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White paper soft culture hard economy (summary)_aug09 [f]


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Describe potential and opportunity for investing in China's creative & media sector as chinese consumer wealth increases; opening of China's restricted media sector to foreign participation and rise …

Describe potential and opportunity for investing in China's creative & media sector as chinese consumer wealth increases; opening of China's restricted media sector to foreign participation and rise of domestic PE industry

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  • 1. EXECUTIVE BRIEF Global Creative Industry Trends-Implications & Investment Opportunities for China 2009 1
  • 2. K.C YoonMobile: +86 18675573803Email : kcyoon.glg@gmail.comSkype: kcyoon07Linkedin: Version 2.0 22 Jul09 by KCYoon 2
  • 3. 3
  • 5. “Future of Media” Gerd Loenhard ..DIGITAL CONVERGENCE + RISE of INFORMATION ECONOMY is DRIVING GROWTH OF THE CREATIVE INDUSTRY ..where Intellectual Property and Ideas have highest economic value-add …DATA IS THE NEW OIL 5
  • 6. Digitization of Traditional Content New Media channels capturing Increases Availability consumers + Ad spend Zenith Optimedia Jul2009 Business Models change to New Media collaborate Players Gaining consumers, cross- Fundamental Market share! media, etc Changes in Media Business Models“Future of Media” Gerd Loenhard “Future of Media” Gerd Loenhard “’” ‘”Virtually every segment of the entertainment and media industry is shifting ..from physical distribution to digital distribution of content," said Wayne Jackson, global leader of PWC .. "As this shift continues, we see more revenue opportunities for entertainment and media companies.” 6
  • 7. OLD- Production of content , Power to Few ! distribution, accessibility Limited Content dominated by Limited Channels few Technology Content Creates New Choice NEW Channels- Content has Technology Power to thepower but also Proliferates faces Content Creation People!” competition; Consumers Channel Access consumers Choice “Dictate make content UK Creative Industry Report 2008 Consumers Create Content 7
  • 8. World trade in Creative Goods grew at annual rate of 8.7% between 2000-2005, reaching USD 335bn in 2005..China is already the largest exporting nationUNCTAD Creative Industry Report 2008 Year 2000s- emergence of 1950’s Global Corporations in Emergence of Oil & Auto Global Corporations – Software , Media –Microsoft, Google, Time-Warner… Shell, Ford, GM… Emergence of the Creative & Cultural Industry globally will shift economic opportunities and significantly change the value of economic output , creating a new global class of DATA CORPORATIONS 8
  • 9. Fastest growing sector (@ 5%) outperforming traditional sectors; economic output of UK: UK’s creative sector comparable to the financial services sector Largest & fastest Contributes close to 10% of UK’s GDP (2009) growing economic Employs 1.8 million people sectorCase Studies ofCreative product Impact on the economic Originally published as a Children book Originally conceived as a comedy series- Sold 300 books in 63 languages unique due to the “no-speaking” mode Generating over USD 10bn in films and Widely popular and distributed in over DVD licenses 200 countries worldwide Helped drive revenues for entire industry Inspired 2 feature films and an animated in the US – Warner movies, online games cartoon series EA and Emergence of the Creative & Cultural Industry globally is part of the industrial evolution as economies migrate from manufacturing-based to knowledge-based “creative digital age” based in the 21st Century.. 9
  • 11. Aligned with Growth of Creative Industry as a key economic sector essential to the “Clean”” Chinese Government’s strategy to shift from export-driven to domestic Economic consumption-based economy.. Benefit of “Clean” growth =minimal energy Strategy usage with high-value-added Large Large potential market - Chinese consumer’s consumption of media Domestic /entertainment increasing as spending power increases plus ability to access Market content (largest internet population 330m; mobile users 550m) Foundation Rich Chinese history/culture + Rich human resource provides strong for Job foundation for creative industry and growth of SMEs – generating jobs to fill- Creation gap for loss in export industry Counter Despite censorship implementation, globalization and ability to access foreignGlobalization media content through online/digital channels cannot be avoided... Need towith Domestic counter with availability of domestic content Content“Soft power” Leverage on current global interest in China to spread Chinese history/culture to Create as a “Softpower” foreign –policy tool to create goodwill internationally for the Goodwill Chinese nation Globally China already a leader in “’new media’’; but need to “privatize” and expose to Competitive “market competitive forces ” SOE-dominated traditional media to ensure that Domestic Chinese media groups can become a globally competitive force Media 11
  • 13. 3 2 Currently a USD80bn industry & growing at 14% CAGR till 2015• Strong retail growth • World’s largest internet averaging 15-20% annually population at over 300m• China to surpass Japan as and 620m mobile users World’s No.2 consumer Convergence • Digital content market economy by 2010 Drives Industry already worth USD3bn Change• Consumption growth drives Creates • “Open” media sector to ad spending to USD16bn- Opportunities drive growth- contribution to 5th largest globally GDP 3.2% vs UK’s 10%• Consumer traditional media • Remain competitive consumption reached • Create employment US$22bn Impact of each driver creates convergence & positive reinforcement effect on the industry …as China grows from a low consumption base from a relatively “restricted” industry 4 1 to a developed nation with open media & entertainment consumption
  • 14. 1 China Retail Sales & Disposable Income TrendsBy 2015, >300M lower- middle class; 100M Growth of Chinese luxury consumers Middle-Class > 200 Cities with Urbanization and >1M residents Growth of Cities NOW >300M users; Growth and Impact of >RMB 120B online consumer sales the Internet Grail Research : 2008 CONSUMER: China already 3rd largest consumer of luxury goods – will be No.2 by 2015 with market value of USD 12bn and 29% global market share (Grail Research 2008) ; By 2010 will surpass Japan as 2nd largest consumer economy 14
  • 15. 2 China Becomes Chinese World’s largest Government Auto Producer2 Key Issues : deliberate shift and Auto Market(1) Current low GDP share of to focus on for 1H2009 private consumption 35% increasing overtaking the US (Half of the US) ; private(2) Rural income levels low consumption as compared to urban with 2/3 long-term China Passenger Car Assoc. of China’s population rural economic strategy + USD600 bn Retail sales robust & recovering as result of stimulus packages stimulus package to drive Chinese FT July 2009 economy National Bureau of Statistics “’… consumption accounted for 4.3 China Statistical Abstracts 2008 percentage points of Chinas 6.1 percent Q1 2009 GDP growth, compared with 0.2 percentage points for net exports ..2 percentage points for investment…”’ Chinese Government strategy to drive shift in economy appears to be slowly bearing fruits..e.g. Strong growth in the Chinese auto sector despite global slump – a major positive consumption indicator 15
  • 16. 3 Penetration of digital devices will extend from current 1st/2nd tier cities toreach all the way to rural China BCG Report 2008 Emerging digital channels like IPTV already gaining market share BDA China 2008 DIGITAL: Currently over 600M Chinese have digital access and by 2015, multiple digital access channels will reach 87% of the population, with a significant percentage being new consumers in the 3rd tier and smaller cities (over 60% of the population) 16
  • 17. 4 NEW DRIVING FORCE Partnerships Coming privatization of between foreign & Publishing sector in domestic media market valued at USD19bn groups DE-REGULATION = TRANSFORMATION Increased M&A within + OF CHINA’S Coming conversion to domestic media Digital/cable TV in market market – between CREATIVE & MEDIA SOEs & new media valued at USD12bn by 2012 INDUSTRY companies = NEW GROWTH Cross-media OPPORTUNITIES Growth of new Mobile collaborations + Media market , currently collaborations across media value-chain valued at USD14.7bn De-regulation brings competition, accelerates change from “standardization” to “innovation & differentiation”, transforming the industry and creating “New Growth” momentum in the industry hence “New Investment Opportunities” 17
  • 18. Film - 10th largest global market valued at USD400+m Publishing – market valued at USD 19bn Skillnet Report 2008 TV - Largest global broadcast market valued at USD22bn “Bull run” in media consumption and “loosening” with broad participation across all media, including traditional media(TV). China has world largest TV Employing over audience market with over 90% 11m people in 2008 penetration and 1283 channelsThe Chinese Government has targeted Creative & Media industry as a key sector for future growth- driving change through de-regulation, encouraging digitization across industries, upgrading of telecoms & technology infrastructure and the recent roll-out of 3G..… 18
  • 19. Breakdown of Media Market Share BDA Mobile Broadband report China 2008PWC Report 2008 China’s internet/digital share of media market now at 11% (2008) with digital content market already worth > USD 3 billion… strongest growth potential from mobile TV and online games… 19
  • 20. Chinese internet users from 2000- 2008, surpassing US in June 08 as the world’s largest CNICC Survey 2009CCBN 2009 Visit Report Chinese traditional broadcast market i.e. TV is the largest sector of the Creative industry valued at USD 20bn (2008) with over 2000 channels and access to 400m homes or 1.2 billion consumers 20
  • 22. Over 1000 years of By end 2008, 38 Recorded history of mythology since sites in China pottery began 12th Century BC.. identified as World 11,000 years ago.. recorded in Heritage by dominating worldliterature, poems UNESCO with 27 ceramic trade from and songs Cultural sites 11th to 19th century The famous Terracotta “Chinese Dragon” is warriors of Qin one of the k ey creature in Chinese mythologyClose to 4000 years China has 28 Other aspects ofof Chinese history officially recognized Chinese culture beginning from written languages, have already seen2852BC… 25 major 22 ethnic minority growing demanddynasties and over and close to 100 across the world 100s of emperors spoken dialects Minority tribes in China with their unique customs and cultures The cultural heritage within China gives a firm foundation for content & creation of modern entertainment + development of cultural services and products eg. Cultural tourism, historical artifacts reproduction, cultural entertainment & performances… 22
  • 23. SHANDA(NASDAQ: SNDA) -The world’s largest online gaming company withmarket cap of USD Using popular Chinese 3.8bn folk lore, heroes as back ground & storyline for online games BLOCKBUSTER MOVIE “RED CLIFF”A recent USD 80mmovie directed by Already grossed over USD120mDirector John Woo in Asia alone part 1 of the 2 part movie.. “ can’t beat Red Cliff as the “The Battle of RedCliff” in 208 A.D. during the most fabulous and classiest Eastern Han Dynasty between two famous generals movie this summer” The is one of most famous battle sin Chinese history Observer UK 2009 History, myths, folklores & heroes have been successfully leveraged to create today’s entertainment and products in movies, TV serials, animation, online games and merchandise 23
  • 24. L ITTLE LAMB (HKSE: 0968) The most famous Chinese hotpotchain brand globally Based on the traditional Mongolian love Little Lamb was invested by UK VC 3i for lamb hotpot, Little Lamb is now a and listed on HKSE in June 2008 global 350 chain restaurant in China, US, raising just over USD100M with a South Korea, Japan and Indonesia USD500M Mark et capitalisation SHANGHAI TANG The first luxury lifestyle fashion brand to emerge from China Shanghai Tang is an international clothing chain with over 20 outlets globally, founded in 1994 by a HK businessman and now controlled by Richemont. Shanghai Tang is a Chinese label that set out to rejuvenate Chinese fashion. The fundamental design concept is inspired by traditional Han Chinese clothing combined with the modernity and dynamism of the 21st century. The opportunity to merge Western management practices & branding concepts with strong Chinese cultural products/services to create a global brand has high probability of success 24
  • 25. TENCENT TENCENT has achieved (HK:0700) revenues of over USD 1 bn in 2008 at an operating margin ofIn C2C : The world’s 44%. TENCENT is ranked Top largest and most 10 in Business week’s 2009 Top profitable online 100 Global IT- the only Chinese social network company to do so “QQ” is the recognized brand for over 300M consumers ALIBABA ALIBABA has developed the (HK: 1688) world’s largest business member In B2B : world’s base of 40m in over 240 countries. largest B2B ALIBABA wins by offering offline company with and online services plus service tomarket cap of USD ensure trust/payment (the key 12bn issues faced with sourcing from SMEs) 25
  • 27. “Content”+”Consumption”= ‘Hard’” Economics Traditional + New Media + Cultural & Entertainment/Leisure Products Location-based Entertainment New Media Technology • X-media consumer gadgets/widget • Cinema/3-D theatres• X-media content creation apps • interactive media devices • Themed restaurants/Regional Cuisines• X-media accessibility apps chains • Themed parks Publishing • Music Festivals aka Ibiza • Magazines- youth, female, sports • Live concerts & performances Content Creation • Newspaper • Live theatre/ performing arts• TV/Radio/music production/syndication • School educational text• Film /video production • Digital books/e--book Cultural Entertainment•Licensing (brands, merchandise, content)• Animation/ 3-D • Cultural tourism Services • Cultural performances• Mobile content • Media buying agencies• sports broadcast • Sports entertainment • Ad agents•Online game •Marketing/ database services• Business & financial news/info • Production services Specialty Retail/Brands•Training & Education (Online + Offline) •Outdoor/alternative advertising • Lifestyle focused-e.g.tea houses • Multimedia design • Wedding service • Healthfood Distribution • Handcrafted/Designer accessories • Digital TV channels • Designer fashionwear Services • TV/radio channels • Wedding services • Online video/IPTV • Traditional beauty spa and wellness •Outdoor/alternative advertising • Sports agency • Fashion Design While China’s Creative market is not matured..good “Content” and “Service” will have a huge potential market due to growing consumer demand ….the industry extends beyond media, encompassing cultural, entertainment & leisure 27
  • 28. Sector Market Shifts Investment Opportunity Attractive Size in 2009 Industry Regulation Tec hnology (USD) Print & 20 bn -Fragmented market -top 20 companies have only Opportunity to consolidate market Medium- Publishing 20% market share (cpr to US where is 80%). share, leverage digitization to High - De-regulation will drive consolidation (>10 large capture online book & digital news publishing groups have been formed)+ acquisition of market. (9 bn) other parts of value-chain e.g. Content house, 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 user Medium- (DT+IPTV) hence great market potential but currently lacks high- conversion from analogue to High quality content digital by 2012 - Consolidation (SARFT made announcements -Partnership with foreign content encouraging sector M&A in Aug 2009) and leveraging producers to produce niche on cross-media and also strategic partnerships will channels (education, healthcare, see overall sector growth continue wedding focused ) Radio 430m -Industry slowly recovering in revenues. Smaller Growing consumption as car Medium stations will be consolidated as part of major cross- population increased media groups Film/Cinema 6 bn - Chinese cinema revenue increased >30% in 2008, Gap in content production- Medium reaching over RMB4bn and looks to continue strong opportunity to build creative growth contentInteractive Media -- -Already open market hence highly competitive. - Leverage on technology like Medium- -Consolidation in eg. Outdoor media advertisement interactive media to improve High companies already seeing consolidation advertisement effectives CCC Analysis 28
  • 29. 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 29
  • 30. Upon penetration – other value-added services like on games and targeted content, healthcare will create newDTV ‘s forecast revenuesgrowth is in line with SARFT’s target to complete conversion by 2012 Gross revenues of leading digital Tv OperatorsGrowth of IPTVwould see close to 20msubscribers by 2013 China will have one of the world’s largest DTV and IPTV market; DTV will be focused in urban areas surrounding Beijing, Shanghai and Guangzhou 30
  • 31. Currently all publishers have to be affiliated Foreign ownership of publishing is currently with an upper-level authority- usually not allowed except through cooperation withCurrent- 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 centralDirective- 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 separate umbrella the value-chain This new entity helped to drive new growth and profitability Company value now at RMB5.7B over 2X on IPO and one of the largest chinese media conglomerates 31
  • 32. Consumer Industry Regulatory TechnologyTrack spin-offs as result if regulatory changes from State-Owned Media seeking business expansion/foreign partnershipsWatch 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 iscreated 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 32 entertainment (some of these could be undervalued listed equities)