PART THREE
Identifying Opportunities for Investments
in China’s Creative Industry
“China's creative history goes back centuries. Dance in China entered into a period of unprecedented brilliance during the
Tang dynasty (618-907 A.D.) as culture flourished. The imperial court founded the Pear Garden Academy, the Imperial
Academy, and the T'ai-ch'ang Temple and gathered the top dancing talent of the country to perform the magnificent
incomparably lavish "Ten Movement Music" dance.
Version 2.5 August 09 by China Creative Capital
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PART THREE
“Content”+”Consumption”= ‘Hard’” Economics
Traditional + New Media
+ Cultural & Entertainment/Leisure
Products Location-based Entertainment
New Media Technology • X-media consum er gadgets/widget • Cinema/3-D theatres
• X-media content creation apps • interactive media devices • Them ed res taurants/Regional Cuisines
• X-media accessibility apps chains
• Them ed parks
• Mus ic Festivals aka Ibiza
Publishing • Live concerts & perform ances
• Magazines - youth, fem ale, sports • Live theatre/ perform ing arts
Content Creation • News paper
• TV/Radio/mus ic production/syndication • School educational text
• Film /video production • Digital books /e--book Cultural Entertainment
•Licens ing (brands, merchandise, content) • Cultural tourism
• Animation/ 3-D • Cultural perform ances
• Mobile content Services • Sports entertainment
• sports broadcas t • Media buying agencies
•Online game • Ad agents
• Bus ines s & financial news/info •Marketing/ database services
•Training & Education (Online + Offline) • Production services Specialty Retail/Brands
•Outdoor/alternative advertis ing • Lifes tyle focused
• Multimedia design • Beauty care
• Wedding service
Distribution • Healthfood
• Digital TV channels Services • Handcrafted/Designer accessories
• TV/radio channels • Designer fas hionwear
• Wedding services
• Online video/IPTV • Traditonal Beauty spa and wellness
•Outdoor/alternative advertis ing •Sports agency
• Fashion Design
While China’s Creative market is not matured..the good “Content” and
“Service” will have a huge potential market due to growing consumer
demand ….the industry extends beyond media, encompassing cultural,
entertainment & leisure 2

Few companies are engaged /dominate Differences in regional consumer culture,
throughout the entire value chain dialect, consumption behaviour
Origination Production Distribution Consumers
Animation
Companies TV
Channels
Magazine
Editorial co. Beijing/
Film Cinemas Tianjin
production Chains -
houses
Shanghai/
Printing Jiangsu
TV drama Houses
producers Book
retailers Guangzhou/
Guangdong
Overall industry while large still has a non-matured, dispersive structure
with no clear National Market Leaders for many segments- except for
the online media where open competition has seen emergence of clear
leaders like Tencent & Shanda..
3

Continuing Investments in Content & Channels Past IPOs
Largest internet video advertising platform
(HKSE: 082)
Largest digital TV system provider
(NYSE: STV)
Emerging China cable operator
4

WHERE ARE OPPORTUNISTIC SECTORS??
WHAT WILL BE IMPACT OF DE-REGULATION?
WHAT ARE POSSIBLE OBSTACLES?
HOW TO IDENTIFY INVESTMENT IDEAS?
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6

Sector Market Shifts Investment Opportunity Attractive
Size in 2009
(USD)
Industry Regulatio Technology
n
Print & 20 bn -Fragm ented market -top 20 com panies have only Opportunity to consolidate market Medium- High
Publishing 20% market share (cpr to US where is 80%). share, leverage digitization to
- De-regulation will drive consolidation (>10 large capture online book & digital news
publis hing groups have been form ed)+ acquisition of market.
(9 bn) other parts of value-chain e.g. Content hous e, digital
(Digital media providers (digital publishing valued at RMB53bn
in 2008) Magazine market has significant
Publishing) opportunity for growth
TV 207 bn -TV has deep and broad penetration across China -SAFRT has plans to drive us er Medium- High
hence great market potential but currently lacks high- convers ion from analogue to (Digital TV)
(DT+IPTV)
quality content digital
- Cons olidation and leveraging on cros s-media and -Partnership with foreign content
also strategic partners hips will see overall sector producers to produce niche
growth continue channels
(education, healthcare,
wedding,,etc)
Radio 430m -Industry slowly recovering in revenues. Smaller Growing consum ption as car Medium
stations will be consolidated as part of major cros s- population increased
media groups
Film/Cinema 6 bn - Chines e cinem a revenue increased >30% in 2008, Gap in content production- Medium
reaching over RMB4bn and looks to continue strong opportunity to build creative
growth content
Interactive Media -- -Already open market hence highly competitive. - Leverage on technology like High
-Cons olidation in eg. Outdoor media advertis em ent interactive media to im prove (Interactive
com panies already seeing consolidation advertis em ent effectives Media)
CCC Analysis
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CCC Analysis
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CCC Analysis
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Cable & Digital
•Channel networks are TV/IPTV
•No clear national leader
all State or domestic- although recent success of •Foreign investors can take part in
owned Hunan TV gaining them china’s digital TV space through
• Over 1000 production national market investing in a number of listed entities in
companies • Dominance in regions eg. the space
• Current regulations SMG in Shanghai
restrict foreign Barriers Industry
ownership to entry Competitiveness
Co-production
•Current market •SMG signing a co-production
dominated by agreement with Mexico’s Televisa to
Potential Industry •Lack of content co-produce telenovela’s successful
terrestrial TV; with producers – restrictions
cable and digital Substitutes Gaps “Dumb Girls’s Don’t go to Heaven
on foreign content
expected to gain broadcast
market share • Consumer switch to Content
• IPTV increasingly “pay-TV” slow
gaining market share
with current numbers •Format licensing of foreign content-
ay 1m viewers Deal between Hunan TV and
Granada’s internationally popular
• Video-sharing sites Saturday Night Takeaway format
• 400m Households reaching over 97% • Top viewer ratings for factual • 2008
population programming with 13% watching TV for • Revenues for broadcast USD21bn
• 163m households on cable +45m news • Revenues for cable TV USD5,.09m
homes on digital net • TV Dramas comprised 36% of all TV • Digital pay-TV at USD203m
• Over 2000 TV Channels + 320 content and 48% of ratings
• TV accounted for 76% of USD64 bn
Broadcast • Variety/Entertainment content total ad spend in China
increasingly poular
Key Stats Ratings Revenues
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Upon penetration – other
value-added services like on
games and targeted content,
healthcare will create new
DTV ‘s forecast
revenues
growth is in line
with SARFT’s
target to
complete
conversion by
2012
Gross revenues of leading digital
Tv Operators
Growth of IPTV
would see close
to 20m
subscribers by
2013
China will have one of the world’s largest DTV and IPTV market; DTV
will be focused in urban areas -
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Book Retail
(Online/Offline)
•Foreign investors can invest and be
• All print & publishing • Already restructured into
houses are state- wholly-owned or with JV partners in
40 groups book retailing
owned
•Industry is highly
• In Apr09, new fragmented with market
directive called for leaders having usually
divestment of non core
asset by 2010 Barriers Industry <10% share
to entry Competitiveness
• Proliferation in no. E-Books
of book titles, • Piracy remains a
magazines Potential Industry
problem •Over 2500 joint production deals
• e- books and Substitutes Gaps
digitization is
occuring
E-Books
• Number of publishing houses at 573 • World’s largest print news market with • 2008
• Variety if newspapers close to 2,000 close to 37 billion papers sold annually • Revenues for industry at USD 20bn
• Books variety at 230,000 • 5th largest magazine market with close
• Distribution is fragmented at over to 10,000 sold annually
80,000
• Online retailers (top 2 70% market
share)
Key Stats Ratings Revenues
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Number of Cinema per capita Annual Cinema Visits / per household
Ci nema
infrastructure is
still low in China
as is the annual
visit rate
US France UK China France UK
US Japan China
China Cinema Revenues (RMB x0,000) Comparison of Domestic vs Foreign Film
Revenues (RMBx0,000)
Cinema Ticket
Revenues in
China
As consumers increasingly view “going to the movies” as a unique
leisure experience, the growth potential is strong coupled with growing
choice of domestic films vs foreign… 13

C to C transactions
USD 15 Bn
Designer Jewellery
USD20 Bn
Online Gaming
USD 3.9 Bn
Wedding Online
Services
USD200+Bn
14

WHERE ARE OPPORTUNISTIC SECTORS??
WHAT WILL BE IMPACT OF DE-REGULATION?
WHAT ARE POSSIBLE OBSTACLES?
HOW TO IDENTIFY INVESTMENT IDEAS?
15

Currently all publishers have to be affiliated Foreign ownership of publishing is currently
with an upper-level authority- usually not allowed except through cooperation with
Current- government agencies, political parties or Chinese publishers through copyright trading
academic institutions and public cooperation
“…by the end of 2010 all book, audio-visual and electronic publishing by ministries of the central
Directive- government shall be separated from Government agencies and transformed into independent market
players..GAPP is encouraging publishers to accept private and foreign capital, including that
raised through public listing…” Apr 2009
Top 20 Publishing House only
control 20% of the market- Transformation of USD 20bn
fragmented market gives Publishing Market between
opportunities 2009 and 2010
Continued Strong Growth
2009 onwards
2007 will see formation
Successful IPO of large Chinese
of 1st publishing media
Publication groups, planning for
company - IPO after M&A;
Liaoning Press printers are buying
(Shanghai Stk) content houses &
Incorporated private and entrepreneurial companies key components of
into the group under a se parate umbrella
the value-chain
This ne w entity he lped to drive new growth and
profitability
Company value now at RMB5.7B over 2X on IPO and
one of the largest chinese media conglomerates
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“Shanghai Media Group, China’s second-largest broadcaster, is planning to spin off several units and list
them over the coming two years, in an ambitious push for further reform of the country’s state-owned media. Li
Ruigang, SMG president, said the group, which is control led by the Shanghai municipal government and had
revenues of Rmb6bn ($875m) last year, was now seeking to introduce private equity investors in several of its
businesses and tak e some public later. …Mr Li said it needed to raise capital to buy newspapers and new
media assets in other parts of China, a plan he hopes will help SMG expand beyond its focus on Shanghai.“The
group will be transformed into a holding company, and the affiliates will be independent,” he said in an interview.
Potential Spin-off of Several
Attractive Business
Segments Potential Future Plans
(Only first 2 have been
publicly announced)
Leading Fashion &
Re-branded under new affiliate
1 Lifestyle Channel – “Enjoyoung Media”- seeking
Youth TV Channel + Shanghai’s
funds for M&A across China
leading magazine “OK”
Leading Re-position aka “Bloomberg” of
Undergoing re-organisation & China- offer financial
re-structuring of various 2 China Business News Service
information to corporate clients
leading business units into - Financial TV and newspaper through terminal service
new entities with a clear
customer centric or service Regional Internet TV for Chinese- Already world’s largest internet
centric focus as part of the re- speaking audience- Expected to TV- plans to go regional to
3
positioning strategy to reach 2m households by end 2009 capture wider audience
develop market leadership
across China (either through Leading TV Home Shopping
Extend TV shopping to online
M&A or partnerships) Network- JV with Korean home and offline retail, building a
4 shopping leader, revenues over
strong “retail mall brand”?
USD150m and profitable
Regional Children’s Channel – Strategic partnership with
5 Children’s education and animation Global children’s channels?
channels Acquire publishing assets ?
17

WHERE ARE OPPORTUNISTIC SECTORS??
WHAT WILL BE IMPACT OF DE-REGULATION?
WHAT ARE POSSIBLE OBSTACLES?
HOW TO IDENTIFY INVESTMENT IDEAS?
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Weak Brand Building- Inability to develop a strong brand concept so
that the identified creative product/service can be replicated and
contains the same essence as the original
Lack of a Platform - Creative industries thrive on being part of an eco-
system or platform where ideas, talent and resources can be shared; this
platform extends within domestically or even across internationally to
tap on needed resources
Lack of a Industry Alliance – Similar to the above, the clustering of
players along the same industry value chain create a critical mass of
knowledge and demands that will naturally cause inflows of supply and
new exchange of knowledge..
Inadequate Financial Support- Typically Creative & knowledge industries
do not create/trade in physical assets- hence would not be able to secure
normal financial loans backed by assets and often will require venture
financing...
Version 2.0 22 Jul09 by KCYoon 19

    

  
WHERE ARE OPPORTUNISTIC SECTORS??
WHAT WILL BE IMPACT OF DE-REGULATION?
WHAT ARE POSSIBLE OBSTACLES?
HOW TO IDENTIFY INVESTMENT IDEAS?
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Consumer Industry Regulatory Technology
Track spin-offs as result if regulatory changes
from State-Owned Media seeking business
expansion/foreign partnerships
Watch potential partnerships/ M&A/ extension
between online + offline / new +traditional
media, brands/services that will increase
overall value
Seek opportunities in combinations where
identified consumer demand can increase
significantly in collaboration with media
Find opportunities where market leader is
created from a combination of the consumer/
industry/ regulatory/ technology shifts
Other sectors of particular focus are in Education, Healthcare, Beauty
Care, Female-focused fashion, Animation content, Sports related 21
entertainment (some of these could be undervalued listed equities)



 

 
    

  
Potential Opportunity Industry Entity Exit Remarks
Sector Option
Investment into youth-focused spin-off of TV, magazine Shanghai Expansion Attractive Segment for
SMG’s Young TV Channel & “OK” Media brands
magazine to fund national expansion Group
Leading SNS site undergoing M&A with Web, WY Strategic Entertainment sector
leading offline entertainment service Entertainment Investor
provider to create a new Entertainment Sale
social site for fans-stars to interact
Best TV the leading SMG IPTV in china New media TV Shanghai Expansion Large opportunity
seeking expansion funding to grow; MG
current ly 2m subscribers
Bundle business news x-media channels TV, radio, news Shanghai IPO Top business news provider
+ 100 year old CBN business newspaper print, business Media in China
to create China’s “wall street journal” information Group
Pre-IPO investment into leading Music Music Ocean IPO Strong artists in team
Talent agency in China Butterfly
Wedding digital TV Channel – high-quality Digital TV, Wedding TV Strategic Strong projected growth with
niche targeted program at one of the cultural services Investor government support to drive
biggest segments of consumer spending Sale market
We have a ready pipeline of propriety opportunities that could see the
Fund’s USD30-50m fully invested within the next 6 -12 months.
Our intention will be to raise a subsequent Fund of USD100-150m.
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Huge Market Opportunity Number of Weddings in China Wedding &related Expenditure – Reached
(M) USD265bn in 2007
Factors driving growth
- “’One-child fam ily” policy
- Traditional living arrangem ents to
live-out after marriage Digital TV consumers are young, urban, working adults- the right target
- Increasing affluence for wedding content and brand advertisers
Digital TV strong
media channel for Winning partnerships with foreign- content
targeted services like partner + domestic retail chain
holiday packages or
product placement Partne rship with domestic
ÜK’’s “Wedding Channel’’
wedding photo service
to leverage for creative chains to bring offline
ideas + content customer reach
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Huge Market Opportunity
China sees strong
IPTV subscriber
growth with forecast
to generate
USD900M revenues
in 2010
Sustainable business model and large potential base of 400m TV
Factors driving households and 120m broadband subscribers
growth
IPTV gives SMG a true IPTV offers potential revenues from multiple
- Deep desire and pride to nation-wide “TV
drive domestic IPTV services- finance, games, news, etc
equivalent” platform to
standards now led by BEST reach across China
TV, IPTV arm of SMG
- Supported by domestiic
technology players
- China Telecoms as partner
can tap on existing large
subscriber base
- Strong value perception by
consumers
- Nationwide events like
Olympics & soon Shanghai
World Expo2010
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Well-Positioned Platform for Expansion Acquire content producers to strengthen value-
chain + distributors to build national platform
Media Channels- Fashion
TV, Web and leading Partnership with ecommerce sites to monetize
gossip magazine OK content and create addn revenue streams
Partnership with social network sites to create
captive community
Potential strategic partnership with leading online SNS service plus offline
entertainment event organizer with close relationship to stars
Community Platform for
social interaction between
stars and fans i.e.
foundation to form online
fan club
Consolidate Strategy of expanding distribution of
entertainment content
to allow better
brand and content across China
management and
eventual monetization
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Opportunity to leverage on these prime assets
and seek strategic partner to build China/
asia’s best business news service Best Asia/China information service
May consider building
a full-suite of business Best Asia/China business news
services and become
the “Bloomberg” of
Asia
Best Asia/China delivered multi-channels
Winning partnership with complementary partner –ie. Channel News
- Business news Asia to build Asia-wide leader
through various
media
Business News Leader in Asia
TV
Radio
Web
- Financial
information service
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Potential Opportunity Sector Remark
“content’ + “distribution”
•Number 1 broadcaster of sports content in China. Secured NBA (300M fans) and Sports Undervalued
seeking English league (500m fans) to of China’s most loved sports Content on NASDAQ
• distribute through 2 free channels, 4 digital pay channels+ mobile/internet (Xsel)
• close relationship with major brands– 70% ad rev from chinese brands; 30%
foreign Currently
• EBITDA 2008 USD20m..Low P/E valued
USD110-130m
China’s ESPN
Potential Opportunity Sector Remark
Under-focused “high growth +margin”
• Leader in Radio Ad around BJ/TJ- sector fragmented giving opportunity to Radio MktCap
establish market leadership Ad USD33m
• radio ad space underfocused – Ad spend in China 2,7% vs 11% in US of total
spend; radio potential for growth as well-positioned for emerging segment- 55m Undervalued
car owners in BJ/TJ area because of
potential growth
+ margins
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