A third possibility was that Sing Tao might buy three printing machines from Taiwan and build a factory to house them at the Tseung Kwan O Industrial Estate, the source added.

Market watchers said each of the second-hand machines had a capacity of about 70,000 broadsheet copies an hour.

The company declined to comment on this issue.

It was not clear whether Sing Tao would hold a full stake in any new printing plant.

The company would make a decision in two to three months, the source said.

Sing Tao holds a 50 per cent stake in Premier Printing Group in Yuen Long, which owns six newspaper printing machines and produces more than 600,000 copies of the Headline Daily each day.

Due to a capacity shortage, Sing Tao has also outsourced work to other printers such as Wen Wei Po, which prints The Standard and parts of the Sing Tao Daily.

The Headline Daily is the city's largest circulated newspaper, including the free and paid markets, with an audited daily circulation of about 603,000 copies.

The company recently distributed about 650,000 copies a day, a source said.

online ad spending rises

While freesheets are grabbing revenue from their paid-for rivals, advertisers seem increasingly to be turning their backs on both forms of print media in favour of the more targeted audience offered by newer technologies, according to a survey by market researcher Synnovate.

Advertisers spent only 20.1 per cent of their marketing budgets on paid newspapers last year, down from 27 per cent in 2005, the survey of 128 member companies of the Hong Kong Advertisers' Association showed.

Free dailies attracted 7.5 per cent of budgets, compared with 8.3 per cent in 2005.

Paid television increased their budget share to 17.3 per cent last year from 10.7 per cent, while spending on internet advertisements rose to 3.5 per cent from 2.8 per cent.

Advertisers will spend about 21.4 per cent of their marketing budgets on activities such as direct mailing this year, up from 16.9 per cent last year.

next keeps freebie small

Next Media, which last week promoted Ip Yut-kin from chief executive to vice-chairman of the company's Taiwan operations, will keep its free daily operation on the island to a small scale after a rival won free-newspaper rights within the underground Taipei Metro system, a source told Media Eye.

United Daily News, the publisher of the island's Chinese-language United Daily News, last month agreed to pay government-owned Taipei Metro more than NT$100 million (HK$23.69 million) to hold the rights for three years.

Next Media, whose Apple Daily Taiwan sells on average about 530,000 copies daily, pulled out of the bidding despite the group having a head start in the giveaway paper market with the debut of the Sharp Daily in November.

The launch of the Sharp Daily by Hong Kong's largest newspaper and magazine publisher was seen as a pre-emptive strike before facing any competition if the company failed to secure metro distribution rights.

The Sharp Daily prints about 150,000 copies, which the company said was a break-even point of circulation.

'It might not have been a good business case to bid for the metro distribution right, so we pulled out of the bid,' a source said.

The freesheet 'is most profitable at its limited print run of 140,000 to 150,000 per day ... take it above that and you lose,' a source said. 'Taipei is different from Hong Kong. Quality readers with high purchasing power in Taipei drive their own cars rather than ride on the metro system.'

The metro distribution decision should not have a big impact on the Sharp Daily as it had first-mover advantage and had built up brand awareness, the source said.

United Daily closed its Cola free sheet last month and the paper's entire team will be transferred to the metro-directed publication system, which is scheduled to launch in April.