2014 has been a transformative year in media and entertainment, particularly with the acceleration of “mobile-first, digital-first” initiatives—which we covered in our November newsletter—from pay TV unbundling to the continuing consolidation of traditional and digital-first media companies (including MCNs). But the action isn’t all in the United States. We live in a new “borderless” digital world where content and social connections can be experienced by anyone around the globe. The population of global mobile phone Internet users surpassed 2 billion in 2014 and will continue to accelerate, creating global opportunities for companies to extend reach and engagement across previously uncharted territories (either individually or via partnerships). With these opportunities come escalating interest from companies to invest in digital, mobile innovations internationally, including in the United States.
At Manatt Digital Media (MDM), we follow global developments in digital media closely and help our clients discover and navigate value-creating opportunities and partnerships. In the past month alone, MDM members have participated in key international-focused events as speakers and attendees. In this newsletter, we reflect on these events as well as global trends in digital media.
And because this is our last newsletter of 2014, we wish all of our readers Happy Holidays and a prosperous New Year! See you at the Consumer Electronics Show (CES) to kick off the New Year in early January.
Reflections on the U.S.-China Film Summit
By Sophia Yen and Kiley Wong
It seems like you can’t go a day without hearing about some China-based company looking to make a big play in the media and entertainment industry. Over the past few years, the promise of new sources of capital and a vast developing market for product consumption has made Hollywood, both traditional and nascent players, scramble to participate in this reverse gold rush. November was a prime example as Hollywood hosted an impressive number of Chinese corporate and entertainment-related dignitaries, many of whom were in town to attend the annual U.S.-China Film Summit, the 4th Annual China International Co-Production Screenings hosted by the MPAA, or the American Film Market.
(Pictured above: Panelists from the 2014 U.S.-China Film Summit. Our very own Lindsay Conner, Partner and Co-Chair of Manatt’s Entertainment and Media Practice, is pictured on the far right.)
For those playing catch-up and wondering why all the activity, most people credit the heightened interest back to 2008 (although the interest intensified in 2011 when the world economy started to recover). The Chinese government, tired of the slow influence Western-style media was having on its citizens, and desirous of building similar “soft power” in China, announced its intentions to support the “cultural industry.” The government set up incentive programs to entice Western entertainment players to team up with Chinese partners to develop content more aligned with Chinese values. Thus, the phrase “U.S.-China co-production” entered into the Hollywood vernacular. Such incentives included the ability to bypass the Chinese quota system (which currently only allows 34 foreign films to be theatrically released per year) and for the producers to take home a larger percentage of box office receipts (movies released through the quota system only receive 25% of B.O. whereas co-productions are able to take home approximately 42% of B.O.). And with the Chinese box office growing annually at a rate of 30% and expected to hit $5 billion this year, there are many here in Hollywood looking to bridge the gap between China and Hollywood.
Below are two perspectives from members of our MDM team. The U.S.-China Film Summit was Kiley Wong’s first substantive exposure to the business of making movies with China, whereas Sophia Yen has been practicing in this area for the past few years.
Kiley: As a newcomer to this scene, I was overwhelmed with the excitement in the room. I found the panels and keynote conversations throughout the day to be informative and thought-provoking and thoroughly enjoyed the opportunity to connect with a range of people on all sides of this business and from both sides of the Pacific. Still, I had a distinct feeling throughout the day that I had some catching up to do. (In fact, I have since started taking Chinese lessons!) There is no doubt that the rise of the Chinese middle class is poised to be the biggest disruption to the entertainment industry since the invention and proliferation of the Internet, and I feel lucky to work with a team that really understands that.
Sophia: As someone who has been paying acute attention to this area for the last couple of years, my key takeaways are as follows:
- The entertainment business is the same, regardless of where you are. Keep in mind that the entertainment industry, regardless of where you are, is filled with dreamers and schemers. The Chinese entertainment industry is just like Hollywood in that regard. Therefore, just as you would in dealing with someone in the United States, it’s imperative to spend the time to develop relationships and perform due diligence to avoid wasting a lot of time with the wrong parties.
- Deals are happening. The trades may make it seem like there is a China-based deal being made every day, but the reality is there are many obstacles to transforming a conceptual agreement into a working business relationship. That being said, deals are happening, although recently it appears to take marquee names on both sides to make them happen (for example, the recent Fosun investment into the Studio 8/Columbia Pictures slate). Therefore, tapping into the Chinese capital market still remains elusive for the independents and the “little guys.”
- Content is king (or perhaps the emperor) in China. Over the last couple of years, we’ve seen an uptick in Chinese box office receipts for homegrown films. However, the top grossing domestic films in China (e.g., Lost in Thailand, Journey to the West, The Breakup Buddies) still do not export well into other territories. The Chinese production companies want to break through to other territories, and are looking for a strong story that will work well in China, but also play around the world. For those in the creative development side, there is tremendous opportunity here. The Chinese respect Western-style screenplays, and U.S. creators must reciprocate by taking the time to learn about the modern Chinese culture, and not just try to polish up a languishing script with perceived “Chinese elements.” There will be great rewards for anyone able to successfully marry that experience and style with stories that resonate with both Chinese and U.S. audiences alike.
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SLUSH Tech Conference in Helsinki Highlights and the Hottest Start-Ups (Yes, Sauna Hot!)
By Peter Csathy
SLUSH—the preeminent Eurasian tech conference in Helsinki, Finland—just took place in November—and we attended. SLUSH remains under the radar to most in the U.S. tech and digital media industries. But, that certainly is not the case in the European and Northern Asian tech worlds. At least not anymore. MDM just experienced our first SLUSH—wearing multiple hats. As advisors and connectors (“Bridge to Hollywood,” “Bridge to U.S. tech”). Investors (via the Manatt Venture Fund). And I as a journalist (both for the MDM blog and as a regular contributor to leading U.S. digital video publication VideoInk). These are my observations after my first SLUSH experience.
First, a little about SLUSH. The conference began in 2008 with just a few hundred attendees. Last year, the numbers grew to 7,000. And, that number exploded 2x this year to 14,000. So much so, that SLUSH this year had a new home that certainly now feels much larger than that. Think of SLUSH as IBC’s or CES’s little brother that is growing up fast. Now, delegates from 79 countries attend—although English is spoken everywhere and by everyone. That makes communication efficient—to match the event’s European precision. (As an aside, it continues to amaze me how excellent everyone’s English is and how, unlike Americans, many Europeans master multiple languages). One more thing: SLUSH—as a major tech event—makes absolute sense here in Helsinki. 26% of all privately held company exits in Europe flowed from the Nordic regions in the past several years. Finland and Sweden are homes to major innovation, particularly in the gaming and mobile worlds. Game start-ups are everywhere.
Some more about SLUSH. Why that name? It’s the Finnish sense of humor. While U.S. conferences frequently tout unending sunshine, SLUSH’s founding fathers here celebrate the cold, as well as that namesake frequent and terribly uncomfortable condition of freezing wet rain (although not this year). Let’s also not forget Finland’s long dark nights this time of year. The SLUSH venue mirrors and celebrates that darkness inside—all windows and skylights are covered. No light inside here, once we enter the venue beneath a sign that reads “This Is Not the Event You’re Looking For” (an homage to Star Wars that was lost on me until someone with droid expertise explained it). Inside, we are engulfed by the darkness and overall vibe of a nightclub instead, complete with lasers darting here, there, everywhere.
And, that’s how the event kicked off on Day 1. DJ on stage. Frenetic video montage behind. Steam blasting into the crowd. This ain’t your father’s CES.
Then, how about this for juxtaposition? From DJ to the Prime Minister of Finland, Alexander Stubb, who welcomed attendees with four themes that he believes define the Finnish people—and the reason for continuous Finnish entrepreneurial success. One, the Finnish commitment to dream. Two, to believe. Three, to work hard. And four, the Finn's passion to succeed. He voiced that his dream for SLUSH—which is absolutely shared by its ambitious founders—is to become THE preeminent tech start-up event in the world. From what I saw during its three days, they might just pull it off one day. 750 venture firms now attend. And, Finland’s geographic location—although very north and frequently very cold (although no snow this year)—makes it convenient for most in the world.
China’s Vice Premier Wang Yang followed the Prime Minister’s opening words and predictably and dutifully touted his country’s entrepreneurial growth and success. He reported 3 million new private companies in China in the first 10 months of this year alone—up 53% from the same time last year. He further underscored that “China is committed to opening up and learning from other countries”—and that “Finland is a model of innovation.”
Indeed, Finland is.
As I mention above, Finland tech is primarily known for two major areas—(1) mobile (remember the Nokia of a few years back?), and (2) mobile games and game development (Rovio and Supercell, both of which are very much giants of the here and now—and the latter of which served as host of night one’s mega-party with a cast of thousands). And, those themes were evident everywhere. Digital video and music (two other significant areas of MDM’s focus) not so much, although Spotify and SoundCloud put this region front and center outside of the gaming world as well.
Some notable digital media tech start-up companies to watch closely—based on insiders here in Finland (top tech press and godfathers of the tech industry whom I have come to know) include: (1) Small Giant (which has raised well over $4 million and which some call the hottest games company in Finland right now, which is no small feat); (2) Seriously, another mobile game developer that has already attracted significant U.S. West Coast capital; (3) PlayRaven, yet another game developer (including the strategy game Spymaster); (4) Kiosked, an ad-tech company I know well that has raised over $15 million from blue-chip investors, including the Chairman of Rovio; and (5) Sharetribe, a company in the “share economy” milieu that facilitates peer-to-peer rentals, among other things. I met with some of these and many, many more throughout the day and night who share the Prime Minister’s dreams (including serial and extremely successful Finn entrepreneur Juhana Kotilainen, who teased a new game company that launches soon—be sure to watch that one closely when it does—and the "Bulldozer” himself, Pekka Viljikainen, who is a force of nature in his own right).
Exhausting, yes. But invigorating at the same time.
SLUSH 2014. I am impressed. Very. Speakers are elite. Event production is top-notch.
Let’s just hope that SLUSH’s ambitions of growth do not become fully realized. While ambition is good. Size does matter. And, sometimes smaller is better. There is no need for another gargantuan CES- or IBC-like conference. SLUSH. You are just “right.”
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Why MITA TechTalks Matter
Remember Corona Beer’s memorable advertising slogan “Change your latitude?" Well, it was particularly apt for the MITA TechTalks conference that recently concluded in Punta Mita, Mexico. Leading media, digital media and tech companies—including Samsung, Netflix, PayPal and Cinepolis (more on this global Mexico-based company below)—gathered together for 2.5 days in this beautiful beach resort town. Manatt participated and sponsored the event. I spoke about the mobile-fueled global transformation of the media and entertainment business (and how Mexico’s demographics are ripe for companies to seize that).
Think of the MITA TechTalks as being a cross between Allen & Company’s Sun Valley conference and TED—but in Mexico instead. The focus is on Mexico and Latin American business opportunities and investment. And, although it is early in its life (this is MITA's 4th year), the event delivered and was covered by the likes of Forbes and El Financiero (the Wall Street Journal of Mexico). And, while the conference’s beautiful surroundings were dampened by the rains throughout (okay, more like drenched . . . as one presenter said about a very different topic, “am just sayin’”), those conditions surprisingly achieved the counterintuitive effect of bringing the 125-plus attendees even closer.
Yes, the event’s content was great. Speakers were impressive (it was one of the first events I have ever attended where speaker after speaker captured my interest). But, that was nearly secondary to the bonding that took place among participants at this rare event in another land where breakfasts, lunches and dinners were shared for multiple days and with a select number of invitees. You see, there is no place to hide at smaller events like these—and that is the point. Those who attend, self-select–and that leads to much deeper relationship-building than is possible at virtually any other media and technology conference. Almost like summer camp. I met great, talented people. Was inspired by many. And, will most definitely do business with several of them.
Then you add the international overlay to the event. Traveling outside borders. Outside of the U.S.-centric media and tech industries. That international perspective alone made it worthwhile. We too infrequently take the time to make such effort (it means a few days off the grid, after all). But, it is important—dare I say, critical?—to get other perspectives. Learn about other lands. Hear about successful entrepreneurs and innovations that take place elsewhere—outside of the United States. Because those entrepreneurs and that innovation most certainly do.
Case in point, Cinepolis (the media company I mention above). Cinepolis is a luxury theater chain that has now entered the U.S. market. Until the MITA TechTalks, few knew that Cinepolis is a Mexico-based, privately held company that has been in the game for 42 years and is the fourth-largest theater chain in the world. Now we do. And, at MITA, I met its energetic and innovative #2 man, Miguel Mier, who laid out the company’s bold and ambitious vision to continue to change the game and ensure that moviegoing continues to be an experience unlike any other that will not become obsolete simply because we increasingly live in a virtual world.
Amen to that! Yes, I am "that digital guy” who attended MITA. I absolutely believe in its virtual power and reach. But, just like Miguel Mier, I believe in the power of the physical/offline experience and its continuing (increasingly?) critical place in our fast-evolving digital world. That’s why I believe in the MITA TechTalks and the role it plays (and the few others out there like it). There is a need–a time and a place–to gather together as a small tribe. To sit back and listen. To discuss relevant issues of the day. To be confronted live and in person with different perspectives. To discuss them face-to-face. To learn. And, to give some of that learning back.
In early November, MITA TechTalks 2014 was that time.
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Mexico’s Telecom Reform: Fueling the Mobile and Online Audience Growth
In 2013, the Latin American market, which has the fastest-growing Internet adoption, has reached a tipping point with the Internet penetrating 50% of the population. Mobile penetration has also grown–Mexico’s smartphone use doubled between 2012 and 2013, leading the region in mobile traffic. In light of this growth, American marketers and advertisers are quickly expanding into the region. eMarketer predicts that mobile ad spending in Mexico will grow 87.7% in 2014 to $173 million.
Only fueling the fire, the current telecom reform in Mexico is leading to fundamental shifts in the industry that (1) reduce prices and increase quality for telecom businesses and consumers, (2) encourage industry competition, and (3) promote domestic and foreign investments. In the recently published white paper, Mexico’s Telecom Reform, we highlight the regulatory changes in the industry and provide insights into the variables impacting the reform’s effectiveness. The paper also discusses América Móvil’s surprisingly quick move to divest some of its assets. América Móvil is the largest telecom company in Latin America and fourth in the world.
With an effective reform, these macro-level shifts will further improve mobile and Internet access for consumers in Mexico and make the market even more appealing to foreign businesses.
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The Next Discovery: Will Travel–Will Post–Will Share
Much is written about the Millennial Generation, which those of us in the digital media space are very familiar with … they will make up 50% of the global workforce in less than five years . . . digital-first . . . mobile-obsessed . . . brand loyalists . . . socially conscious . . . to name only a few. One other thread of Millennial core values that we find very intriguing is the global mindset of this generation. There is a spirit of discovery, wanting to explore new cultures, foods, and regions. And once they discover, they love to share about their discoveries and experiences on social media. The reach, the influence and the new spirit of adventure—the travel industry is rejoicing. But surprisingly, there isn’t a huge digital success story in the hospitality/travel sector . . . well, not yet.
In a recent study featured in an article on Forbes (“The Rising Wave of Millennial Travelers”), the WYSE Travel Confederation reported on some interesting findings:
- By 2020, 320 million international trips are expected to be made by Millennial travelers each year, a 47% increase from 217 million in 2013
- Family and friends are the most influential source of travel information for 67% of travelers
- 80% of respondents feel travel reviews have a real influence on their decisions, with 56% posting online reviews after a trip
We are seeing hospitality brands focusing on creating new branded content to reach these audiences, and we have previously mentioned Marriott’s venture with its own digital studio. We expect to see more brands come out in similar ways. Additionally, there is a great opportunity for companies that aggregate, report, and provide reviews in the hospitality and travel space. The vast majority are text-based now. But to reach this target audience, digital transformation is greatly needed. Existing offerings will want to add and integrate short-form video on digital platforms, integrated with the growing number of digital travel management tools and apps. Global Travel MCN, anyone?
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