My Take

Asia Entertainment Economics 101?

Read the following news blurb regarding Warner Brother’s recent attempt to sell DVDs at “bargain prices” in China to compete against illegal DVDs. Even after the price concession, however, it would still result in prices that are at least 2X the price of pirated DVDs. Seems to me to be a step in the right direction though and I’m curious to see find out what the economic calculations behind the pricing were in order to make that happen.  The point here is not necessarily in matching the price of a pirated version but, rather, making the incremental additional price of a legal DVD less than its perceived incremental additional value.   The math is a bit fuzzy but the logic is there.

Reading the blurb got me thinking about the economics of entertainment in Korea, which then got me to thinking about a way studios / actors / artists can approach markets like China (and other parts of Asia) where piracy is a major issue.

First of all, a very rudimentary guide to the entertainment business in Korea, based on my observations while working there and having had some insight into parts of the entertainment industry.  The economics in Korea is such that entertainers generally don’t make much money at all through sales of their “art” – i.e. CDs, DVDs, etc.  Rather, they really make their money via sponsorships. For example, in the U.S., athletes (yes, they are entertainers) make approximately 40% of their take-home pay from marketing deals. However, for successful actors and artists, most make the vast majority from guaranteed contracts NOT from marketing / sponsorship deals.

The situation in Korea (and I believe in much of Asia) is quite unique in that, I would venture to guess that the vast majority of successful artists / entertainers get at least 75% or more from marketing / sponsorships.  In other words, the entertainment product is actually the MEANS to getting a sponsorship or marketing deal – that’s where the big money is – the entertainment product is NOT in and of itself a way to really make money. In other words, the entertainment product, is actually MARKETING, and the sponsorship / marketing deals end-up being the PRODUCT being sold.  The reason for this probably has to do with:

1) the small size of the market in Korea, particularly as it developed;

2) the difficulty of charging high prices for products due to the lower levels of discretionary income and competing alternatives (i.e. social drinking, karaokes, etc.); and

3) a focus on personalities as opposed to products.

 From what I can gather thus far, I believe much of Asia is very similar. As a result, it may be worthwhile to examine a way of doing business where:

1) the entertainment itself is marketing for the

2) ultimate product, which is the actor / entertainer / performer.

Therefore, the way for entertainers to make money in  Asia may  be to:

1) be as popular as possible via the marketing vehicle (the entertainment product); and

2) collect on the sponsorship / marketing deals.

No question that artists will always be able to make money on live performances, theatre releases, etc.  But focusing on derivative products like DVDs probably won’t work.  When in Asia, do as the Asians do…

An implication of the above is that all businesses must figure out a way to monetize their piece of the actor / entertainer / performer in a very direct way that places the actor / entertainer / performer at the center of the entertainment universe.

Would be interested in getting feedback / thoughts from others who have better visibility into the entertainment world in Asia than I… I believe there’s an intriguing potential here…

 http://kyikme.typepad.com

Sir Stringer as Sony CEO = Downward Spiral

Ran across an interview of Sir Howard Stringer over at the always excellent Barron's and felt compelled to comment on some of Sir Stringer's thoughts, which, in my opinion, does not bode well for the future of Sony.

Stringer comment #1:

"On Management Reform

You can achieve spectacular results if, as we did in the U.S., you attack a management system based on vertical 'silos' and you replace it with horizontal communications. It will be harder to do this in Japan than it was in the U.S., but it can and must be done. What's really important is that Sony now gets the point that it has to change. Executives understand that they must cooperate across those silos, even when the person in charge of the other silo is a personal enemy and in the old days one would rather have died than communicate with him. The walls within Sony are coming down.

This is probably the most simplistic, vague, and irresponsible comment about the current situation that I have come across regarding the management problems / issues facing Sony.  Sir Stringer's insight is that there needs tobe more horizontal communication vs. vertical silos?  And that you may have to work with personal enemies?  Seriously, does he really believe any of this canned BS?

There are a plethora of issues facing Sony - and yes, lack of coordination / communication across its vast array of business interests is one of them.  But it ain't the answer, and Sir Stringer should know better than to intimate that...  How about their insistence on complete veritical integration as pointed out previously at the First Call blog.  How about the fact that their product design cycles are trailing nimble competitors like Samsung and LG?  How about the fact that the incentive / environment for entrepreneurs just aren't there relative to other parts of the world and much of that has to do with the strangle-hold companies like Sony have in Japan?  (This, by the way, is also an issue for Samsung, LG, etc. although you'll find more hungry entrepreneurs, etc. in Korea relative to Japan currently...)

Another comment that ought to be ripped:

"On Moving to Tokyo

I don't have to. I will visit Tokyo a lot, but I will live in England with my family. That shouldn't be a problem. When I was head of Sony's U.S. operations, I didn't direct movies and I didn't write music, but I did direct the movie business and the music business. I didn't live in Hollywood or go there more than a week a month, but I did put strong people in charge of both operations. They knew where the bodies were buried and what choices to make, so I didn't have to. At Sony, I will have strong allies in Tokyo."

Does he really believe that he can be a remote control CEO?  Of a Japanese company, no less?  When all is said and done, this will NOT work.  We're not talking about a PART of the business here - we're talking about the entire company.  How many CEOs do you know that don't even live in the country where their company is domiciled?  I can't think of one...  It's absurd that he even tries to claim that it's workable.  Clearly it won't last...  Imagine if Sir Stringer appointed a Japanese person to head the entertainment business while being domiciled in Japan - would that make any sense?  Would anyone buy that?  Most importantly, what does it say to its workforce? 

Clearly, Sir Stringer is sending a message that Sony is an entertainment company, and no longer really a CE company.  Not sure that this tack will be appreciated by the rank and file at Sony.  I've been wrong many times before (and I'll never say never...) but unless Sir Stringer changes his attitude and approach, he will fail AND Sony will become even more vulnerable... 

It should be only a matter of time before Ken Kutaragi leaves - maybe he ends up at...  Samsung?  LGE?  HP?  Now that would make news...  Sony losing the only guy that's been able to manage a hit product in the last 10 years...

Turning around an entertainment business (and the economics associated with it) is completely different from the manufacturing and product development business (and the economics associated with it). 

With the type of simplistic, rote attitude towards a complex economic, social, and cultural hairball that is Sony today, Sir Stringer will hasten Sony's downward spiral.  Samsung, LGE, Matsushita, Canon, etc. are circling in for the kill...

So is there a way out for Sony?  Well...  I think they need to emulate Samsung to a certain extent - i.e. as a group, they need to figure out what their identity is and push that as hard as possible.  For example, Samsung has been successful because, as a group, their Chairman has focused all of its efforts at making Samsung Electronics, and specifically, the semiconductor business the flagship business for the group. 

How about Sony?  I believe the fundamental problem with them right now is that they are knee-deep into the entertainment business AND the hardware business.  They don't know what their corporate identity is (basically their schizophrenic).  And fundamentally, that is their issue.  They will have to, at some point decide between the 2, and make a concerted, clear, and consistent effort in putting the interests of 1 over the other.  Right now, it looks like they're leaning towards being an entertainment company that also provides hardware / products. 

However, the manner that Sir Stringer is proceeding with almost guarantees that it won't work - he just doesn't have the respect or the authority needed to do something like that.  The only guy that had a chance to do that would have been Ken Kutaragi.  Score -1 for Sony and +2 for all its competitors.

Why isn't anyone out there in the blogosphere talking about this?  Why the deference to Sir Stringer due to the novelty?

Yahoo rant...

I recently noticed that I wasn't being forwarded emails from my Yahoo! mail account.  Looking into this, I noticed the following email from Yahoo!, which I believe illustrates the difference in strategy between them and Goog...

Notice: Yahoo! Mail Plus Account Cancelled

Dear XXX,

Recently we attempted again to renew your Yahoo! Mail Plus service, but we were still unable to do so due to invalid billing information. Regrettably, therefore, we have cancelled your service. You will experience the following service changes:

• Your storage allotment has been reduced to 250 MB. If you were over this quota at cancellation, all new incoming messages will be returned to the sender until you reduce the size of your account. Existing email will not be automatically deleted.
• Your message size has been reduced to 10MB. You cannot send or receive messages that exceed this limit.
• You cannot use a POP3 email client (Outlook, Eudora, etc.) to access and manage your Yahoo! Mail.
• You cannot forward your Yahoo! Mail automatically to another email account.
• You can no longer use some of the advanced protection features including: AddressGuard™, email attachment virus cleaning, and SpamGuard Plus.
• The number of blocked addresses you are allowed has been reduced from 200 to 100. Blocked addresses in excess of this limit have been deleted.
• The number of filters on your account has been reduced from 50 to 15. Filters in excess of this limit have been deleted.
• Your Yahoo! Mail pages contain graphical ads.
• Your outgoing email messages include promotional taglines.

We value your business and are sorry to see you go. If you did not wish to cancel your account, please visit the Yahoo! Mail Plus ordering page to re-subscribe to Yahoo! Mail Plus.

Sincerely,
Yahoo! Mail Customer Care
mail-billing@cc.yahoo-inc.com

What are they thinking here?  Of course, on the face of it, they're thinking rationally as a business, a business that needs to make money...   But is that really how Yahoo! should be making money?  I.e. - charging for something that is, in essence a commodity (storage)?  And to make things worse, it's a commodity that is NOT an option anymore with alternatives like gmail and the exploding size of emails, attachments, etc.

What does this do?  Well...

First of all, it gets me pretty damned p#!!!! at Yahoo!  I've been using their email and IM for over 5 years now.  I've been paying for the premium service because at the time, there was no alternative to getting email storage greater than a few MBs AND I wanted to be able to automatically forward email to my corporate email address... 

Having moved around during the dot com craze and due to the inconvenience of having to re-acquaint myself with various online sources and subscriptions, I've ALWAYS used my Yahoo! email address as the primary email for subscriptions, online correspondence, etc.  It was, in fact, my defacto online and personal contact database...  Even after getting a GMAIL account, I did not switch over  due to my lazy nature - didn't want to go through the trouble of re-subscribing to online sources and setting up contact info again.

In essence, due to pure circumstance, Yahoo! had become my personal contact and information database with VERY HIGH switching costs...  AND I would venture to guess that there are a LOT of people that can relate to this.  However, it always irked me that they were charging me for services that I could get for FREE from their main competitor - GMAIL.  Again, I kept using yhoo because I was lazy - the account had been set-up to take money from my credit card automatically on a monthly basis.  BUT, it was always a sense of irritation, making me feel like yhoo was taking advantage of me...

Although I don't exactly know what happened to get the billing information incorrect, this particular experience finally made me realize that the afore-mentioned switching cost of using an alternative email provider as my primary personal contact and information dbase has just been over-taken by the irritation factor of yhoo's nickel & diming approach.  It basically ignited and re-inforced my latent contempt for how they were treating me...

So, I am officially switching.  AND Yhoo can kiss my you-know-what regarding any future services.  Yhoo doesn't seem to realize that they can't nickel & dime their customers (reminds me of efforts at providing summaries for free and then trying to get people to pay for it to actually get access to useful information - it never works on a large scale because people just get annoyed with these types of tease, bait & switch, techniques), especially when it comes to something that is simultaneously a commodity (i.e. you can get it for free elsewhere) AND a necessity (can't live without it) like email.  The real value is not in squeezing another $ from their customers for non-differentiated services / features.  Rather, the real value is having a large, captive, traffic-base that can be monetized in a variety of innovative ways.  Take a cue from Goog...

So, in summary, yhoo has managed to alienate me - they've just lost their established right to be my personal information and contact dbase.  Was that worth it?  How much value do you want to place on that?  Once again, yhoo has more relative value to those entities wanting to take advantage of the captive customer base, not vice-versa.  Concentrate on the customer experience first.  Don't charge for things that provide no value differentiation from other Tom, Dick, and Harrys...  It won't work.  At this rate, yhoo is driving people like myself to goog - now there's a plan...

If yhoo is smart, they should realize that there are similar, real repercussions regarding their strategy / tactics related to being more content-centric...

Let's see if they blow that one too...

SK Telcom + Earthlink = SK-Earthlink

Big, significant news in my mind.

It's about time SK Telecom did something in the U.S.  It's the #1 player in Korea, probably the most advanced cell phone market in the world - the only real competition is Japan.  If you've been to Korea, you know exactly what I mean.  I've been waiting for them to make their move for at least 3 years.

Issue with SKT has always been that they're in a small market, one which they've dominated and continue to dominate - i.e. they own 50%+ of the Korean market for a long, long time.  They've continually stayed at the forefront of new technologies and services for their customers that capitalize on their leading position in the cell-phone space.  For example, they've recently launched a satellite-based digital multimedia broadcast (DMB) service through a satellite broadcast operator, TU Media (which is 30% owned by SKT).  They've also recently launched a mobile bookstore service and just acquired a WiBro (basically, WiMax) license from the Korean government.   However, it is painfully clear that their only real opportunity for growth is in new markets (which is simialr to the position that my current company is in).

They've dabbled in some activities overseas - but nothing on this scale.  And, I think it's a move that they: 1) had to make; and 2) must ensure succeeds.  If they can't make this successful, they have no shot at being a global player, which is what they're shooting for by doing something here on American soil.  They've got a number of angles in China but the U.S. is the market that will determine what happens to them...

Doing it via MVNO with a solid marketing and execution partner like Earthlink was a shrewd move, although it's questionable whether the combined entity will have enough LOCAL telecom & 3G knowledge to make it work.  Execution risk is fairly high here.  I think this is particularly relevant as the real majic to SKT's success in Korea has been their uncanny marketing and execution ability - 2 things that they're going to have to rely on Earthlink for here in the U.S.  However, SKT's relationship with Verizon and the use of both Verizon and Sprint's network should help alleviate it to some extent. 

Pssstt - if SKT & Earthlink are smart, they'll angle for and get the help of both carriers, which would desperately like to accelerate the adoption of 3G services.

A few additional thoughts on this -

1. SK Teletech will be the exclusive device supplier for the service until further notice - so RIM won't work with the service.  SK Teletech generally builds high-end handsets for SKT due to government restrictions owing to their relationship with SKT (SK Teletech is a subsidiary).  I believe SK Teletech's revenues are approximately $600 million so there shouldn't be any problems with supply.  For SKT, they make money even if the service doesn't take-off (from the handsets).

2. SKT is supposed to invest approximately $220 million over 3 years, at which point the operation is supposed to be self-sufficient.  My understanding is that SKT is expecting that it will spend approximately $100 million in CAPEX and the rest will be marketing expenditures.

3. SKT is expecting returns in excess over 30% IRR over the time horizon by 2009, I believe.  This is only doable with an IPO IF the horizon is right.

4. Although it's an equal partnership (50/50), SKT got it's name in front, which is a very big deal to a Korean company so I'm assuming they gave something up for that.

5. 50/50 partnership with a Korean company, especially one that is used to being #1 (like SKT) will be difficult in implementing.  In my mind, SKT is the best technology company in Korea, after Samsung Electronics, no question.

6. SKT is betting their entire international efforts on this one.  They're betting that this will help them build a global reputation for wireless services, one that they can leverage to vault them into the global game like Samsung did a few years back.  If they can't execute here, the most that they can hope for is to be a strong regional player in Asia.  Expect SKT's stock price to be unduly influenced by SK-Earthlink's performance going forward.  This is their growth story.

7. Seems that the service will also take advantage of WiFi, where appropriate.  Hmmm...

8. This will open the door for innovative services / offerings currently in Korea / Asia to enter the U.S.  Look for those types of services.  For example, ring-back tones, notification SMS services, payment services, among other more obvious services such as music, video, mobile gaming, etc.  Their Nate offering in Korea is hugely popular.

This is personally very exciting for me as I've been preaching that handsets will ultimately win-out in the portable / mobile space.  Additionally, SKT has been very astute in rolling out innovative new services and being able to execute the operations necessary to make it work.  The question is whether that will be transferrable enough here in the U.S. without the local knowledge that will be needed, which is what Earthlink will be providing.  SKT is a company that already has 4G on its roadmap.

I would also be concerned that there are some fundamental differences between Korea and the U.S. that will have an impact on how successful they will be such as: population density (although their strategy is to concentrate on relatively urban areas), use of public transportation (which directly translates into idle time, which drives incremental entertainment value of handsets), lack of operating control (as an MVNO in the U.S.), lack of a mobile content / services ecosystem (relative to Korea / Asia), etc.

Having said the above, I believe SKT has a good chance of being successful here - they're desperate enough to know that they have no choice and they do have significant operating, marketing, and technology know-how that could differentiate them in the U.S. market.  There seems to be a bubbling desire for advanced services and solutions that the timing for this may be spot-on.

We'll see how it goes. 

Question - How long until NTT DoCoMo enters into the fray?  If DoCoMo does not enter soon, this could be analogous to Sony not taking Samsung & LG seriously when the 2 upstarts started making headway here in the U.S.  In other words, this is make or break in the global game for NTT DoCoMo, if you ask me.

Now, if I can only figure out a way to get my company to make some serious plays overseas, I'd be happy -

Google and VoIP? Maybe. Other possibilities are more likely.

Lots of buzz recently about Goog entering the VoIP business.  Possible.  But Om doesn't think so.  I think it's probably 40/60 going the not likely route.

Some off-the-top thoughts on this.  It would be easy for Goog to do this - either by themselves or using Skype (or other technologies like Peerio, etc.).  However, it's just as likely that they're just continuing to build-out their current infrastructure globally and that backbone is becoming more and more important...

What's more interesting to me is the massive, truly global distributed network (really an Internet within an Internet) that they're building.  The indications are even more interesting in terms of Goog scaling its business globally - i.e. Goog is building a GLOBAL online advertising / marketing capability for clients, regardless of where their clients are.  Imagine placing an ad on Goog that can be on all their global websites (translations are done as well)  and Goog being able to charge premium rates for these "global" or "international" ads...

Clearly, Goog is expecting to use much more backbone capacity, which to me would seem to indicate that they're expecting fairly significant scaling of bandwidth-intensive applications / services - i.e. video, images, gaming, etc.  This is the far more interesting angle and one that is much more monetize-able than VoIP.  These are also applications that lend themselves to increasing advertising / marketing revenues for Goog.  Synergies with the current business model.

It will be interesting to see how this develops but I would expect Goog to do something unexpected. 

Additional piece of info about Goog is that they just hired 2 main engineers working on Firefox, the open-source browser.  Does this mean that they're looking to build a browser?  Possibly. 

How about a GUI app for video and entertainment over their distributed network?  Again, much more money involved - and has significant synergies with their current business model revolving around ads and marketing.

Re-Set

It's been a while since I last posted.  But I'm back.  And I've decided to take a different approach.  I originally started blogging to express my views on interesting developments in the tech space in general.  I'm gonna focus a bit more.  For the most part, I'm gonna be blogging primarily on 2 things: developments in Asia (primarily tech, with a Korean-American slant) and stuff I see and get involved with here at work (for those of you that know, you know I'm at the intersection of tech & an old-line industry).

Why the change?  Well, the Asia focus is not really a change - more a narrowing of focus of (writing) efforts.  The real change for me is blogging about stuff that could be relevant to my work (sanitized, of course).  I struggled with this a long, long time before making the decision to do so.  I think it should make for interesting reading for a couple of reasons: 1) I see some interesting stuff; and 2) there are some things relevant to organizational learning, innovation, and execution that I want to get out on the table and create some dialogue around - I haven't seen enough of this in the blogosphere. 

I'll still diverge on occasion...

And I'm back.

WiFi, WiMax, Wireless Techs...

So I've been thinking through the various developments in the communications space such as VoIP, WiFi, WiMax, UWB, etc. trying to make sense of it all and figuring out who the winners and losers are going to be.

For example:

Will the cable guys come out ahead using VoIP as the club to hammer at their telco rivals in the race to own the pipe and services at the home? Will the telcos come out on top by rolling out higher bandwidth products and content partnerships to their massive customer base? Will WiFi combined with mesh networking technologies and WiMax mean that the RBOCs will no longer be needed for much of what they're currently collecting tolls for? How about the cellular guys? What happens when all wireless access (via WiFi, WiMax, etc.) is pretty much ubiquitous? Who's going to make money from that?

I haven't really figured out anything definitively yet. But, I ended up with a couple of surprising thoughts as follows:

#1 - The fight between cable and telco for control of the home is understandable BUT I think misses the bigger opportunity. That opportunity being: who owns everything (I mean, everywhere) else. No question that the home is important. But someone better wake-up and figure out the much bigger question of who owns you when you're not at home. If not, no one will (or, to put it another way, everyone will) or the current horrible service providers will get the best crack by default, which really sucks!

#2 - I think the real story behind all these trends is that the mobile / cell phone is the only true winner. (Yeah, I know there will be a select few in the cell phone ecosystem that will win out...) As I've explained previously, the mobile phone will continue to take the functionality and features so that it is THE ONLY mobile device that you will need. What I hadn't really thought about and now am beginning to realize is that, by default, this also means that it will end-up being at the center of the home as well...

What happens when you think of the cell phone in the context of being in the home and being an always-on connection device. What are the possibilities?

TiVo+Strangeberry Hype

Article on B2.0 hinting (actually, clubbing its readers over the head) that TiVo + Strangeberry could do wonderful things. Basically, seamless multimedia networking using TiVo's UI and making it really dumb proof.

Here's are some excerpts:

"A number of analysts and other third-party observers who've seen the fruits of van Hoff's labors believe that his team may well have succeeded. Strangeberry software gives users the power to do things that no other set-top box or PC has been able to do. You can stream any content from the Net, watch it on your TV, or route it wirelessly to any other device -- MP3 player, PDA, laptop. It can all be done with the ease that TiVo's 1.6 million subscribers already have come to relish: You'll never need to click more than a button or two on a single remote to pull entertainment into any room in your house. "Nobody else has technology that comes close," says Daniel Ernst, managing director of New York investment bank Rodman & Renshaw."

"Strangeberry works and it's totally cool," says Marc Canter, co-founder of Web media tool maker Macromedia, who was given an early view of the technology."

It always troubles me when the industry starts to go gaga over something that's not even out to market yet. Haven't read anything with this much hype since... the Segway - remember codename Ginger?

Here's a thought. The Evil Empire, MS, should buy TiVo - that's right, you heard it here first! Would give MS a legitimate play / tech in the video space - both in the PC (with MC) & the CE realm. The Evil Empire could then bankroll TiVo's profitability, market share, and have a pretty substantial and interesting customer base / service. This could also give them leverage to broker some mutually agreeable terms and biz propositions with the cable cos, etc.

Cell Phone vs. Walkman

Ran across a blurb in Adweek that mentioned the following:

"Sony has sold more than 400 million Walkman-branded items worldwide since the device's introduction in 1979."

Then, I recalled the following factoid that I ran across yesterday:

"LGE, a Korean handset company, has produced a Mecca-finding handset with GPS technology in it. So it's a tool of religious devotion. They anticipated selling 300 million units in the first couple years."

I think this gets at 2 things. First, the pace of technology adoption is exponentially faster than ever. Second, there is probably no tech device that's sold faster than cell phones.

Cell-Phone related Innovation

When it comes to innnovations in mobile technologies, we're far, far behind... Check out what's happening in Korea.

I've always said that the TRUE Killer App for mobility is robust voice recognition. Imagine the possibilities... Dictating email messages on the go, for example... Ahhhh...