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 of domestic PE industry

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<ul><li> 1. EXECUTIVE BRIEFGlobal Creative Industry Trends-Implications &amp; Investment Opportunities for China 20091</li></ul><p> 2. K.C YoonMobile: +86 18675573803Email : kcyoon.glg@gmail.comSkype: kcyoon07Linkedin: http://cn.linkedin.com/in/kcyoonVersion 2.0 22 Jul09 by KCYoon 2 3. 3 4. WHAT ARE GLOBAL TRENDS AND IMPACT?WHY MUST CHINA RESPOND?HOW DOES IT IMPACT CHINAS CREATIVE INDUSTRY?WHY DOES CHINA HAVE A STRONG FOUNDATION?WHERE ARE POTENTIAL OPPORTUNITIES?4 5. Future of Media Gerd Loenhard ..DIGITAL CONVERGENCE + RISE of INFORMATION ECONOMY isDRIVING 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 ContentNew Media channels capturing Increases Availability consumers + Ad spend Zenith Optimedia Jul2009 BusinessModelschange to New Media collaborate Players Gaining consumers,cross- FundamentalMarket share! media, etc Changes in Media Business ModelsFuture of Media Gerd LoenhardFuture of Media Gerd LoenhardVirtually every segment of the entertainment and media industry is shifting..from physical distribution to digital distribution of content," said WayneJackson, 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 byLimited Channels few Technology Content Creates New ChoiceNEW Channels- Content has TechnologyPower to thepower but alsoProliferatesfaces Content CreationPeople! competition; Consumers Channel AccessconsumersChoiceDictate make content UK Creative Industry Report 2008ConsumersCreate 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 largestexporting nationUNCTAD Creative Industry Report 2008 Year 2000s- emergence of 1950s Global Corporations inEmergence of Oil &amp; Auto Global Corporations Software , Media Microsoft,Google, Time-Warner Shell, Ford, GMEmergence of the Creative &amp; Cultural Industry globally will shifteconomic opportunities and significantly change the value ofeconomic output , creating a new global class ofDATA CORPORATIONS 8 9. Fastest growing sector (@ 5%) outperforming traditional sectors; economic output of UK:UKs creative sector comparable to the financial services sector Largest &amp; fastestContributes close to 10% of UKs GDP (2009) growing economicEmploys 1.8 million people sectorCase Studies ofCreative product Impact on the economicOriginally published as a Children bookOriginally conceived as a comedy series-Sold 300 books in 63 languages unique due to the no-speaking modeGenerating over USD 10bn in films andWidely popular and distributed in overDVD licenses 200 countries worldwideHelped drive revenues for entire industryInspired 2 feature films and an animatedin the US Warner movies, online gamescartoon seriesEA and Amazon.com Emergence of the Creative &amp; Cultural Industry globally is part of the industrial evolution as economies migrate from manufacturing-basedto knowledge-based creative digital age based in the 21st Century..9 10. WHAT ARE GLOBAL TRENDS AND IMPACT?WHY MUST CHINA RESPOND?HOW DOES IT IMPACT CHINAS CREATIVE INDUSTRY?WHY DOES CHINA HAVE A STRONG FOUNDATION?WHERE ARE POTENTIAL OPPORTUNITIES?10 11. Aligned with Growth of Creative Industry as a key economic sector essential to the CleanChinese Governments strategy to shift from export-driven to domestic Economicconsumption-based economy.. Benefit of Clean growth =minimal energyStrategy usage with high-value-added LargeLarge potential market - Chinese consumers consumption of mediaDomestic/entertainment increasing as spending power increases plus ability to access Marketcontent (largest internet population 330m; mobile users 550m) FoundationRich Chinese history/culture + Rich human resource provides strong for Jobfoundation for creative industry and growth of SMEs generating jobs to fill-Creationgap for loss in export industry CounterDespite censorship implementation, globalization and ability to access foreignGlobalization media content through online/digital channels cannot be avoided... Need towith Domesticcounter with availability of domestic content ContentSoft powerLeverage on current global interest in China to spread Chinese history/cultureto Create as a Softpower foreign policy tool to create goodwill internationally for theGoodwill Chinese nationGloballyChina already a leader in new media; but need to privatize and expose to Competitivemarket competitive forces SOE-dominated traditional media to ensure thatDomesticChinese media groups can become a globally competitive force Media 11 12. WHAT ARE GLOBAL TRENDS AND IMPACT?WHY MUST CHINA RESPOND?HOW DOES IT IMPACT CHINAS CREATIVE INDUSTRY?WHY DOES CHINA HAVE A STRONG FOUNDATION?WHERE ARE POTENTIAL OPPORTUNITIES?12 13. 32 Currently a USD80bn industry &amp; growing at 14% CAGR till 2015 Strong retail growth Worlds largest internetaveraging 15-20% annually population at over 300m China to surpass Japan as and 620m mobile usersWorlds No.2 consumer Convergence Digital content marketeconomy by 2010Drives Industryalready worth USD3bn Change Consumption growth drivesCreates Open media sector toad spending to USD16bn- Opportunities drive growth- contribution to5th largest globallyGDP 3.2% vs UKs 10% Consumer traditional media Remain competitiveconsumption reached Create employmentUS$22bn Impact of each driver creates convergence &amp;positive reinforcement effect on the industry as China grows from a low consumption base from a relatively restricted industry41to a developed nation with open media &amp; entertainment consumption 14. 1China Retail Sales &amp; DisposableIncome TrendsBy 2015, &gt;300M lower- middle class; 100M Growth of Chineseluxury consumers Middle-Class &gt; 200 Cities withUrbanization and&gt;1M residents Growth of Cities NOW &gt;300M users;Growth and Impact of &gt;RMB 120B onlineconsumer salesthe Internet Grail Research : 2008CONSUMER: China already 3rd largest consumer of luxurygoods will be No.2 by 2015 with market value of USD 12bnand 29% global market share (Grail Research 2008) ;By 2010 will surpass Japan as 2nd largest consumer economy14 15. 2China BecomesChineseWorlds largest GovernmentAuto Producer2 Key Issues :deliberate shiftand Auto Market(1) Current low GDP share of to focus onfor 1H2009private consumption 35% increasing overtaking the US(Half of the US) ; private(2) Rural income levels lowconsumption ascompared to urban with 2/3 long-term China Passenger Car Assoc.of Chinas population ruraleconomicstrategy + USD600 bn Retail sales robust &amp;recovering asresult of stimuluspackages stimulus package todrive Chinese FT July 2009 economy National Bureau of Statistics consumption accounted for 4.3China 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 investmentChinese 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. 3Penetration of digital devices will extend from current 1st/2nd tier cities toreach all the wayto rural ChinaBCG Report 2008Emerging digital channels like IPTV alreadygaining marketshareBDA China 2008 DIGITAL: Currently over 600M Chinese have digital access andby 2015, multiple digital access channels will reach 87% of the population, with a significant percentage being new consumers inthe 3rd tier and smaller cities (over 60% of the population)16 17. 4NEW DRIVINGFORCE Partnerships Coming privatization ofbetween foreign &amp;Publishing sector in domestic mediamarket valued at USD19bn groupsDE-REGULATION=TRANSFORMATION Increased M&amp;A within+ OF CHINASComing conversion to domestic media Digital/cable TV in marketmarket betweenCREATIVE &amp; MEDIA SOEs &amp; new mediavalued at USD12bn by 2012INDUSTRYcompanies= NEW GROWTH Cross-mediaOPPORTUNITIESGrowth of new Mobile collaborations + Media market , currentlycollaborations acrossmedia value-chainvalued at USD14.7bn De-regulation brings competition, accelerates change from standardization to innovation &amp; 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+mPublishing marketvalued at USD 19bnSkillnet Report 2008TV - Largest globalbroadcast marketvalued at USD22bnBull run in media consumption andloosening with broad participation across all media, including traditional media(TV). China has world largest TV Employing overaudience market with over 90%11m people in 2008 penetration and 1283 channelsThe Chinese Government has targeted Creative &amp; Media industry as a key sector for future growth- driving change through de-regulation, encouraging digitization across industries, upgrading of telecoms &amp;technology infrastructure and the recent roll-out of 3G.. 18 19. Breakdown of Media Market Share BDA Mobile Broadband report China 2008PWC Report 2008 Chinas internet/digital share of media market now at 11% (2008) withdigital content market already worth &gt; USD 3 billion strongest growthpotential from mobile TV and online games 19 20. Chinese internet users from 2000-2008, surpassing US in June 08 as the worlds largestCNICC Survey 2009CCBN 2009 Visit Report Chinese traditional broadcast market i.e. TV is the largest sector of theCreative industry valued at USD 20bn (2008) with over 2000 channels and access to 400m homes or 1.2 billion consumers 20 21. WHAT ARE GLOBAL TRENDS AND IMPACT?WHY MUST CHINA RESPOND?HOW DOES IT IMPACT CHINAS CREATIVE INDUSTRY?WHY DOES CHINA HAVE A STRONG FOUNDATION?WHERE ARE POTENTIAL OPPORTUNITIES?21 22. Over 1000 years ofBy end 2008, 38Recorded 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, poemsUNESCO with 27ceramic trade from and songs Cultural sites11th to 19th centuryThe famous TerracottaChinese Dragon iswarriors of Qinone of the k eycreature in ChinesemythologyClose to 4000 years China has 28 Other aspects ofof Chinese historyofficially recognizedChinese culturebeginning from written languages, have already seen2852BC 25 major 22 ethnic minority growing demanddynasties and overand close to 100 across the world 100s of emperorsspoken dialects Minority tribes in China with their unique customs and culturesThe cultural heritage within China gives a firm foundation for content &amp; creation of modern entertainment + development of cultural servicesand products eg. Cultural tourism, historical artifacts reproduction,cultural entertainment &amp; performances22 23. SHANDA(NASDAQ: SNDA) -The worlds largestonline gamingcompany withmarket cap of USD Using popular Chinese3.8bnfolk lore, heroes as back ground &amp; storyline for online games BLOCKBUSTERMOVIE RED CLIFFA recent USD 80mmovie directed byAlready grossed over USD120mDirector John Wooin Asia alone part 1 of the 2 part movie.. ..you cant beat Red Cliff as theThe Battle of RedCliff in 208 A.D. during themost fabulous and classiestEastern Han Dynasty between two famous generalsmovie this summer Theis one of most famous battle sin Chinese history Observer UK 2009History, myths, folklores &amp; heroes have been successfully leveraged to create todays entertainment and products in movies, TV serials, animation, online games and merchandise23 24. L ITTLE LAMB (HKSE: 0968) The most famousChinese 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 SHANGHAITANGThe first luxury lifestyle fashion brand to emerge from China Shanghai Tang is an international clothing chain with over20 outlets globally, founded in 1994 by a HK businessmanand now controlled by Richemont.Shanghai Tang is a Chinese label that set out to rejuvenateChinese fashion. The fundamental design concept isinspired by traditional Han Chinese clothing combined withthe modernity and dynamism of the 21st century.The opportunity to merge Western management practices &amp; branding concepts with strong Chinese cultural products/services to create a global brand has high probability of success24 25. TENCENTTENCENT has achieved(HK:0700)revenues of over USD 1 bn in2008 at an operating margin ofIn C2C : The worlds44%. TENCENT is ranked Toplargest and most 10 in Business weeks 2009 Top profitable online 100 Global IT- the only Chinesesocial networkcompany to do so QQ is the recognized brand for over 300M consumers ALIBABA ALIBABA has developed the(HK: 1688) worlds largest business member In B2B : worlds base of 40m in over 240 countries. largest B2B ALIBABA wins by offering offlinecompany withand online services plus service tomarket cap of USD ensure trust/payment (the key 12bnissues faced with sourcing fromSMEs)25 26. WHAT ARE GLOBAL TRENDS AND IMPACT?WHY MUST CHINA RESPOND?HOW DOES IT IMPACT CHINAS CREATIVE INDUSTRY?WHY DOES CHINA HAVE A STRONG FOUNDATION?WHERE ARE POTENTIAL OPPORTUNITIES?26 27. Content+Consumption= Hard EconomicsTraditional + New Media+Cultural &amp; Entertainment/LeisureProducts Location-based EntertainmentNew 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 &amp; performances Content Creation Newspaper Live theatre/ performing arts TV/Radio/music production/syndication School educational text Film /video production Digital books/e--bookCultural EntertainmentLicensing (brands, merchandise, content) Animation/ 3-D Cultural tourism Services Cultural performances Mobile content Media buying agencies sports broadcast Sports entertainment Ad agentsOnline game Marketing/ database services Business &amp; financial news/info Production servicesSpecialty Retail/BrandsTraining &amp; 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 fashionwearServices TV/radio channels Wedding services Online video/IPTV Traditional beauty spa and wellness Outdoor/alternative advertising Sports agency Fashion Design While Chinas Creative market is not matured..good Content andService will have a huge potential market due to growing consumer demand .the industry extends beyond media, encompassing cultural, entertainment &amp; leisure27 28. SectorMarket ShiftsInvestment Op...</p>