April 23, 2012

China Auto Rental: An exit

Filed under: Automotive — Administrator @ 12:49 pm

We’re happy to announce, after the company pulled its US IPO, that we sold half of our remaining position in China Auto Rental, now China’s largest rental car network, but at the time of our initial investment is was little more than a call center selling insurance products under the name of UAA. Keep an eye on this company as it continues to develop and modify its services and product mix as it will surely command a growing position in its sector, especially now that Warburg Pincus invested US$200M in the company.

November 22, 2010

Kwestr.com is funded

Filed under: Gaming,Social Networks — Administrator @ 7:23 am

Kwestr.com

One of the reasons we’ve decided to co-invest in Kwestr, an innovated Beijing based start-up analyzing social networks and gaming, has a lot to do with the management team. Frank Yu, a Senior Venture Partner with Ymer for many years, and co-founder of Kwestr may just be one of the most in-tuned social gamers in Asia. Frank is joined by Calvin Chin, Chris Tou, and Prashnth Hirematada. We’re pumped to be included as one of their four seed investors and advisors. Stay tuned for more information as to when Kwestr goes live.

August 30, 2010

The battle of the rental cars wages on in China

Filed under: Automotive,Ymer News — Administrator @ 12:23 pm

China’s rent car war is heating up – in a big way. Ymer backed China Auto Rental which recently received US$150M from Legend Capital has a viable sparring partner in the billion dollar rental car ring on the back of Goldman Sachs reported US$70M investment into Shanghai based eHi Car Rental.

If you are interested, have a read of the article Wall Street Journal reporter, Jonathan Shieber, posted last week on WSJ blog Venture Capital Dispatch titled “With $70M, China’s eHi Car Rental Looks To Untangle Traffic Snarls”.

According to Shieber, eHi, in addition to operating a more traditional rental car model, is also looking to emulate Boston based Zip Car’s model (short-time inter-city rentals). I have serious doubts China is ready for this model, and that eHi is looking more at the PR value than the RMB value.

It took Zip Car almost a decade to build traction in the US, where there already was a rental car culture, a community around ride-sharing, and public parking lots conveniently located in multiple city locations; all three are still nascent concepts in China.

Let’s see how this plays out. It will be interesting, for sure. Most likely, though, you’ll see the traditional rental car model (with flavors of Chinese localization) proliferate long before Mainlanders are Zipping in and out of cars.

October 1, 2009

Music related data mining is the Next Big Sound

Filed under: DRM,Music — Administrator @ 1:02 am

Foundry Group recently invested in Next Big Sound, an online music analytics and insight business based in Colorado. Jason from Foundry writes:

As part of this future there will be new opportunities created to service these new direct-to-fan and Internet marketing models. We believe a key opportunity involves data. Currently, the industry-norm data report is from SoundScan. For thousands of dollars per month, industry professionals are able to see how many CDs and digital downloads have been purchased along with how many plays have occurred on terrestrial radio. We believe that this report is already mostly irrelevant. 

Sweet! This is encouraging as it further supports our investment thesis behind Feilio (Noank Media), a platform that measures digital content usage, that data will not only drive new opportunities in the music industry but also form the foundation for next generation business models. While it has taken longer then scripted for the industry to come around we remain optimistic that the tide is turning.

May 14, 2009

What’s a business plan worth these days?! More than GM stock!

Filed under: Start-up First Aid — Administrator @ 9:35 am

I guess I’m being lazy these days and just borrowing content from other sites but so be it. This morning, I was reading the New York Times and came across an article titled “Investors Pay Business Plans Little Heed, Study Finds” by Brent Bowers. The article reads:

Researchers found that venture capitalists, who screen hundreds or thousands of solicitations each year, pay little or no heed to the content of business plans. Instead, the study said, because they make decisions “under conditions of high uncertainty,” venture capitalists rely on instinct and their expertise in ferreting out information by other means to evaluate the prospects of a business.

I’m not sure this is entirely true, at least within confides of our fund. Don’t get me wrong, no one wants to page through 50 pages of rambling market analysis and financials however what we are interested in is the entrepreneur’s logic and thought process. Furthermore, we want to see what the expected milestones are for success and how the company expects to spent our cash

All of the above can be mapped out in 10 to 11 PPT slides. In fact, just use the template we provide here.

More to our point, KPMG, in 2008, polled regional investment managers in Asia and asked them what were the top four causes of deal underperformance – the results: (1) misleading historical performance data, (2) over-0ptimistic market forecasts, (3) misreading the target’s existing and potential market penetration, and (4) poor business plan.

Anyhow, writing a business plan is a good exercise even if it is just an excel spread sheet that clearly maps out business assumptions.

May 11, 2009

Building the Tools to Legalize P2P Video-Sharing

Filed under: DRM,Music,New Media,Regulatory — Administrator @ 10:07 pm

A new article about our portfolio company Feilio (Noank Media) in today’s New York Times titled “Building the Tools to Legalize P2P Video-Sharing” by Janko Roettgers. 

Would you be willing to pay your ISP five bucks a month to be allowed to download as much as you want from torrent sites and other file-sharing hubs? The idea of legalizing P2P through such a flat-rate licensing scheme has been getting more and more traction within the music industry in recent months. Noank Media CTO Devon Copley believes his company can be an essential part of such a flat-rate model.   

Click here for entire article

March 12, 2009

At what point does media no longer become experimental media and transitions to new media?

Filed under: Marketing,New Media — Administrator @ 10:53 am

Scratching our heads, trolling the universe, emailing friends, stopping people on the streets, yeah, that’s how we (and Neil Ducray from TouchMedia) came up with 8 characteristics that define an experimental media.

  • Media is trying to prove it can reach people and reach them in significant numbers usually taken to be at least 50,000 and preferably 100,000.
  • Media is trying to prove it is more than a 90 day fad – the usual length of time for media figures to start to erode.
  • Media is trying to prove it works at most or all times of the year (i.e. not seasonal).
  • Media is trying to prove it is effective, actually achieving awareness, recall or response.
  • Media is trying to become a primary medium at least for a few clients.
  • Media is trying to prove its technology (hardware and software) is stable, scalable, and cost effective.
  • Media is trying to prove that it can work in more than a single market.
  • Media is trying to become a regular medium for media planners (i.e. regularly recommended to clients).

Why bother, you ask? Not sure to be honest, but as investors we need to draw that line in the sand and decide how much risk we’re willing to shoulder and at what cost (valuation). There is a certain level of risk involved in backing experimental media (and technology), which needs to be backstopped by the prospect of many multiples of reward. In this environment, we’ve got to wonder – am I going to see this reward anytime soon?

In fact, our ultimate goal wasn’t necessarily to define experimental media (which we’re staying away from) but rather to understand at what point a media (i.e. business, concept) transitions from experimental to new media. Indeed, once a media moves beyond all 8 characteristics, we’re quite comfortable assuming it is new media.

In the words of Ali-G “I liikkee”.


March 11, 2008

Facebook’s Zuckerberg on social advertising revenues (or rather, a lack thereof)

Filed under: Music,Social Networks,Web 2.0 — Administrator @ 4:46 pm

On Monday, Stacey Higginbotham from GigaOM interviewed Facebook founder and CEO, Mark Zuckerberg. Is it just us or did Zuckerberg completely pan Stacey’s monetization question. Have a read below (and try not to laugh):

Let’s talk about monetization. You said yesterday that you envision the social advertising landscape evolving over the next 10…15…20 years. How will those ads evolve and when will we start seeing aspects of them on Facebook? And where does Beacon, which you said wasn’t an ad effort, fall into this?

ZUCKERBERG: When it comes to social ads we really want to line up what people are trying to do on Facebook and the utility it offers with monetization. If you look at what people are trying to do on the site, it’s communicating and connecting with each other and sharing information, so the business model should be around people sharing information and staying connected.

In banner advertising, people who have developed a trust with the audience run a banner ad and the trust bleeds over to the ad so people pay attention to it.

Right…so, let me get this straight, what Zuckerberg is saying is that he understand the concept of “social advertising” but he’s just not sure if it is going to work because users have such a low tolerance for annoying banner adverts. In any case, it doesn’t really matter because (as Zuckerberg can tell you from the front lines) the industry as a whole is going to need at least a decade, if not more, to develop a sensible/sustainable business model.

Look, we’re big fans of FB and what Zuckerberg and his team have accomplished but we’re just not drinking the social ad revenue Kool-Aid (at least, not at this point)…and to be honest, I don’t think Zuckerberg is either (but it is not like he can come out and say “we’re screwed”).

Perhaps this is one reason FB just hired Sheryl Sandberg (ex-Google) who has made a name for herself implementing services to collect data on users not just when they’re on a site but also once they leave…mapping digital footprints…maybe data is the ticket?

March 6, 2008

What splinters in the US, consolidates in China: the evolving telecom/IPTV landscape

Filed under: IPTV,US/China,Wireless — Administrator @ 5:21 pm

I just finished breezing through a recent (28/2/08) Yankee Group Research report titled “From Gorillas to Guerillas, IPTV Changes Everything” that concludes IPTV will redefine pay TV in the United States (note: you can download the report for free but just register online).

Okay, I can dig it. Sure, why not…localization is what it’s all about. But that’s not what got me thinking about today’s blog, rather it was the following snippet from Yankee:

“…phone services used to be mass market, available nationwide. IPTV creates a new market dynamic by fragmenting the services market in the US. Every market will have a different set of competitors. As a result the United States is becoming a nation of hyper-competitive micro-markets. This transition fundamentally changes the market dynamics for all service providers, forcing them to convert from centralized, dominating gorilla to small, responsive guerrillas.”

Is it me or is China’s telecom (and Internet) market going in the opposite direction? Indeed, the theme in China is consolidation (read: monopoly).

Now, consolidation is very different from offering a nationwide service, for example a company that manages a nationwide branded hotel chain (offering consistent service quality) is very different from there being only one company providing nationwide lodging facilities. The former is a good thing while that latter is not, yet the latter is what’s rolling down the pipe in China – especially, in the telecom/Internet space.

So, what do we got? Well, here are a few:

Tencent/QQ = chat
China Mobile = mobile
Shanda = games

Odds favour IPTV will go the same way. One company is going to get the lion share of the market and that company may be Tencent…or even China Mobile.

Anyhow, thought this was an interesting observation…

February 25, 2008

Don’t blame the Studios for trying to save the DVD…blame them (and the Music Labels) for falling off the wagon and partnering with ad supported models

Filed under: DRM,Music,Social Networks,Video/Film — Administrator @ 7:05 pm

Today’s New York Times ran an article titled “Studios Try to Save the DVD” which mirrors an earlier post we filed titled “Why Warner Bros. did Toshiba a massive favor by going with Blu-ray (Rock Lobster)” after Toshiba bowed out of the HD format race in early Jan ’08. The Times article reads:

But the victory of Sony’s new Blu-ray high-definition disc over a rival format, Toshiba’s HD DVD, masks a problem facing the studios: the overall decline of the DVD market. [US] Domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research, the first annual drop in the medium’s history. Adams projects another decline in 2008, to $15.4 billion, and a similar dip for 2009.

We suspect the decline in DVD sales will accelerate in 2008 falling more than 11% to about US$14.3 billion in the US (need we even talk about China?) on the back of the proliferation and growing acceptance of the Internet based ad supported digital content model (free stuff), lower bandwidth costs and fatter pipes. Indeed, five years from now DVD sales will be 50% lower (conservatively) then where they are now.

Why the doom and gloom?! I mean, won’t the Studios come up with cool new interactive features that will pull consumers into their DVD web?! Not going to happen.

Okay, so what about all those ad supported models, you know those ones that give streams away for free yet charge for digital download or physical DVDs? This must be the answer the industry is looking for…right?! Hey, we’ve got all those social networks to monetize. Those dudes totally want our stuff. Hoorah! Hoorah! Hoorah! We’re saved…

Well, boys…you might want to sit down with Google and ask them about their ability to make money off social networking. Better yet…let’s chat with Google’s CFO George Reyes about 4Q 07 revenues. Hey Reyes, what’s up with Google’s US$900 million deal to supply ads to Myspace? According to a recent BusinessWeek article Reyes states:

“…[in 2007] social networking inventory is not monetizing as well as expected…”

Anyway you look at it…this whole selling content (both online and offline) is a genuine mess. Mark our words: 99% of all ad supported content models are doomed for failure. Why? For so many reasons, such as: (1) Because once a content provider does a deal with Google why would you go anywhere else to consume the same content? and (2) Ad revenues are going to polarize around “non-trendy, Web1.0 sites”, such as CNN.com where consumers are accustom to seeing advertising; and as a result of this polarization we’re going to get a lot of very unhappy dissatisfied studios, labels and artists hoodwinked by flashy sites promising sacks of cash. Whatever!

Moving forward, we think on-line ad supported content models will be the main catalyst (second only to online piracy) behind the continuing eyeball popping deflationary pressure on content for the foreseeable future. And no one will make any money (sans one or two sites) to boot. Talk about a pissed off world looking for CHANGE!

There is light at the end of the tunnel (cue soapbox) but a lot still needs to be done: The answer is blanket licensing at the ISP level…full stop. This is the only way to to properly compensate content providers and ensure some amount of recurring income those companies aggregating and distributing content on-line.

February 12, 2008

Review of 2007 China IPOs in US Market

Filed under: Stats — Administrator @ 3:48 pm

I received Morgan Stanley’s Year-end 2007 Capital Markets Review from my friend Mark Pols the other day. Below are some of the more interesting factoids from the report.

In 2007, U.S. IPO issuance volume of Chinese companies increased dramatically:

  • 29 Chinese companies were listed in U.S., raising US$6.8bn in total;
  • 2007 saw a much more diversified set of companies choosing to list in U.S.;
  • Of the 29 issuers, only 34% were from traditional technology sector compared to 63% in 2004 and 100% in 2000;
  • Other industries include healthcare, telecom, consumer retail, real estate, professional services, and financials;
  • More companies chose for NYSE listing versus NASDAQ listing, 18 in 2007 compared 3 out of 8 in 2006.

Strong technology markets led to high private company valuations:

  • Deals priced in 2H07 up to 11/8/07 achieved 2008 PE multiple of 24.3x on average;
  • Valuation level dropped for deals priced between 11/8/07 and year end amid subprime concerns and broader market correction;
  • Deals priced during that time period averaged 2008 PE multiple of 11.2x;
  • “Superior execution” (Morgan Stanley’s words) was required to justify valuation and sustain aftermarket trading momentum;
  • Mean and median performance from offer to 12/31/07 were 31.3% and 1.6%, respectively.

Morgan Stanley concludes that growth in IPO and secondary volumes expected to subside in 2008 but remains open for high quality issuers with decent visibility in the business.

February 11, 2008

Two thing to keep in mind when structuring your bridge financing

Filed under: Start-up First Aid — Administrator @ 5:16 pm

(1) DISCOUNT, PLEASE! Keep the structure simple and offer your bridge investors a discount to Series A Preferred share price rather than a warrant:

A real quick way to lose investors’ interest is to price your bridge financing at the same multiple as Series A Preferred shareholders are paying. In lieu of a discount what we’re seeing from start-ups (particularly, those with American legal counsel) is a warrant granting the right to purchase shares COMMON SHARES at the same valuation as Series A

Yeah, are we like…missing something here? Bueller?…Bueller?..

Common folks, time for a quick reality check. If you’re coming to us, looking for bridge financing, offering a note that converts into Series A Preferred shares, why on earth would we have any interest in exercising a warrant for common shares at the same price as the more valuable preferred shares?

Furthermore, why would we have any interest in acquiring additional common shares when preferred were still on offer – it is like walking in an Aston Martin dealership packed to the gills with inventory, buying an Aston Martin DB9 and as a bonus being given a coupon to buy a Chery QQ for the same price as the Aston Martin.

Look, bridge rounds are highly attractive and potentially lucrative deals to roll into, yet a bridge investor undertakes a relatively higher level of risk and uncertainty than a Series A investor; thus the bridge note must absolutely positively reflect this risk. And a discount to Series A is the simplest and cleanest way to accomplish this.

 

(2) ODD LOTS? Avoid irrevocable super majority rights and odd lots holding the same rights and warranties as your Series A Preferred investor(s):

So, your next door neighbor, Xiao MeiMei, and her extended family want to dump the equivalent of US$32,000 into your bridge round. Word gets out that you’re looking for cash and quickly snakes through the hutong. Next thing you know you have 23 different bridge loan commitments from various “friends & family” totaling the equivalent of US$411,000. You’re rich…rich…rich! Great news, right?!

Well, not really…because in the bridge subscription documents (lovingly prepared by your brilliant lawyers for US$40,000) excluded language that makes the distinction between rights and warranties held by institutional investors and those held by Xiao MeiMei, mom, and pop.

We could go on about this but we’ve already turned this blog into the Mahabharata – so, let’s cut to the chase – we have two words for you – super majority.

In the past, we’ve advocated (fiercely) that a founder, when faced with a funding situation that will massively dilute their equity holding, should seek some protection in the form of super majority rights. But, this is definitely not the case when you’re structuring bridge financing. Doing so leaves yourself (and company) exposed to the possibility that handful of bridge investors (e.g. those investors that are two or three degrees removed from your real “friends & family”) that could block or challenge future business related decisions with a flick of their pen.

How might this be possible?! Well, one scenario would be a situation where an institutional investor (e.g. venture capitalist) subscribes to the bridge and pulls down 40% of the entire offering. The venture capitalist, cognisant of the fact that once the bridge loan converts into Series A Preferred shares (and given the significant number of mom and pop odd lot bridge co-investors and the ensuing dilution from larger Series A investors), will neither have control of the equity class (Series A Preferred) nor (in some cases) a board seat (as this seat may have to be relinquished the larger Series A investors or there is only one board seat available to all bridge investors); and thus in order to ensure rights and interests are protected may insist upon the inclusion of clauses granting super majority rights in the Series A shareholder’s agreement.

What a headache this becomes for the company when faced with business critical decisions (requiring preferred shareholder approval) because now, not only will you need to chase down with your 20 plus odd lots, bridge institutional investor, and Series A investors but also you’ve got to build consensus across an investor base that is as diversified as New York City in the summertime. (Job Posting: ISO cat herder or rodeo clown with excellent communication and taser skills).

Alternatively, you could face an issue where the lead investor in Series A, as part of closing conditions, insists that super majority rights get revoked. So, do you go with the big money and dook it out with those investors who’ve supported you when no one else would or do you walk away from the money (knowing full well you might encounter the same push back from other investors)?! Hopefully, you won’t be under the gun to make such a decision as the sound of the last dollar from your bridge round is hovered from your corporate account.

So, do yourself a favour – when structuring bridge financing: (1) avoid irrevocable super majority clauses; and (2) if you’re not in the position to turn away odd lots from your bridge round, either give them common shares (preferred path) or get them to sign a side letter transferring control of their preferred rights to management (messy, but effective).

February 10, 2008

Virtual tutoring a real possibility in China

Filed under: 3D Virtual Worlds,Education,Social Networks — Administrator @ 11:24 pm

In late 2005, I happily connected with Hank and Steve, two of the three co-founders behind Shanghai based education service Chinesepod. I’ll be honest, Chinesepod was such a fresh service there weren’t many comps to look at, thus it was truly difficult to determine whether or not user acceptance and demand would hold-up long enough for the company to reach critical mass and turn a profit. Basically, we had to wait and see what happened as the business matured a bit more.

In the meantime, I tucked in, did some crawling around the Web, held a dozen or so focus groups (online and offline), and became a user of the service.

As part of my research I placed adverts on Craigslist (and a couple local Chinese bulletin boards) looking for Chinese Mandarin tutors – I wanted to see if there were alternatives to the traditional offline courses or CD/web enhanced lessons. What I started noticing was a significant number of duck taped Web2.0 Chinese and English tutoring services – these tutors had cobbled together real-time virtual classroom on the back of Skype. The only problem was I had no way of determining if any of these tutors were good value or a waste of space.

This got me thinking – why not create a web based on-demand professional tutoring service for Chinese mainland students of all ages, across all subject – some possible service features could have been: (1) no required minimum session time; (2) tutors selected based on student/parent ranking, relevance, or dialect; (3) sessions held in a browser based 3D virtual meeting room; and (4) various social networking tools.

Sure, there were some challenges in hiring and qualifying tutors, monitoring the quality of sessions, and 3D environments were bulky but the platform was scalable and required few full time employees – definitely an execution play rather than a capital intensive venture. However, I got busy and this concept melted like the polar caps.

Fast forward to February 2008 – so, I’m surfing around New York Times’ website and I came across an article by journalist Michelle Slatalla titled “On Demand, on Time and for a Fee, an Army of Tutors Appears”. The article is a narrative of what happened after Slatalla unleashed her kids on a couple US online tutoring services – indeed, it is worth a read – more importantly, it jarred my memory…

Granted, it has been a couple years since (and, sure there are some people playing around in this space in China) but I still think this is a very interesting business – especially, given recent advancements in 3D environments, increased popularity of computers in the home, and the fact that Chinese students (and uniquely so) have completely blurred the line separating the real world (offline) and the virtual (online) space.

To wit, American students are drawn to a service, such as Tutor.com it’s heard to imagine a similar service not succeeding in China.

UPDATE (13/2/08): This morning, we got an email from Steve Williams (Chinesepod) that provides some additional insight into China’s tutoring industry – we don’t normally post comments/emails on our site but this one is particularly interesting. Many thanks.

I’ve seen a fair bit of interest in the space from Indian call center firms, looking to extend into English tutoring in the China market. I think they’ll have a hard time building brand awareness, given the spend of big chains like English First and Wall Street, but if they partnered with off-line schools they could have a good opportunity.

Scale is another problem, as is stopping freelance tutors poaching customers and servicing them off-platform. Another huge gap is the lack of online support materials. A key piece of offline school ‘technology’ is the textbook, but what do online tutors use? A lot of them send the student a link to an Amazon page, where the student buys a book and waits a week for delivery. Insane! I think there is an opportunity for Praxis here, with on demand syllabi.

January 29, 2008

U2 manager Paul McGuinness airs his support for bundled content subscription at Midem

Filed under: DRM,Music,Video/Film — Administrator @ 11:02 am

Lots of good stuff coming out of this week’s Midem Conference in Cannes, France – in particular, Kate Holton’s Reuters article titled “Music industry tries carrot after years of stick” where U2 manager Paul McGuinness comments that music could be provided as part of a subscription service for an Internet service provider. Holton writes:

“…the time had come for new thinking on how the music and technology sectors worked together, saying their ‘snouts have been at our trough feeding free for too long’. He touted the idea that music could be provided as part of a subscription service for an Internet service provider in the same way that some mobile phone companies have worked, with the revenue being shared…”

Below is the video from McGuinness’s speech that is posted on the MIDEM blog.Also coming out in support of this bundled sub model is International Music Managers’ Forum secretary general Peter Jenner in his blog titled “Thoughts on the Challenge of the New Digital Reality for the Recorded Music Industry“. Jenner notes:

“…this fee could be low…and be introduced as part of the bundle of features offered by the networks. The price should be negotiated by the music industry with the broadband and telecommunications companies and subject to renegotiation from time to time. A ‘feels free’ solution such as this makes sense for all parties and has the added benefits of making piracy economically unattractive as well as making the consumption of music free to consumers at the margin…”

For those keeping notes, this model was first suggested and implemented by Beijing’s very own Feilio.

January 10, 2008

2008 is the year of The Blanket License

Filed under: DRM,Music,Video/Film,Virtual Goods — Administrator @ 12:36 pm

We’ve been mouthing off for a long time (okay, a couple years) that eventually the stars will align and content providers (music labels, studios, publishers) with wake up to the benefits (and inevitability) of blanket licensing (BL) for digital content over the Web – we believe 2008 is the year that you’ll see BL jet in from obscurity and become “mainstream” in the digital content (music, video, and text) space.

Below are three articles/industry guys calling for the same thing:

Subscription Question Goes 2.0, Theoretical Possibilities Abound is from Digital Music News (thanks to Eric for emailing this to me) where leading music attorney Kenneth Hertz notes that…

“…this is the year that labels will embrace blanket licensing.”

Music Lessons is Seth Godin’s post where he lists 14 rules to live by in the music business – note that it takes him about 12 rules before he finally concludes that blanket licensing is the now but he gets there, and thus makes our list. Seth writes,

“The music business has thousands of labels and tens of thousands of copyright holders. It’s a mess. The biggest opportunity for the music business is to combine permission with subscription. The possibilities are endless.”

Last Major Label Gives Up DRM Related Issues, posted on Electronic Frontier Foundation by Fred von Lohmann knocks the covers off the bed with his posting and states:

“Next step (and I hear that at least one major label is considering it) will be a blanket license for music fans — pay a small monthly fee, and download whatever you like, from wherever you like, in whatever format you like. This is the inevitable end-game in a world where file sharing remains hugely popular and the labels want to prevent new retailers (like iTunes) from controlling distribution.”

Look, there are hundreds of content sites in China offering very similar experiences and content, all driving for that same advertising dollars – and yes, one or two of the free sites will remain, but by and large the odd US$200 million that has been invested in China’s user-generated/file sharing start-ups over the past couple of years will be earn a very low return (if anything at all).

Indeed, the business that learns (and is capable) to fully integrate blanket licensing, and thus can roll-out a legal digital content subscription model (on the back of fighting for those advert dollars, as an added revenue stream) is going to dominate this industry as they will have a sustainable business model.

And what’s more, think of the blue sky business opportunities (i.e. think lightweight applications running on top of this infrastructure) that present themselves once a developer/user has unrestricted access to 100% legal digital content – we’re talking virtual goods meets physical goods meets a online/off-line experience. To wit, this is the sort of excitement blanket licensing brings to the mix – to a digital content platform.

2008 is going to be a significant year in the content space – we’re expecting this year will kick-off several years of significant consolidation and flame-outs across the start-up board – putting premiums on ventures, such as Feilio, that have fully integrated blanket licensing at the core of their business models, and thus are positioned to weather the coming storm.

January 7, 2008

Why Warner Bros. did Toshiba a massive favor by going with Blu-ray (Rock Lobster)

Filed under: DRM,Music,Video/Film — Administrator @ 2:50 pm

What’s missing from this excerpt of an article by Diane Garrett in Sunday’s Variety?

“…Warner Bros. will throw all its weight behind Blu-ray later this year, a decision that could serve as a death blow to the rival HD DVD format…”

I think something along the lines of “…Warner is doing Toshiba a favor by killing off their dinosaur…Sony should only be so lucky.” Indeed, Warner, in selecting Sony, just saved Toshiba over US$150 million in inceptive and junket fees – i.e. pay-offs to studios to adopt the HD DVD format – money that can now be used to invest in any number of content/community related start-ups/enterprises seeking to monetize digital content in such innovative ways that would never be possible in a clunky electronics behemoth.

Honestly, in a couple years, drawing hints from the performance of CD music sales (2007 Christmas shopping season saw CD music sales dropped 21% over last year) and the growing industry wide movement towards DRM free music tracks, where can the DVD industry go but down…down…down. (Rock Lobster, anyone?)

Hey, I get it, DVD sales still generate billions of dollars (about US$16 billion) in annual sales for studios…so, yeah, they’ve got to figure out a way to mellow the inevitable revenue erosion but is the solution Blu-ray and DRM?

No way…you can just smell the mindset of studio honchos…it just reeks of 2001 all over again (and yet, maybe we never left 2001). Isn’t it evident by now (after all the carnage from the music industry) that the solution is not new packaging or delivery format/technology but rather the solution is a complete 180 degree shift in the existing business model – or am I missing something?

January 4, 2008

China’s SARFT and MII push to futher limit Internet video with new regulations

Filed under: Music,Regulatory,Video/Film — Administrator @ 3:50 am

Over the next couple of days, I’m sure the wires will be burning with chit chat from pundits, portals and web jockeys about a regulation that has been re-approved by State Administration of Radio, Film and Television (SARFT) and the Ministry of Information Industry (MII) that will ban (effective 31 January 2008) Internet Service Providers and portals from broadcasting video that, according to a Canadian Press article, involves:

“…national secrets, hurts the reputation of China, disrupts social stability or promotes pornography…providers will be required to delete and report such content…those who provide Internet video services should insist on serving the people, serve socialism…and abide by the moral code of socialism…”

And by re-approved, we mean that some form of this regulation has been on the books for several months but it was only this week that SARFT and MII decided it was now time to set about enforcing it.

The market is a bit unsure how this will play out and/or how this will impact existing user-generated video hosting services, such as Tudou.com (which claims to hold 22% of China’s vlogging market share) and 56.com (flush with US$20 million in fresh capital from Adobe Systems, CID Group, Steamboat Ventures, and Sequoia Capital).

Indeed, much of the uncertainty (as is the case with most, if not all, policy initiatives spun out of SARFT and MII) rests not in how closely these sites comply to the new regulations (as they won’t necessarily have a choice whether or not they want to work with a state-owned license holder – they just have to or close-up shop) but rather in the government’s interpretation of what “…hurts the reputation of China, disrupts social stability…”.

I’m guessing SARFT will move relatively quickly to provide the market with a “test case” so that they can frame their interpretation, sending a shot across the bow of some of the more adventurous entrepreneurs, especially in light of this summer’s Olympics.

We’ll get more viability on this over the next couple of weeks as more information is made available on the back of several meetings organized between the major portals and SARFT/MII.

Regardless, I’m pretty sure this puts the kibosh on any short to medium-term plans user-generated video hosting services had for raising additional (or seed) capital as investors’ will surely start dragging their feet – not so much because of the blue sky regulatory risk but rather because momentum seems to have been sucked out of the market (at least for the time being).

But…what about those sites legally distributing and hosting content directly from copyright owners (e.g. StarTV, Disney, and Tianyu)…how will this impact the one or two ventures operating in the legal content space? And by the “one or two” I think its obvious I’m talking about one specifically, Feilio, the Beijing based digital content services supplying Chinese ISPs with legal content (MP3, video, educational material).

If anything, SARFT and MII’s new policy places a premium on services which not only guarantee the authenticity of content but also complies with China’s existing content import regs. To wit, if I’m an ISP or a network in China (between now and summer) I’m not walking but running to legal digital content services – why leave anything to chance?

As a parting thought, it is important to note that we’re not advocating tighter regulatory controls as, way more often than not, aggressive regulatory regimes strangle innovation (boo) but you’ve got to adapt to the business environment your operating in…or risk becoming irrelevant…

Game Developers Conference 2008 and keynote speeches

Filed under: Gaming — Administrator @ 1:17 am

2008 Game Developers Conference (GDC) organizers have announced that renowned futurist Ray Kurzweil (pioneer in speech recognition technology) will give the GDC’s keynote speech in February titled “The Next 20 Years of Gaming” – a look at the next two decades of video games and what the landscape may look like come GDC 2028.

Honestly, I’m looking forward to Kurzweil’s speech but, with that said, I started thinking about other keynote speeches I’ve heard over the past year and how the gaming related talks have all kinda started to sound the same.

I almost thought about summarizing the top three common themes when I came across a post titled Five Short Video Game Industry Keynote on the Magical Wasteland’s blog. These guys have done a much better job pulling this together than I would have done, for example gaming keynote theme number one:

Let’s think about the future for a second. You probably don’t understand the kids that make up the bulk of our audience, but I do. I call them the network MySpace remix 3.0 social generation. Unlike any other people before them, young people today like to interact with each other. They also like music. YouTube is the perfect example of whatever point it is I’m making. Everything should be online and customizable.

You’ll have to click on the link above to read of the other four keynotes – they’re really funny (and spot on).

December 31, 2007

Feilio’s CEO chats with CNBC Asia Squawk Box about screenwriter’s strike & China’s digital content opportunity

Filed under: DRM,Music,Ymer Podcasts — Administrator @ 9:41 am

Last week, Martin Soong, host of CNBC Asia Squawk Box, chatted Feilio CEO, Eric Priest, about why Feilio is one of China’s most innovative digital content services and how it could very well play an important role in resolving the ongoing screenwriter’s strike in America.You have the option to watch the video below or listen to the podcast.

December 30, 2007

A CEO’s Tale: Why the Dragon’s Den doesn’t have Edgy entrepreneurs but China does!

Filed under: Start-up First Aid — Administrator @ 6:50 pm

This year, we traded in our kite boarding gear and plane tickets to Boracay for Wellington boots and plane tickets to the United Kingdom in order to spend hols with Lara’s family in Lightwater, Surrey.

Other than the fact that Lightwater’s only Chinese food restaurant was closed all week we had a fantastic time. I’ve learned a lot about British society – for example, Britons split their evening equally between watching two game shows When Joseph Met Maria and Dragon’s Den.

I’m not a huge fan of game shows to start with – so, I guess the fact that I’m so totally confused as to why anyone would spend a hour plus watching Andrew Lloyd Webber stare starry eyed at six contestants singing and dancing their way into the lead role of Joseph in the musical Joseph and the Amazing Technicolor Dreamcoat is not surprising – but there is something to this Dragon’s Den that has absolutely snagged my attention (imagine American Idol meets Antique Road Show meets Wired).

The concept is simple: Aspiring entrepreneurs and business owners with ambitious growth plans walk into a room (the “Den”) – usually alone, sometimes with models or partners, often with product – and face a panel of five multimillionaire entrepreneurs and venture capitalists (the “Dragons”) who are looking for investment opportunities. The contestants then pitch their product or business plan in the hope of earning some of the Dragons’ cash.

I’m not sure if I love watching the schoolyard (i.e. hair pulling, scratching) exchanges amongst the Dragons themselves or the Average Joe bumbling and fumbling his was through a pitch – anyhow, good stuff.

However, in spite of contestants unrelated business concepts there is one absolute thing they all have in common – these guys are operating in an environment where there is little concern that the Queen is going to shut them down, board up their windows, or toss them in the Tower of London.

This is not necessarily the case in China where the government keeps a healthy supply of building material (e.g. lumber, nails, and hammers) and duck tape at the ready for those rather special (and random) situations whereby a start-up or enterprise requires, err, well, let’s just say a bit of “remodeling”.

I bring this up because I’ve noticed (over the past year or so) an odd management neurosis of sorts sprouting up within some of China’s most dynamic and innovative start-ups. This is particularly evident in companies where the management team includes both local Chinese and Westerners. I’m not quite sure how Freud would identify this neurosis but according to my handy China business guide “Green Tea and Scotch – 88 Negotiating Strategies for Glorious Enlightenment and Harmonious Existence” it is called Edgy.

According to Green Tea and Scotch entrepreneurial teams symptomatic of Edgy not only tend to be associated with start-ups (lead by multicultural management teams) pushing the envelope just enough to exist at the tip of the innovation sword but also operate, to some degree, in a legal grey area.

An Edgy outbreak is highly distributive, debilitating and in some cases can mean lights out for a young company teetering on the edge of obscurity and prominence – especially when investors in China (and I guess everywhere) put such a high premium on stability and team cohesiveness.

And while I have yet to observe any psychotic symptoms, such as delusions or hallucinations associated with an Edgy outbreak, there are signs that some people are incapable of making it back across the proverbial “status quo, all systems go, no sacrifice, no victory” line.

For example, several weeks ago a super innovative China based start-up that I’ve been working with for several months had an opportunity to headline at a major international event (and not one of those “venture capital/private equity conferences” we all love so much) with global media coverage which would have significantly powered up and propelled the company’s global profile to wicked high heights (and not only with investors and industry geeks but also with consumers) – I’d say this “situation” was as close to a Tipping Point as any start-up can get without selling itself to Google for (fill in the blank) billions of US dollars eighteen-months after going live.

The CEO/founder of this start-up weighed the risks associated with this degree of coverage and attention and decided the company was not only mature enough but would definitely benefit (across the board) from this event – only to receive a sieve and bloody tongue-lashing from core members of her management team when she informed them of her decision to green light the event – the team’s gripe was as follows:

“…the success of our business depends on toeing the line in some areas that might be considered by some organizations as grey…and while we’re not (directly) in this grey area, in addition to the fact that a vast majority of Chinese companies already operate in this area (including many of our NASDAQ listed big brothers), we’re worried that if we go public with our business model and strategy there is a risk that one local organization will find out and ask us to stop doing our business…given our company’s young nature and the cultural mix of our management team…we’d strongly suggest no going forward with this event…”

So, like any solid, rational leader she processed her team’s commentary and opinions, discussed them at length internally and externally, consulted advisors and government liaisons, and in the end (after what some would consider “overkill deliberation”) determined the benefits of attending this event greatly outweighed the risks.

And still, her team came after her screaming bloody murder – for several days all productive work came to a halt – junior staffers and programmers where worried the company would implode and they’d lose their jobs – whispers passed the lips of dissenting managers just loud enough for everyone to hear: Who was she to put the company at risk? Who was she to put their jobs, for which they’ve sacrificed so much for, at risk? Who was she to go against the “local” team’s better judgment?

So, I’m just taking a wild stab at this but I think the answer to their “Who was she…” question is, well, the CEO.

Edgy, anyone? Absolutely…

Indeed, fear, not inability or incompetence, had gotten the best of this company. It was as if these people had their heads in the sand (but fingers on the keyboard programming away) for the better part of the past two-years – didn’t they realize at some point the company would need to go public (in the media sense) in a major way? Didn’t they realize that highly innovative companies press into uncharted territories and tend (more often than not) push the boundaries of what might be considered status quo?

My question is (as a follow-up):  How would have this team reacted to this situation if the CEO happened to be a native mainland Chinese rather than, for example an American or Canadian Born Chinese (note the CEO is not a mainlander but neither is she Canadian nor American)?

I’m guessing, from my own experience working with both local and foreign founders/CEOs, that there might have been some debate but by and large (generally speaking) it would have been a non-event; in fact, I’m 99% positive it would have been a non-event.

Ultimately, the CEO followed through and attended the event – her presentation focused entirely on her company’s business strengths and the market opportunity – and she did a killer job. Great Success! Well, sort of…

And yet a nasty cloud hangs over head as she’s now faced with a conundrum as to what to do with her Edgy team – can she resurrect the team that build the existing killer service or is that team lost forever like the AllSpark? What would you do?

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