China’s New Media Blossoming as Business Models Revamp

BEIJING--(Business Wire)--
In a vast market like China, where advertising spends per capital only
approximate 2-3% of the level in the US, the blossoming new media sector is
likely to see the fastest growth in consumer demand and wealth creation,
according to a recent report by Z. H. Studio. New media leaders are outpacing
the old media players as the key driver of innovation, both technology- and
business-wise, as well as enhanced value chains.

Just about two years ago, Focus Media was almost a synonym of the “new media”
concept in China. The company spearheaded the all-in-one-digital-signage model
and operated LCD screen ads in elevator lobbies 24 hours a day. After a
high-profiled IPO at NASDAQ, the company’s founder Jiang Nanchun became one of
the richest men in China at the age of 33. Ever since, LCD screens have been
popping up in supermarkets, buses, air flights, railway cabinets, parking lots,
restrooms, hairdressing salons … just everywhere you go you will see the screens
operated by Focus Media – or its copycats.

Does the Focus Media model still stand for “new media” today? No longer. In most
cases, people are not looking to be entertained – merely as recipients – by
those “unavoidable” ads. Consumers like to get more “active participation” with
the media.

Interactive instead of unilateral

Small wonder, then, user-generated content and ads have become new fad. KFC
Group was among the earliest companies to experiment with guerrilla marketing on
Internet. In 2007, it ran a campaign for a new product launch on BlogBus, a
Shanghai-based blogging service provider somewhat like Six Apart. Over 200 users
blogged about their off-line experience associated with the campaign and created
prime buzz for the product. According to Dou Yi, founder and CEO of BlogBus, the
site annually generates 10-million-RMB revenue from such product placement
campaigns and well-known brand advertisers include Absolut Vodka, General Motor,
Lenor, Gillette, Garnier, and L’Oreal.

“Many companies are turning to the Internet users to help with their marketing
messages and ads are blending in with entertainment content,” says Mr. Dou.
“Brands create partnerships with leading influencers on the social web … In the
end, the best advertisements are those that don’t look like ads.”

James Li cannot agree more. The founder and CEO of Bihu, a leading technology
firm specializing in IGA (in-game ads), contends that “pure ads” will have no
future due to commercial forwarding devices in the digital entertainment age. It
took his company four years to develop a system that enables game publishers to
embed commercial ads on a real-time basis, without changing any source code.
What’s particularly inspiring to Li is the base of 70 million active online
gamers in China, plus another 50 million non-active users.

“The fact that China is already the world’s largest Internet and mobile market,
without even having reached 50 percent penetration, means that Chinese companies
can – and in many cases will have to – do things that companies in other markets
will never be able to do in terms of scale,” argues Steven Schwankert, Desk
Editor of IDG News Service in Asia. “Therefore, they can experiment, and a
smaller percentage of their customer base embracing something can be counted as
a success.”

The new media sector has seen experiments in all areas like video-sharing sites,
wireless, broadband, avatars in second life, local map, social networking (SNS),
and many more. The highly interactive platforms not only enhance the stickiness
of media users but also scale back customer acquisition costs.

Making a historic mark

According to iResearch, one of China’s most authoritative research agencies on
new media, Internet users in China has amounted to 253 million by June 2008. The
company’s vice president Michael Ruan remarks at the Digital Media Summit 2008
in Beijing that the marketplace has seen an evolving trend of diverse revenue
models among Internet-related businesses, and degree of consolidation is
expected to drop.

“China leads the world in new in many ways; and I’m not sure that either people
in China or in other markets like the U.S. realize it,” says Schwankert,
half-jokingly.

Indeed, Kevin Wang is one of those who do realize it. When he founded ZCOM – now
the largest digital publisher of magazines in China – back in 2004, Wang was
determined to make a major mark, by the Chinese, on the world of innovation.

Nowadays, any of the 40 million ZCOM users may browse through over 300 different
magazines anytime, which offer an interesting blend of static and interactive
content. The articles look like what we’d find in a typical magazine, but what’s
mostly appealing is the natural embedding of the interactive elements – only
possible in the digital world. Interactivity generates the very accurate demo
stats, which in turn creates an enabling platform for direct marketing campaigns
by brand advertisers.

Among the company’s most successful campaigns were for BMW, Intel, Braun, LG,
L’Oreal, iPod, Siemens, EPSON and a lot of other well-known brands.

Over 9500 magazines and 2000 newspapers are circulating in China, 50% beyond the
levels in the US, according to a recent report by Morgan Stanley. Kevin Wang
believes that when numerous players are jockeying for position in the sector,
ZCOM’s strong brand awareness and “gateway” position in the virtual world
creates a competitive edge.

Funded by Carlyle Group, ZCOM has also nurtured a cohort of collaborators – such
as Toshiba (chip), Lenovo (PC) and Kingsoft (game) -- in distribution of
e-magazine content.

“A lot of the new media companies are asset-light but network- and/or human
capital-heavy,” contends Edward Yu, CEO of Analysys International, a well-renown
independent research firm specializing in TMT industry. “In China, new media
players are outpacing their big [old media] brothers when it comes to
digitalizing the product-distribution-service chain activities,” Yu adds.

While most of new media players in China are overseas VC-backed, industry
executives cite the importance of “keeping the business relevant to China”.
BlogBus CEO Dou Yi says the models of Six Apart, MySpace, Cyworld are not
necessarily well-suited for China, where local customer insight – e.g. social
context, consumption patterns, opinion leadership, etc. – serves as a key
success factor for new media players.

BlogBus hosts over 5 million blogs now; and bloggers are typically higher-end,
urban dwellers with decent purchasing power. “These groups tend to be both
powerful influencers and early adopters,” says Dou Yi. In that light, his
company is establishing add-on platforms – ranging from free trial harbor, print
media to live performance – with the aim to further monetize the BlogBus’ user
base.

Caveats and challenges

Still, the new media sphere in China is never without challenges. Relative to
quality editorial content, the long-tailed UGC raises the search cost and
therefore is typically hard to attract paid subscription, according to Liu
Xiangming, Chief Editor of CEOCIO magazine, a 10-year-old journal jointly owned
by IDG Group. He believes that new media practitioners will count, to a larger
extent, on the scarcity and scalability – as “content creators are always scarce
assets and it’s critical to have teams that are able to scale up [content
creation] in a sustainable fashion.”

Regulatory may be another caveat. As state-owned assets, old media companies
often benefit from favorable government policies. On the other hand, the
inherently swift progress in new media space makes it difficult for
policy-makers to keep up. Because of such a “lag effect”, new media policies may
sometimes create sharp volatility. That said, as a side benefit, new media
appear to have stronger “immunity” than their old brothers. Also, regulatory
restrictions prevent cross-regional ownership for old media companies; but new
media are not subject to such constraints.

The economic meltdown will likely make many organizations conservative towards
ads spending. As Edmund Li, a former 4A agency senior executive, warns, “try and
err” costs may shift media buyers back to traditional, “proven” platforms,
leaving new media companies vying for a smaller slice of the cake.

Despite the fact that global financial crisis makes many lower outlook, some
players in new media sector remain optimistic. James Li of Bihu recalls the SARS
epidemic period in 2003, in which the business of online gaming managed to
double its size. “Our [online game-related] business enjoys a ‘counter-cyclic’
element: we see ‘obsessive’ customer loyalty in an economic downturn.”

Z. H. Studio
Ms. Li CHEN, 86-10-58769825
li.chen@zhstudio.net

Copyright Business Wire 2008