People & Players

Q&A With Softbank Venture Capitalist William Bao Bean

Foreign Media Executives Need To Be Practical When Dealing With China Or Become "Dinosaurs" Out Of a Job

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William Bao Bean
William Bao Bean Credit: Normandy Madden
Multinational media and entertainment companies have to get smart about China, and move away from counting on the end user to pay for content, says William Bao Bean. The guys who don't are "dinosaurs who will be out of a job soon."

As a Shanghai-based partner at Softbank China and India Holdings, he focuses on early-stage investments in technology, media, and telecom companies in Asia, excluding Japan and Korea.

Mr. Bao Bean, a former analyst at Deutsche Bank Securities, Banc of America Securities and Bear Stearns, recently spoke with AdAgeChina's editor, Normandy Madden, in Hong Kong about China's digital media players such as digital out-of-home media giant Focus Media, search engine Baidu, instant messaging leader Tencent, the top online video sites, Youku and Tudou.

AdAgeChina: Mobile music sales are rising, but little of the profit goes to the music companies. How do the entertainment and music companies need to change to monetize music consumption in China?

William Bao Bean: The key thing is that some of them already are doing it. They're moving away from their historical need to base everything on end-user spend, because they've made little or no money in recent memory in China.

The music companies are exploring new business models and signing deals with companies that do not resemble any of the historic deals done in Asia.

They are moving away from subscriptions and working more on revenue-sharing, monetizing music tracks by selling things other than just the track - videos, advertising, gear. That's the first step.

AdAgeChina: Do you think marketers will take on roles traditionally played by the labels--finding and nurturing artists, funding gigs, paying for recordings? And if so, will they do it with music companies--or in competition to them?

Mr. Bao Bean: I think everybody is going to work with a group of platforms. The music company doesn't know how to reach millions and millions of people. Marketers are in the business of paying other people to reach millions and millions of people.

So who are those people? In China, it's the internet guys - search engines, online video portals, vertical web sites. Unfortunately, the internet guys don't speak marketing, or music.

In fact, all of these different parties don't talk to each other very well and they're disorganized, I don't think there's much chance of competition between them at this point. It's much easier for them all to work together.

AdAgeChina: Western music companies have battled with Chinese internet companies such as Baidu for years, in an effort to stamp out music piracy. Who will win this war?

Mr. Bao Bean: I think if they are still couching it in terms of a war, they have already lost. The guys who are still calling it a war are dinosaurs who will be out of a job soon.

There is a role for guys who sue people, it helps bring people to the table....sometimes. It's a leverage point, but it's not the end game. In Asian markets, you have to be more practical.

By spending so much time fighting with the music download sites, the music companies have essentially trained Chinese consumers not to pay for music. That's why a paid music platform like Apple's iTunes won't work in China.

AdAgeChina: So what's the solution for music companies when faced with sites like Baidu?

Mr. Bao Bean: The best way to handle them is to arm their competitors. Arm the companies that work with you and give you a revenue share. Baidu doesn't monetize music, it's just a service on their site.

If advertising and music companies should work with partner platforms to create an experience and a lifestyle pull for youth and other people, they can monetize it.

Music companies should go where the users are, especially youth. There's money to be made there with music videos, events and gear that help drive relationships between fans and artists and then stick a brand in there.

AdAgeChina: Looking at China's major listed digital media companies, which ones are the strongest bet for investors today?

Mr. Bao Bean: Focus Media is definitely top of the list. Tencent is also huge, it is very good at monetizing instant messaging and it has just started to monetize it on the advertising side. They can make their communication with users on the ad side so much more effective than it is now, but they're getting there. Games are just starting to come up for them too.

The difference you'll see over the next couple of years is a growth of vertical sites that specialize in areas like auto or finance or sports or real estate. In each vertical, there are four or five major sites already.

AdAgeChina: Looking at the top two players in China's online video sector--Youku and Tudou--who do you think will emerge as the market leader?

Mr. Bao Bean: I don't know. It's too early to tell. They both say their own site is bigger so it's hard to tell what's really happening. It's a dog fight right now.

But it doesn't really matter because I think everyone should work with a lot of different sites. Advertisers have some sort of strange inclination to always want to go with the biggest.

Well, the biggest is not always the best, and these guys are roughly the same size right now. It's in advertisers' best interest to use both as well as non-pure play video guys as well.

AdAgeChina: How is Focus Media doing? There is confusion about what's happening inside that company.

Mr. Bao Bean: They bought a lot of companies last year, about 38, and this year, they slowed down a bit but still bought a lot more companies.

At this point, some people say they bit off more than they could chew, some say it was their strategy all along but either way, they have slowed down and are digesting right now.

It's a company people should pay attention to, they are very local and very practical and they get things done. They are very good at operating in the local Chinese media environment.

Focus Media's main play is to become the largest digital media conglomerate in the country and they are pretty well on their way there.

Look at it as an old-fashioned land grab play. There are not too many independent media agencies left and once they control a significant percentage of adspend in the market, they can get discounts from the holders of the inventory -- the web sites.

What usually happens in a land grab is you get a giant power that scares all the little fragmented guys into an opposition mode. That's what's happening in China.

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