utilities and space
• Depreciation of machinery

Unlike outsourcing, in-house printing means that Merceh cannot easily scale down costs if volumes decline. If fewer magazines are printed, the cost per unit increases because the fixed costs are spread over fewer copies.

In a declining print market, this creates operating leverage risk. Even a modest fall in print revenue can lead to a disproportionate fall in operating profit.

This makes print decline not only a revenue issue but a margin issue.

Paper Procurement and Supply Contracts

Merceh purchases paper in bulk and enters into long-term supply arrangements. Long-term contracts can stabilise prices and ensure supply continuity. However, they also reduce flexibility.

If print demand falls faster than expected, Merceh may find itself committed to purchasing more paper than required. Alternatively, if paper prices rise sharply due to inflation or supply disruptions, margins may be squeezed.

Supply rigidity can therefore amplify external shocks.

Distribution Infrastructure

Printed magazines must be transported from printing locations to distribution hubs, then onward to retailers and subscribers. This involves:

• Transportation costs
• Postal charges
• Fuel exposure
• Warehousing and logistics overhead

These are largely fixed or semi-fixed costs, particularly when distribution networks are already established.

In contrast, digital distribution does not require physical logistics. This highlights a strategic contrast between legacy infrastructure and future scalability.

The board must consider whether maintaining physical distribution at current scale remains economically justified over the long term.

Salaries and Human Capital Costs

Merceh employs a wide range of staff including editors, designers, advertising teams, marketing professionals, IT support and administrative staff.

Salaries represent a recurring fixed commitment. In addition, well-known freelance authors may command high fees for specialist content.

In a content-driven business, cutting staff costs too aggressively may reduce quality, credibility and brand differentiation. However, maintaining high salary commitments in a shrinking revenue environment increases financial pressure.

This creates a strategic tension between cost control and content quality.

Technology and Digital Platform Costs

Although digital publishing removes paper and distribution costs, it introduces technology expenses, including:

• Digital platform licensing fees
• System maintenance
• Data protection compliance
• IT infrastructure

Technology costs tend to be ongoing rather than one-off. In addition, digital competition may require continuous investment in upgrades and innovation.

Therefore, digital is not cost-free. It shifts the cost structure rather than eliminating it.

Operating Leverage and Profit Sensitivity

When a company has a high proportion of fixed costs, changes in revenue have amplified effects on profit. This is known as operating leverage.

For Merceh, this means:

If revenue grows through successful digital expansion, profitability can improve rapidly because fixed costs are spread over a larger revenue base.

If revenue declines, profitability can deteriorate quickly because fixed costs remain.

In a structurally uncertain industry, high operating leverage increases risk.

The board must therefore assess whether the current cost base is aligned with the future revenue mix. If digital revenue does not grow fast enough to compensate for print decline, restructuring may become necessary.

Human Capital and Content as Strategic Assets

Merceh is not a manufacturing business and it does not rely on physical assets for competitive advantage. Its primary asset is intellectual capital. The quality, credibility and originality of its content determine whether readers subscribe and whether advertisers are willing to associate with the brand.

Because of this, human capital is not just an operational resource. It is a strategic asset.

Composition of the Workforce

Merceh’s content model depends on several interlinked roles:

• In-house authors – These employees provide continuity, institutional knowledge and brand consistency. Because they are embedded within the organisation, they can align closely with editorial guidelines and strategic priorities.
• Freelance authors – Freelancers provide specialist expertise and, in some cases, recognised personal reputations. Well-known contributors may attract readership in their own right. However, they are not employees and are paid per item, which creates a transactional relationship rather than long-term commitment.
• Editors – Editors safeguard quality, tone, accuracy and compliance. In a regulated publishing environment, editorial control reduces the risk of defamation, misinformation and reputational damage.
• Design and IT staff – These roles ensure that both print and digital formats remain attractive, accessible and technically functional.
• Advertising and marketing teams – These teams convert audience engagement into commercial income and ensure visibility in competitive markets.

Each of these roles is interdependent. Weakness in one area, such as editorial oversight or digital presentation, can undermine the entire value proposition.

Strength of the Hybrid Model

Merceh’s use of both in-house and freelance authors provides flexibility.

• Freelancers allow the company to access niche expertise without permanent salary commitments. This reduces fixed labour costs and allows the company to scale content based on demand.
• In-house authors provide stability, alignment with corporate values and easier coordination with editors and marketing teams.

This hybrid structure can be strategically advantageous because it balances cost control with quality.

However, it also introduces risk.

Dependency on Key Individuals

The pre-seen identifies loss of key persons as a risk. In a content business, this risk is particularly acute.

• If a well-known freelance author leaves, subscribers who value that voice may follow them to a competitor or independent platform.
• If editorial leaders depart, content direction may become inconsistent, affecting brand identity.
• If experienced digital staff leave, technological continuity and innovation may slow.

Unlike machinery, intellectual capital walks out of the building at the end of each day. Retention and engagement are therefore strategic issues, not merely HR concerns.

The board must consider whether Merceh has adequate succession planning, talent development and retention mechanisms in place.

Content Quality as Differentiation

Merceh positions itself around expertise, engagement and community. In a world where large volumes of content are available free of charge, quality and trust become differentiators.

Subscribers are more likely to pay when they perceive:

• Expert insight rather than generic commentary
• Reliable information rather than speculation
• Professional editing rather than informal blogging
• A sense of belonging to a trusted community

If Merceh reduces editorial investment in an attempt to cut costs, it risks eroding this differentiation.

This creates a strategic trade-off:

• Cost reduction may improve short-term margins.
• But reduced quality may weaken long-term subscription growth.

Ethical and Regulatory Implications

Because Merceh operates in a regulated environment, human capital risk extends beyond quality.

• Inaccurate or misleading content may result in fines or mandatory corrections.
• Failure to credit original sources may result in plagiarism claims.
• Poor editorial judgement on controversial issues may damage reputation.

Editorial oversight and staff training therefore contribute directly to risk management.

The board must ensure that editorial policies are not only documented but actively embedded in practice.

Strategic Implication

Human capital in Merceh is not easily replaceable. It shapes:

• Brand credibility
• Subscriber loyalty
• Advertising attractiveness
• Regulatory compliance

As the industry becomes more digital and competitive, retaining talent and maintaining editorial excellence may become more important than physical infrastructure.

The company’s long-term sustainability depends on whether it can continue producing content that justifies payment in an increasingly crowded and free digital ecosystem.

Core Value Drivers and Structural Vulnerabilities

Having analysed revenue streams, digital transition, cost structure and human capital, it is important to identify the core elements that drive value in Merceh’s business model, and the structural weaknesses embedded within it.

Core Value Drivers

The following elements determine whether Merceh succeeds commercially:

• Audience trust and credibility – Readers are willing to pay for content when they perceive it as reliable, expert-led and professionally curated. Trust differentiates Merceh from informal online sources. Without credibility, subscription retention becomes difficult.
• Quality of content and editorial control – Strong editorial processes ensure consistency, tone, and regulatory compliance. In a regulated publishing environment, this also protects the company from fines and reputational damage.
• Subscriber base stability – Subscriptions provide predictable recurring income and reduce reliance on volatile retail sales. A stable subscriber base strengthens cash flow planning and advertiser attractiveness.
• Advertising attractiveness – Advertisers value engaged, well-defined audiences. Merceh’s ability to demonstrate audience engagement directly affects advertising pricing power.
• Brand legacy and market position – Being one of the largest publishers with a sixty-year history gives Merceh reputational capital. This legacy may provide inertia in customer loyalty, but it does not guarantee future relevance.
• Operational control through in-house printing – Vertical integration provides control over quality and scheduling. However, this is also a potential constraint.

Structural Vulnerabilities

At the same time, the business model contains embedded weaknesses:

• Dependence on a declining print market – Even if print remains profitable today, long-term volume decline is highly probable. This creates gradual revenue erosion risk.
• High fixed cost exposure – Printing infrastructure, staff salaries and distribution networks limit flexibility. Revenue volatility can quickly translate into profit instability.
• Advertising interdependence – Advertising income is sensitive to subscriber numbers and digital visibility. If audience engagement weakens, advertising revenue may decline disproportionately.
• Platform and algorithm exposure – Digital growth depends partly on external technology providers and search engine visibility. These are factors outside direct managerial control.
• Talent dependency – Content quality depends on skilled individuals. Loss of key contributors may weaken differentiation.
• Competitive digital environment – The digital market has lower entry barriers, increasing competition from non-traditional players.

Area 2 – Financial and Performance Interpretation

The purpose of this section is to interpret Merceh’s financial and non-financial indicators in light of its business model and industry position.

Numbers in SBL are never isolated. They must be read strategically.

Revenue Trend and Growth Quality

Revenue has increased from just under 560 million in 20X1 to a little above 640 million in 20X5. This represents growth of 80 million over five years, or approximately ((640/560) – 1 =) 14% growth.

At first glance, this suggests strong performance. However, SBL analysis requires us to look beneath the headline growth and examine composition and quality.

Overall Revenue Growth

Revenue over the five-year period is as follows:

• 20X1: 555 million
• 20X2: 600 million
• 20X3: 630 million
• 20X4: approximately 641 million
• 20X5: approximately 641.5 million

Growth Pattern Interpretation

Revenue increased steadily from 20X1 to 20X3, rising by 75 million over two years. Growth then slowed significantly in 20X4 and completely plateaued in 20X5.

This is strategically important.

Between 20X1 and 20X3, revenue growth averaged around 6 to 8 percent per year. Between 20X3 and 20X5, growth effectively stalled.

The flattening of revenue in 20X5 suggests that Merceh may have reached a saturation point under its current model.

This aligns with the earlier observation that publication revenue declined in the most recent year. Even if advertising revenue continued to grow, it was not sufficient to generate overall revenue expansion.

At SBL level, plateauing revenue is often more concerning than declining revenue because it signals structural maturity or competitive pressure rather than temporary shock.

Split Between Publication and Advertising Revenue

Publication revenue increased from around 315 million in 20X1 to 350 million in 20X5. However, it is important to note that from 20X4 to 20X5 the revenue fell from 370 million to 350 million.

Advertising revenue also increased from around 240 million to 310 million over the same period.

This reveals several important insights.

• Revenue growth is balanced between publication and advertising income.
• Merceh is not becoming disproportionately dependent on one source. Both sides of the two-sided model are expanding.

• Advertising revenue growth mirrors publication growth.
• This suggests that advertiser confidence has not yet weakened significantly. Advertisers still see value in Merceh’s audience base.
• The equal split implies that roughly half of Merceh’s income remains exposed to advertising market conditions.
• This creates structural sensitivity to economic downturns and digital competition, as advertising budgets are typically more volatile than subscription income.

The board must therefore consider whether future strategy should aim to increase the proportion of subscription income to reduce volatility risk.

Print-Based Edition Sales Volume

Print-based edition sales volume has decreased from approximately 3.9 million units to 3.2 million units over the period.

This represents a decline of around 0.7 million units, or roughly 18 percent.

This movement is significant and consistent with the broader narrative that the print publishing market is diminishing.

This decline confirms that Merceh is operating within a structurally contracting print environment.

Even though total revenue has remained relatively stable, falling print volumes suggest:

• Underlying demand for physical magazines is weakening
• Consumer behaviour is shifting toward digital consumption
• Print may no longer be a growth engine

The fact that revenue has plateaued while print volumes have declined suggests that either:

• Digital revenue is compensating for lost print volume, or
• Pricing adjustments are temporarily offsetting volume decline

However, volume decline is often a leading indicator.

If print volumes continue to fall:

• Fixed printing and distribution costs will be spread over fewer units
• Unit costs may rise
• Margins may compress further

Given that operating profit has already declined from its peak, falling print volume strengthens the argument that structural pressure is building.

Profitability and Margin Analysis

Operating profit shows a clear pattern over the five-year period:

• 20X1: approximately 175.5 million
• 20X2: approximately 190.3 million
• 20X3: approximately 190.8 million
• 20X4: approximately 185.5 million
• 20X5: 175 million

This trend is far more revealing than a simple comparison between 20X1 and 20X5.

Peak and Subsequent Decline

Operating profit increased strongly between 20X1 and 20X2, rising by nearly 15 million. It then stabilised in 20X3, before beginning a gradual decline in 20X4 and falling back to 175 million in 20X5.

This means that by 20X5, operating profit has effectively returned to its 20X1 level.

Despite revenue growth over the same period, profit has not been sustained at peak levels.

This indicates margin compression.

Divergence Between Revenue and Profit

Revenue increased overall across the five years. However, operating profit has declined since 20X3.

This divergence suggests:

• Costs are rising faster than revenue in recent years
• Revenue growth may be lower margin in nature
• The business model may be becoming less efficient

In particular, the decline in publication revenue from 370 million to 350 million in 20X5 may be contributing to weaker margins, especially if digital advertising is carrying lower contribution margins than print subscriptions.

Operating Margin Pressure

In 20X3, operating profit was at its highest point. From that peak, profit has fallen by approximately 15.8 million by 20X5.

This downward trend across two consecutive years is strategically important.

It may reflect:

• Rising input costs such as paper or distribution
• Increased digital investment
• Higher marketing spend to defend market share
• Competitive pricing pressure

The key issue is that profitability is deteriorating even though total revenue has not collapsed.

This suggests structural pressure building within the cost base.

Revenue and Profit Divergence

The most important analytical insight is the divergence between revenue and profit.

Revenue grew from 555 million to 641 million, an increase of 86 million.

Operating profit did not grow across the same period. It has returned to its starting level.

This suggests:

• Costs are rising faster than revenue
• The revenue mix may be shifting toward lower-margin streams
• Operational efficiency may be weakening
• Investment spending may be increasing

Given the business context, likely cost pressures include:

• Paper and production costs
• Technology and digital platform costs
• Marketing spend to support digital growth
• Staff and freelance payments

Even without detailed cost breakdowns, the direction is clear: growth is becoming less profitable.

Strategic Risk Signal

At SBL level, candidates must identify directional risk.

The operating profit trend suggests:

• The company may have already passed its profitability peak
• Margins are tightening
• The cost structure may not be fully aligned with the emerging revenue mix

If publication revenue continues to decline and advertising becomes a larger proportion of income, profit volatility may increase further.

Because Merceh operates with significant fixed costs, continued revenue softening could lead to accelerated profit decline.

Board-Level Implication

The board should not be reassured by cumulative revenue growth.

The more important signal is that operating profit has:

• Peaked in 20X3
• Declined for two consecutive years
• Returned to its five-year starting point

This suggests that the business is entering a more challenging phase.

Strategic decisions around cost restructuring, digital acceleration and revenue mix diversification may need to be prioritised before profit deterioration becomes more pronounced.

Free Cash Flow and Financial Flexibility

Free cash flow is one of the most strategically important KPIs for Merceh because the company is operating in a transition phase.

A business shifting from print to digital requires:

• Ongoing technology investment
• Marketing expenditure to acquire digital subscribers
• Possible restructuring costs
• Maintenance of printing infrastructure

Therefore, free cash flow determines how much strategic freedom the board actually has.

Link Between Operating Profit and Free Cash Flow

We know that operating profit peaked in 20X3 at approximately 190.8 million and has since declined to 175 million in 20X5.

If operating profit is falling, free cash flow may also be under pressure unless:

• Working capital requirements have reduced
• Capital expenditure has declined
• Dividend payments have been adjusted

In a publishing business, working capital can be significant because of:

• Paper inventory
• Receivables from advertisers
• Subscription prepayments

If revenue growth has plateaued and margins are compressing, it is reasonable to expect pressure on operating cash generation.

The board should examine whether free cash flow is:

• Tracking the decline in operating profit
• Or remaining stable due to strong cash management

Capital Expenditure Considerations

Merceh operates in-house printing facilities.

This suggests recurring capital expenditure for:

• Maintenance of machinery
• Replacement of ageing equipment
• Compliance with environmental standards

Even if print volumes decline, the company may still incur maintenance capex to sustain operations.

At the same time, digital publishing requires:

• Platform licensing
• IT upgrades
• Cybersecurity investment
• Data analytics capability

This means the company is likely investing in two systems simultaneously:

• Legacy print infrastructure
• Digital transformation capability

Dual investment pressure can constrain free cash flow.

If free cash flow is declining while both cost bases remain, financial flexibility reduces.

Dividend Expectations and Shareholder Pressure

Merceh is listed on the stock exchange and has institutional shareholders.

Institutional investors often expect stable or growing dividends.

If operating profit is declining and free cash flow is tightening, the board faces a strategic dilemma:

• Maintain dividend payouts to satisfy shareholders
• Or retain cash to fund digital transformation

If dividends are prioritised over reinvestment, long-term competitiveness may weaken.

If dividends are reduced, share price and investor confidence may suffer.

Free cash flow therefore links directly to governance and strategic choice.

Financial Resilience

Revenue has plateaued in 20X5 and operating profit has declined for two consecutive years.

If free cash flow is also trending downward, the company may be entering a lower resilience phase.

High fixed costs increase vulnerability because:

• Revenue stagnation reduces buffer
• Margin compression reduces reinvestment capacity
• Unexpected shocks, such as algorithm changes or advertising downturn, become harder to absorb

The board must ensure that free cash flow remains strong enough to support:

• Strategic investment
• Risk management
• Technological innovation

Without sufficient cash generation, the business becomes reactive rather than proactive.

Strategic Interpretation

Free cash flow is not simply a liquidity metric. It is a transformation enabler.

Given:

• Revenue plateauing
• Operating profit declining
• Structural industry transition

The sustainability of free cash flow will determine whether Merceh can manage transformation on its own terms or be forced into defensive restructuring.

If free cash flow remains stable, the company retains strategic control.

If free cash flow is weakening, urgency increases.

Area 3 – Governance and Board Effectiveness

Merceh is a listed company with significant institutional ownership. As a public entity operating in a regulated publishing environment, governance quality is central to strategic sustainability.

In SBL, governance analysis must go beyond structure and examine effectiveness.

Board Composition and Structure

Merceh has:

• A Chair
• Executive directors including the Chief Executive and Finance Director
• Non-executive directors
• Institutional shareholders holding significant stakes

The presence of non-executive directors is positive because it introduces independent oversight. In a business undergoing structural transition, independent challenge is essential.

However, board effectiveness depends on more than representation. It depends on:

• Diversity of expertise
• Digital competence
• Industry experience
• Independence of thought

Given Merceh’s strategic shift toward digital publishing, the board must possess sufficient digital and technological literacy to make informed strategic decisions.

If the board’s experience is heavily rooted in traditional print publishing, strategic inertia may arise.

The key governance question is whether the board’s skills match the company’s future direction rather than its past.

Institutional Shareholder Influence

Institutional shareholders often exert pressure for:

• Stable dividend payments
• Predictable earnings
• Share price performance

This can create tension in a business that requires long-term digital reinvestment.

If the board prioritises short-term profitability to satisfy institutional investors, digital innovation may be underfunded.

Conversely, if investment reduces short-term returns, shareholder dissatisfaction may increase.

The board must balance stewardship with strategic transformation.

This tension is common in mature industries facing disruption.

Separation of Oversight and Execution

Good governance requires clarity between management and oversight.

The executive team is responsible for implementing strategy. Non-executives are responsible for challenging and monitoring that strategy.

In a business facing revenue plateau and declining margins, the quality of challenge becomes critical.

Non-executive directors should be asking:

• Is the digital strategy sufficiently ambitious?
• Are cost structures aligned with future revenue mix?
• Is advertising reliance increasing risk?
• Is succession planning adequate?

If the board operates passively, early warning signals may be ignored.

Committee Structure and Oversight Mechanisms

Listed companies typically operate with audit and remuneration committees.

The audit committee plays a particularly important role in Merceh’s context because:

• Revenue recognition for advertising may involve judgement
• Digital metrics may affect financial reporting
• Regulatory compliance risk exists in content publishing

Strong audit oversight reduces reputational and financial misstatement risk.

The remuneration committee must ensure that executive incentives align with long-term value creation rather than short-term revenue targets.

If executives are rewarded primarily on revenue growth, they may prioritise advertising expansion over sustainable subscription development.

Governance and Strategic Transition

The financial data shows:

• Revenue plateauing
• Operating profit declining
• Margin compression

In this environment, governance effectiveness becomes more important than during growth periods.

The board must demonstrate:

• Strategic foresight
• Willingness to restructure if necessary
• Balanced stakeholder consideration
• Risk awareness

Governance failure in declining industries often occurs when boards delay difficult decisions.

Governance Culture and Ethical Tone

As a publishing company regulated for accuracy and integrity, Merceh’s governance culture must reinforce ethical standards.

Tone at the top is essential because:

• Editorial decisions affect reputation • Advertising relationships may create conflicts of interest • Digital content distribution increases reputational exposure

The board must ensure that commercial pressure does not override editorial integrity.

Strong governance protects both reputation and long-term profitability.

Summary

Merceh’s governance framework appears structurally sound, with independent oversight and institutional shareholder presence.

However, effectiveness will depend on:

• Digital competence at board level
• Willingness to challenge legacy models
• Alignment between incentives and long-term strategy
• Balance between shareholder returns and reinvestment

In a business facing structural industry change, governance quality can determine whether transition is controlled or reactive.

Area 4 – External Environment

Merceh operates in a rapidly changing external environment. The publishing industry is being reshaped by digital disruption, shifting consumer preferences, advertising model transformation, and increasing regulatory expectations. A strong external environment analysis helps students understand what pressures are outside management control, and what strategic responses are realistic.

This section analyses the external environment using structured tools, but with explanation and application.

1. PESTEL Analysis

Political and Regulatory Factors

• Content standards regulation – Publishing is not a free-for-all. Merceh operates under the oversight of a regulator that can require corrections and impose fines. This increases compliance on publishers to demonstrate integrity and transparency. For Merceh, trust is central to subscription sustainability, because paid content requires a strong credibility proposition.

Economic Factors

• Advertising budgets are cyclical and competitive – Advertising spending tends to fluctuate with economic conditions. In economic downturns, advertising budgets are often reduced before other costs. Because advertising is a major revenue stream for Merceh, any economic slowdown can affect revenue quickly. This creates revenue volatility that subscription income may not fully offset.
• Cost inflation pressures – Publishing is exposed to inflation in paper, logistics, salaries and technology services. Even if revenue remains stable, inflation can compress margins, which aligns with the trend of operating profit peaking and then declining. Economic pressure can therefore reduce financial flexibility.
• Competitive pricing pressure in digital markets – Digital consumers often expect content at low prices or free. This limits pricing power. If Merceh attempts to increase subscription prices, customers may cancel or shift to free alternatives. Therefore, revenue growth may be constrained even if content quality remains high.

Social Factors

• Changing consumer behaviour – Readers increasingly prefer instant, mobile-friendly, short-form and multimedia content. Traditional print publishing is slower and less interactive. This behavioural shift reduces demand for print magazines and increases the importance of digital user experience.
• Preference for personalised content – Digital platforms have trained consumers to expect personalisation. This raises expectations for publishers to deliver relevant content recommendations, targeted newsletters and customised reading experiences.
• Trust, credibility and community expectations – If Merceh positions itself as a community-focused organisation, it must consistently deliver value that feels personal and trusted. Subscribers are more likely to remain loyal when they feel the brand reflects their interests and values.

Technological Factors

• Platform dominance and distribution control – Digital distribution often depends on external platforms such as app stores, search engines and social media channels. These platforms act as gatekeepers. Even if Merceh produces high-quality content, algorithm changes can reduce visibility and traffic.
• Data analytics as a competitive necessity – Technology creates an opportunity to use data to improve decisions. Publishers that understand reader behaviour can improve content strategy, advertising targeting and subscription conversion. If Merceh underutilises analytics, it risks falling behind competitors who optimise content performance and marketing using data.
• Cybersecurity threats – Any organisation handling subscription data, payment information and digital platforms faces cybersecurity threats. A breach can lead to reputational harm, regulatory issues and loss of customer trust. In a subscription business, trust loss directly threatens revenue.

Environmental Factors

• Sustainability pressure and reputational expectations – Print publishing has an environmental footprint due to paper consumption, waste and distribution emissions. If Merceh claims sustainability commitments, stakeholders may expect measurable improvements. A perceived mismatch between messaging and action may create reputational risk.
• Supply chain sensitivity – Paper supply may be affected by global supply disruptions, environmental regulations, or commodity price volatility. This can increase costs and reduce operational predictability.

Legal Factors

• Defamation, plagiarism and content liability – Publishing carries legal exposure, especially where content accuracy is regulated and publicly scrutinised. If content is incorrect or unlawfully sourced, legal action can follow. This makes editorial control and source verification essential.
• Data protection and privacy compliance – Digital subscriptions require data collection. Legal expectations on privacy and data handling increase compliance burden. Failures can result in penalties and trust erosion.

2. Industry Structure and Competitive Forces

The publishing industry is not only changing. It is becoming more competitive, because barriers to entry are much lower in digital markets.

Competitive Rivalry

• Intense and expanding competition – Merceh competes with other traditional publishers, but also with digital-native media, independent creators and influencers. These competitors may operate with lower overheads and can adapt faster.
• Content abundance reduces differentiation – When content is widely available, differentiation becomes harder. Merceh must rely on editorial quality, credibility and niche authority. Without clear differentiation, competition turns into price competition, which is dangerous given Merceh’s fixed costs.

Threat of Substitutes

• High and increasing substitute threat – Substitutes include free digital content, online communities, video-based learning, podcasts and social media creators. These alternatives provide similar information and entertainment without requiring paid subscriptions.
• Substitute convenience is strong – Many substitutes are mobile-first and algorithm-driven. They bring content to users automatically. Merceh must work harder to attract attention in this environment.

Bargaining Power of Buyers

• Buyers have high choice and low switching costs – Readers can cancel subscriptions quickly and access alternative content immediately. This increases buyer power and limits pricing flexibility.
• Advertisers can shift budgets easily – Advertising clients can move spending toward platforms offering better targeting and measurable outcomes. This increases advertiser power and puts pressure on advertising rates.

Bargaining Power of Suppliers

• Specialist content suppliers have power – High-quality freelance authors may command premium fees. Their reputational brand may also influence subscriber demand. This gives skilled content creators bargaining power.
• Technology providers may have power – If Merceh depends on a digital publishing platform and app store distribution, those providers can influence cost, access and capability. Switching may be difficult and expensive.

Threat of New Entrants

• Digital reduces entry barriers – New entrants can enter with low capital investment. They do not need printing presses or distribution infrastructure. This means niche segments can be targeted by newcomers quickly.
• Brand trust remains a barrier, but not absolute – Merceh’s long history provides some protection. However, digital-native brands can build trust rapidly through engagement and social proof.

3. Market Structure and Consolidation Dynamics

The market has five large players controlling roughly half the industry revenue. This suggests a concentrated market with strong incumbents. However, the existence of many smaller publishers means the market remains fragmented.

This creates two possible dynamics:

• Consolidation pressure – Larger players may acquire smaller players to gain digital capabilities, audiences or niche titles.
• Market share competition – In a declining print market, growth may come primarily from capturing competitors’ audiences rather than expanding the total market. This increases rivalry.

Merceh must consider whether its strategy should be defensive, growth-oriented, or acquisition-led.

Summary

Merceh faces a demanding external environment shaped by:

• Structural decline in print consumption
• Intensifying digital competition and substitutes
• Advertising market transformation and volatility
• Platform and technology dependency
• Regulatory and legal exposure linked to content integrity
• Sustainability expectations affecting reputation and operations

These external forces explain why revenue has plateaued and why margins may be under pressure, even if the company remains large and profitable.

Area 5 – Strategic Position

This section evaluates where Merceh currently stands strategically, given its business model, financial performance, governance structure and external environment.

The objective here is not to restate facts, but to assess positioning and direction.

1. Nature of Competitive Advantage

Merceh does not compete primarily on price. Its cost structure, including in-house printing, salaried editorial staff and regulatory oversight, prevents it from operating as a low-cost provider.

Instead, its strategy appears to be differentiation-based.

This differentiation rests on:

• Editorial credibility
• Specialist authorship
• Brand longevity
• Community positioning
• Structured, curated content

In traditional print markets, this differentiation model is strong. Readers are willing to pay for trusted, specialist content.

However, digital transformation changes the economics of differentiation.

In digital markets:

• Free content is abundant
• Entry barriers are lower
• Influencers and independent creators build personal brands quickly
• Consumers expect immediacy and interactivity

This raises an important strategic issue.

Merceh’s historical differentiation was built in a print-dominated era. The company must now determine whether its differentiation remains powerful enough in a digital-first ecosystem.

If differentiation weakens, price competition increases.

Given Merceh’s fixed cost structure, price competition would be damaging.

Therefore, strategic sustainability depends on strengthening digital differentiation rather than defending print differentiation.

2. Revenue Model Sustainability

Revenue has plateaued at approximately 641 million in 20X4 and 20X5. Operating profit peaked in 20X3 and has since declined.

This suggests that the existing model is reaching maturity.

Publication revenue has begun to decline in the most recent year, while advertising continues to grow. This shift changes revenue quality.

Subscription revenue tends to be more predictable and relationship-based. Advertising revenue tends to be more volatile and externally influenced.

If the revenue mix gradually shifts toward advertising dominance, earnings volatility may increase.

From a strategic positioning perspective, this suggests Merceh is:

• Moving from a stable subscription-driven base
• Toward a more externally sensitive advertising-driven exposure

Unless digital subscriptions expand sufficiently to offset print decline, long-term revenue stability may weaken.

The board must therefore consider whether the company is:

• Strengthening subscription monetization
• Or becoming increasingly reliant on advertising momentum

This is a critical positioning question.

3. Cost Structure Alignment

The cost structure reflects a legacy print organisation.

Key features include:

• In-house printing infrastructure
• Distribution networks
• Fixed salary commitments
• Technology platform costs

In a growth phase, high fixed costs create strong operating leverage. In a plateau or decline phase, they amplify risk.

Operating profit has declined back to its 20X1 level despite higher revenue. This indicates margin compression and cost pressure.

Strategically, this means:

• The cost base may not yet be aligned with the emerging revenue structure
• Print infrastructure may be oversized relative to future demand
• Dual investment in print and digital increases financial strain

If digital revenue grows but print costs remain fixed, profitability will be pressured.

If print declines sharply without cost restructuring, margin erosion may accelerate.

Therefore, Merceh’s strategic position includes structural rigidity.

4. Strategic Drift Risk

Strategic drift occurs when an organisation responds incrementally to environmental change rather than fundamentally reassessing its position.

Merceh shows signs of adaptation:

• Digital operations exist
• Digital KPIs are monitored
• Revenue has not collapsed

However, plateauing revenue and declining profit suggest that incremental adaptation may not be sufficient.

The risk is not immediate failure.

The risk is gradual erosion.

Strategic drift typically manifests through:

• Continued reliance on legacy revenue streams
• Defensive rather than proactive digital strategy
• Delayed structural cost reform
• Comfort with historical brand strength

If Merceh continues to manage decline rather than redesign its model, its competitive position may weaken progressively.

The board must assess whether it is leading transformation or reacting to it.

5. Competitive Position Relative to Industry

Merceh is one of the five largest publishers in its market. This provides:

• Scale
• Brand recognition
• Distribution relationships
• Advertising credibility

However, scale in print does not automatically translate into dominance in digital.

Digital competition includes:

• Smaller niche publishers
• Influencer-led media
• Online-only platforms
• Social media-based content channels

These competitors often operate with lower cost bases and faster innovation cycles.

Merceh’s competitive advantage lies in institutional credibility and content quality. Its disadvantage lies in structural complexity and slower adaptability.

This suggests that Merceh is:

• Strong relative to traditional competitors
• More vulnerable relative to digital-native competitors

6. Overall Strategic Position

Synthesising all analysis, Merceh appears to be:

• A mature incumbent with strong brand equity
• Experiencing revenue stagnation
• Facing margin compression
• Engaged in ongoing digital transition
• Structurally exposed to advertising volatility
• Operating with significant fixed costs

The company is not in decline yet.

However, it is no longer clearly in growth.

Its position can best be described as transitional maturity.

This is a critical phase. Decisions taken now will determine whether the company:

• Successfully transforms into a digitally sustainable publisher
• Or gradually experiences profit erosion and relevance decline

Area 6 – Ethics and Corporate Social Responsibility

Merceh operates in a sector where ethical standards are not peripheral, they are central to survival.

Unlike many industries, publishing directly influences public opinion, consumer behaviour and social discourse. As a result, ethical considerations affect reputation, regulatory compliance, stakeholder trust and long-term financial sustainability.

This section examines ethical exposure across editorial integrity, commercial pressures, environmental responsibility and stakeholder alignment.

1. Editorial Integrity and Content Responsibility

Publishing carries a unique ethical burden because content shapes public understanding.

Merceh’s magazines operate under regulatory oversight that can require corrections or impose penalties. This means that accuracy, fairness and transparency are not optional.

Key ethical considerations include:

• Accuracy and verification – Content must be factually correct. Inaccurate reporting can result in reputational damage, regulatory sanctions and legal claims. In a digital environment, misinformation spreads rapidly and correction does not always undo reputational harm.
• Plagiarism and intellectual property – Using unattributed content or failing to credit sources may lead to legal disputes and trust erosion.
• Sensationalism versus responsible reporting – Commercial pressure may incentivise dramatic headlines or controversial angles to increase readership. However, short-term engagement gains may undermine long-term credibility.
• Digital amplification risk – Online content spreads more widely and more quickly than print. A single ethical lapse may reach a much broader audience than in previous decades.

The board must ensure that editorial standards are not compromised in pursuit of advertising revenue or digital engagement metrics.

Tone at the top is essential. If commercial performance is prioritised above integrity, ethical drift becomes more likely.

2. Advertising and Conflict of Interest

Merceh derives a substantial portion of its income from advertising.

This creates inherent tension between editorial independence and advertiser relationships.

Key ethical tensions include:

• Advertiser influence on content – Advertisers may seek favourable coverage or avoidance of negative commentary. If editorial decisions are influenced by commercial relationships, credibility declines.
• Sponsored content transparency – In digital publishing, sponsored articles and native advertising are common. Ethical practice requires clear labelling to prevent misleading readers.
• Data usage for advertising – Digital advertising relies on user data. Ethical data handling requires transparency, consent and protection.

If readers perceive that editorial judgement is compromised by advertiser influence, subscription loyalty may weaken.

The board must ensure structural separation between editorial and commercial functions.

3. Sustainability and Environmental Responsibility

Merceh operates in print publishing, which has environmental implications.

Key environmental considerations include:

• Paper consumption
• Printing energy usage
• Waste production
• Distribution emissions

If the company publicly promotes sustainability, its operational practices must align with those claims.

There is a risk of perceived inconsistency if:

• Environmental metrics worsen
• Recycling practices are weak
• Energy consumption rises

Stakeholders, particularly institutional investors, increasingly scrutinise ESG performance.

Sustainability is not only ethical. It is reputational and strategic.

Digital transition may reduce environmental footprint, but digital operations also require energy-intensive data infrastructure. Therefore, environmental responsibility must be managed across both formats.

4. Employee and Contributor Ethics

Merceh relies heavily on human capital, including freelance authors.

Ethical issues include:

• Fair compensation for contributors
• Transparent contracting
• Editorial freedom
• Protection against harassment or discrimination

If freelancers are treated purely as transactional suppliers, reputational damage may occur in an era where labour ethics receive public scrutiny.

High staff turnover may also indicate dissatisfaction, which can affect morale and quality.

The board must consider whether employment practices align with the company’s public values.

5. Data Privacy and Digital Ethics

Digital publishing requires collecting and processing subscriber data.

Ethical considerations include:

• Secure storage of personal information
• Transparent data usage policies
• Respect for user privacy
• Avoidance of excessive data tracking

A data breach would not only have legal consequences but would undermine trust, which is essential in a subscription-based model.

Ethical data governance is therefore commercially essential.

6. Shareholder Versus Stakeholder Responsibility

Merceh has institutional shareholders who may expect stable returns.

However, ethical governance requires balancing:

• Shareholder interests
• Reader trust
• Employee welfare
• Environmental responsibility
• Regulatory compliance

If profit preservation leads to reduced editorial quality or environmental neglect, long-term stakeholder value may suffer.

The board must adopt a balanced approach to value creation.

7. Reputational Capital as an Ethical Asset

In publishing, reputation is an intangible but critical asset.

Once trust is damaged, it is difficult to rebuild.

Ethical lapses can lead to:

• Subscriber cancellations
• Advertiser withdrawal
• Regulatory sanctions
• Share price volatility

Maintaining ethical standards is therefore aligned with financial sustainability.

Ethics and profitability are not separate considerations in this industry. They are interdependent.

Summary

Merceh operates in a sector where ethical integrity directly affects commercial performance.

The company faces ethical tensions in:

• Editorial independence versus advertising revenue
• Commercial growth versus responsible reporting
• Environmental claims versus operational footprint
• Data monetisation versus privacy protection
• Short-term shareholder returns versus long-term stakeholder trust

Strong governance and clear ethical leadership are essential to maintaining credibility during digital transition.

Failure in ethical oversight would accelerate strategic decline more quickly than financial weakness alone.

Area 7 – Enterprise Risk

Enterprise risk management requires identifying the key risks that could materially affect Merceh’s ability to achieve its strategic objectives.

Given Merceh’s position as a mature publisher undergoing digital transition, risks arise across strategic, financial, operational, technological and reputational dimensions.

This section categorises and evaluates those risks in a structured way.

1. Strategic Risks

These are risks that threaten the long-term viability of the business model.

Structural Decline of Print

Print publishing faces long-term demand erosion. Even though Merceh’s print volumes have grown historically, broader consumer trends favour digital content.

If print demand declines more rapidly than digital revenue grows, the company may face:

• Revenue contraction
• Underutilised printing capacity
• Rising per-unit production costs
• Accelerated margin compression

Because Merceh operates in-house printing facilities, it is more exposed to this risk than a publisher that outsources production.

This is a high-impact, high-probability risk over the medium term.

Digital Transition Risk

While digital offers growth opportunities, transition carries execution risk.

Key risks include:

• Failure to grow digital subscriptions fast enough
• Weak digital user experience
• Poor conversion of website visitors into paying subscribers
• Inadequate investment in analytics and technology

If digital transformation is underfunded or poorly managed, Merceh may lose relevance.

This risk is amplified by revenue plateau and declining profit.

Strategic Drift

Merceh may respond incrementally rather than decisively to industry disruption.

If the board continues optimising the existing hybrid model without redesigning cost structures or revenue streams, gradual decline may occur.

This is a subtle but serious risk.

It manifests not through sudden crisis but through sustained erosion of competitive advantage.

2. Financial Risks

Margin Compression

Operating profit peaked and has declined for two consecutive years.

Revenue has plateaued, suggesting limited top-line growth potential.

If costs continue rising while revenue remains flat, operating margins may decline further.

Given the company’s fixed cost base, even modest revenue decline could result in disproportionate profit reduction.

This increases earnings volatility and potentially affects shareholder confidence.

Advertising Revenue Volatility

Advertising represents a significant revenue stream.

Advertising income is sensitive to:

• Economic cycles
• Digital performance metrics
• Algorithm changes
• Advertiser bargaining power

If advertising demand weakens during economic downturn or shifts to alternative platforms, revenue may decline quickly.

This risk is cyclical and externally driven.

Cash Flow Constraint

Although free cash flow is monitored as a KPI, sustained margin compression could reduce reinvestment capacity.

Digital transformation requires funding.

If free cash flow weakens, Merceh may face difficult choices between:

• Maintaining dividends
• Funding digital innovation
• Restructuring print operations

Reduced financial flexibility increases strategic vulnerability.

3. Operational Risks

High Fixed Cost Structure

Merceh’s in-house printing and distribution infrastructure creates operating leverage risk.

When revenue plateaus or declines, fixed costs remain.

This increases break-even sensitivity and reduces adaptability.

Operational restructuring may involve redundancy costs, asset write-downs or contract termination penalties.

Supply Chain Exposure

Paper procurement and distribution logistics expose Merceh to:

• Commodity price fluctuations
• Transportation cost volatility
• Supply disruptions

Any significant increase in input costs directly affects margins.

Talent Retention

Content quality depends on skilled editorial staff and freelance contributors.

Loss of key individuals could reduce:

• Subscriber loyalty
• Brand credibility
• Content differentiation

High staff turnover may also signal cultural or leadership issues.

In a digital transformation phase, loss of digital talent would be particularly damaging.

4. Technological Risks

Platform Dependency

Merceh relies on digital publishing platforms and possibly external distribution channels.

Risks include:

• Platform fee increases
• Limited customization
• System outages
• Vendor lock-in

Switching providers may be costly and disruptive.

Algorithm Exposure

Search engines and social media algorithms influence traffic visibility.

If algorithms change, website traffic may decline even if content quality remains strong.

Reduced traffic can affect advertising income and subscription acquisition.

This risk is largely outside managerial control.

Cybersecurity and Data Privacy

Digital subscriptions require storage of personal and payment data.

Cybersecurity breaches could lead to:

• Financial penalties
• Legal action
• Reputational damage
• Subscriber loss

Trust erosion in a subscription-based business is particularly harmful.

5. Reputational and Regulatory Risks

Content Accuracy and Compliance

Publishing errors, misleading content or failure to meet regulatory standards may result in:

• Fines
• Mandatory corrections
• Public criticism

Reputational damage spreads quickly in digital environments.

Loss of credibility directly affects subscription retention.

Ethical Lapses

If commercial pressure leads to:

• Undisclosed sponsored content
• Biased reporting
• Conflict of interest

Stakeholder trust may weaken.

Reputational risk in publishing has long-term consequences.

6. ESG and Sustainability Risk

Environmental performance is increasingly scrutinised by institutional investors.

If Merceh claims sustainability commitment but environmental indicators worsen, accusations of inconsistency may arise.

ESG misalignment can:

• Affect investor perception
• Increase regulatory scrutiny
• Reduce brand trust

7. Risk Interconnectivity

Enterprise risk analysis must consider interconnections.

For example:

• Print decline increases fixed cost pressure
• Margin compression reduces free cash flow
• Reduced cash flow limits digital investment
• Weak digital growth increases strategic vulnerability
• Strategic vulnerability increases investor pressure

Risks are not isolated. They compound.

This makes proactive risk management essential.

Summary

Merceh faces a combination of:

• Structural industry risk
• Financial margin risk
• Operational rigidity risk
• Technological dependency risk
• Reputational exposure
• ESG expectations

The company is not in immediate distress.

However, multiple medium-level risks are converging simultaneously.

The board’s ability to anticipate and manage these interconnected risks will determine whether Merceh sustains profitability or enters gradual decline.

Area 8 – Stakeholder Mapping and Influence Analysis

Merceh operates in a highly visible and regulated industry. Its strategic decisions affect, and are affected by, multiple stakeholder groups.

A structured stakeholder analysis helps us understand:

• Who has power
• Who has interest
• Where tensions may arise
• How the board should manage relationships

We will use a power and interest lens, but apply it analytically rather than mechanically.

Key Stakeholders

1. Institutional Shareholders

Power: High

Interest: High

Merceh is a listed company with significant institutional ownership.

Institutional investors typically have:

• Voting rights
• Influence over board appointments
• Expectations of dividend stability
• Sensitivity to share price performance

Their interest is financial return and risk management.

Strategic implications:

• If revenue plateau and margin compression continue, shareholders may push for cost restructuring or dividend protection.
• They may resist long-term investment if it reduces short-term returns.
• Alternatively, long-term institutional investors may support transformation if convinced of its necessity.

Potential tension:

Shareholders may prioritise short-term financial performance, while digital transformation requires reinvestment and patience.

The board must communicate strategy clearly to maintain investor confidence during transition.

2. Subscribers and Readers

Power: Increasing

Interest: High

Subscribers are central to the business model.

In a digital environment:

• Switching costs are low
• Alternatives are abundant
• Subscription cancellation is easy

This increases reader power.

Their interests include:

• High-quality content
• Credibility and trust
• Fair pricing
• Data privacy protection

If readers perceive declining quality or ethical compromise, they may withdraw support.

Strategic importance:

Subscribers provide recurring revenue and signal value to advertisers.

Retaining subscribers is critical for long-term sustainability.

3. Advertisers

Power: High

Interest: Commercial

Advertisers represent a substantial revenue stream.

They have power because:

• Advertising budgets are mobile
• Alternative digital platforms offer measurable performance
• They can negotiate pricing

Their interest lies in:

• Audience reach
• Demographic targeting
• Engagement metrics
• Brand alignment

Potential tension:

If editorial content criticises advertiser industries, conflicts may arise.

The board must maintain separation between editorial integrity and commercial relationships.

Loss of advertiser confidence could materially impact revenue.

4. Employees and Freelance Contributors

Power: Moderate

Interest: High

Employees and contributors drive content creation.

Their interests include:

• Fair compensation
• Career stability
• Professional reputation
• Editorial independence

High staff turnover may indicate dissatisfaction or uncertainty.

In a digital transformation phase, digital talent becomes particularly valuable.

Loss of skilled contributors could weaken competitive differentiation.

Strategic risk:

If cost pressures lead to aggressive cost cutting in editorial teams, quality may decline and morale may weaken.

5. Regulators

Power: High

Interest: Compliance

Regulators overseeing publishing standards have significant power.

They can:

• Require corrections
• Impose fines
• Damage reputation

Their interest is accuracy, fairness and public trust.

In a digital context, regulatory scrutiny may intensify.

Compliance failures may have both financial and reputational consequences.

The board must ensure strong governance structures to manage this relationship.

6. Suppliers and Platform Providers

Power: Variable

Paper suppliers, distribution partners and digital platform providers all influence operations.

Paper suppliers may exert pricing pressure during commodity fluctuations.

Technology platform providers may influence digital capability and cost.

Platform dependency increases supplier power if switching costs are high.

Strategic risk arises if supplier concentration increases.

7. Wider Community and Society

Power: Indirect but Significant

Interest: Social responsibility and trust

Publishing influences public opinion.

Community stakeholders care about:

• Ethical content
• Environmental responsibility
• Responsible advertising
• Data privacy

Reputational risk often emerges from societal reaction rather than direct contractual relationships.

Social media amplifies public scrutiny.

Stakeholder Tensions

Merceh’s strategic position creates several inherent tensions:

• Shareholders may prioritise dividend stability, while digital transformation requires reinvestment.
• Advertisers may seek favourable positioning, while editorial integrity requires independence.
• Cost control may conflict with employee morale and content quality.
• Sustainability commitments may increase short-term costs but protect long-term reputation.

Managing these tensions requires balanced governance and transparent communication.

Stakeholder Prioritisation

Using a power and interest lens:

Manage Closely

• Institutional shareholders
• Regulators
• Major advertisers

Keep Satisfied

• Key suppliers
• Platform providers

Keep Informed

• Employees
• Contributors
• Community stakeholders

Monitor

• Minor suppliers
• Peripheral interest groups

However, in publishing, reputation can quickly elevate low-power groups into high-impact stakeholders through public pressure.

The board must therefore adopt a proactive rather than reactive stakeholder approach.

Summary

Merceh operates within a complex stakeholder network where:

• Financial stakeholders expect stability
• Commercial partners expect performance
• Readers expect integrity
• Regulators expect compliance
• Society expects responsibility

Strategic decisions must balance these competing expectations.

Failure to manage stakeholder relationships effectively could accelerate strategic decline even if financial performance appears stable in the short term.

Strategic Priorities and important Themes

Merceh is not in crisis. However, the analysis across business model, financial trends, governance, environment, ethics, risk and stakeholders shows that it is at a strategic inflection point.

• Revenue has plateaued.
• Operating profit has declined for two consecutive years.
• Margins have compressed.
• Publication revenue has begun to weaken.
• Digital competition is intensifying.

The company is transitioning from growth stability to strategic tension.

The board must now prioritise direction rather than incremental optimisation.

• Accelerate Digital Monetisation Strategy
• The most urgent priority is strengthening digital revenue sustainability. This requires moving beyond simply operating in digital channels and instead focusing on:
• Increasing digital subscription conversion rates
• Enhancing user experience and engagement
• Using analytics to personalise content
• Strengthening digital advertising measurement capability

Revenue plateau indicates that digital growth is not yet sufficiently compensating for structural pressures.

If digital monetisation does not accelerate, long-term decline becomes likely.

Possible SBL angles:

• Proposal to invest in enhanced digital platform capability
• Evaluation of paywall strategy
• Business case for digital analytics investment
• Cost-benefit analysis of digital innovation

• Rebalance Revenue Mix Toward Stability

Advertising revenue remains strong, but it is volatile and externally influenced.

Strategic priority should be to:

• Increase recurring subscription income
• Reduce reliance on advertising growth
• Develop membership-based or premium content offerings

If advertising becomes too dominant, revenue volatility increases.

Possible SBL angles:

• Board paper evaluating revenue diversification
• Strategic recommendation to develop new subscription tiers
• Risk assessment of advertising dependence

• Review Cost Structure Alignment

Operating profit has declined despite revenue growth over five years.

This suggests cost base misalignment.

The board may need to consider:

• Gradual restructuring of print capacity
• Efficiency improvements in distribution
• Technology cost optimization
• Reallocation of resources from print to digital

This is sensitive because restructuring affects employees and reputation.

Possible SBL angles:

• Proposal for operational restructuring
• Investment appraisal of closing print facilities
• Change management strategy
• Impact analysis on stakeholders

• Protect and Reinforce Differentiation

Merceh’s long-term competitive advantage rests on:

• Editorial credibility
• Brand trust
• Content quality

Cost cutting must not undermine differentiation.

Strategic actions may include:

• Investment in premium specialist content
• Strengthening editorial governance
• Enhancing brand positioning

Possible SBL angles:

• Ethical dilemma involving advertiser pressure
• Evaluation of sponsored content policies
• Board discussion on brand repositioning

• Strengthen Governance for Transformation

Transformation requires strong governance.

The board should ensure:

• Digital expertise at board level
• Clear KPIs aligned with long-term strategy
• Incentives linked to sustainable value creation rather than short-term revenue
• Transparent communication with shareholders

Possible SBL angles:

• Governance review
• Remuneration policy redesign
• Shareholder communication strategy

• Enhance Risk Management Integration

Enterprise risks are interconnected.

The board should prioritise:

• Integrated risk monitoring
• Scenario planning for print decline acceleration
• Cybersecurity investment
• Advertising revenue sensitivity analysis

Possible SBL angles:

• Risk register update
• Enterprise risk management evaluation

• Manage Stakeholder Expectations During Transition

Transition creates tension.

The board must balance:

• Shareholder returns and reinvestment
• Editorial independence and advertising revenue
• Cost efficiency and employee morale
• Sustainability commitments and financial constraints

Clear communication and transparent strategy are essential.

Possible SBL angles:

• Stakeholder communication plan
• Ethical advisory memo
• Change leadership strategy

Overall Strategic Outlook

Merceh is not yet declining. However, the plateau in revenue and compression in operating profit indicate that the current model is reaching its limits.

The company must shift from defensive adaptation to proactive transformation.

The most likely exam themes include:

• Digital strategy evaluation
• Governance and board effectiveness
• Ethical dilemmas in publishing
• Risk management under disruption
• Financial sustainability under structural change
• Stakeholder conflict resolution

You should prepare to write as:

• A strategic advisor
• A risk consultant
• A governance reviewer
• A transformation project leader
• An ethics advisor

Every requirement will test commercial judgement, professional scepticism and balanced reasoning.

Conclusion – Positioning Yourself for the Exam

The analysis of Merceh Co reveals a business at a critical strategic juncture.

The company remains profitable and operationally significant. It retains strong brand equity, established stakeholder relationships and meaningful market presence. However, the financial trajectory and external pressures indicate that the current model is approaching its limits.

• Revenue has plateaued.
• Operating profit has declined from its peak.
• Margins have tightened.
• Publication income has begun to soften.

At the same time, the digital environment continues to intensify competition, reduce switching costs and shift power toward consumers and platforms.

• Merceh is not failing.
• It is transitioning.

• The board’s challenge is not survival today.
• It is sustainability tomorrow.

From an SBL perspective, the most important insight is this:

The issues facing Merceh are interconnected.

• Digital transformation affects cost structure.
• Cost structure affects margin resilience.
• Margin resilience affects free cash flow.
• Free cash flow affects strategic flexibility.
• Strategic flexibility affects long-term competitiveness.

You must therefore approach any unseen requirement holistically.

In the examination, whatever the specific requirement, the foundation remains the same:

• Understand the business model.
• Recognise the financial signals.
• Appreciate the external pressures.
• Balance stakeholder interests.
• Demonstrate professional judgement.

The purpose here is not to predict the question.

It is to ensure that you can respond confidently, analytically and professionally to whatever scenario arises.

If you can clearly articulate Merceh’s strategic position, risks and priorities, you will be well prepared to maximise marks in the SBL exam.