As China continues to grow as the world’s biggest wireless market, virtually all segments of the industry have been attracted to the country’s prospects. Handset makers, infrastructure vendors and technology companies have all worked to cash in on the Chinese potential-and wireless content and entertainment companies are no different. Indeed, many of the world’s largest wireless content vendors are furiously working to build their Chinese businesses to take advantage of the nascent but potentially blockbuster opportunity.
“Mforma has spent the last eight months researching the Chinese market,” said Dan Kranzler, the company’s chairman and chief executive officer. Indeed, Kranzler made his comments from his hotel room in Beijing.
Combining recently relaxed views toward commerce and capitalism with a population of about 1.3 billion potential consumers, China becomes a key region for almost any business-companies from Ford to Home Depot are now expanding their Chinese operations. But for the wireless content industry specifically, the market is still in its infancy-there are 300 million mobile subscribers so far, but data-capable, color-screen phones only recently have been introduced. However, as with much of the rest of the world, expectations are that such devices will catch on like fire, and the total addressable market for data services will explode. Thus, those in the wireless content industry agree it is time to invest in China.
Mforma said it expects to open two new offices in China and plans to introduce its newly incorporated Chinese subsidiary. The new Mforma China business will be staffed by Chinese executives and will have direct relationships with the country’s two main wireless carriers. The company’s Chinese labors are due in part to the massive $44 million in venture funding the company announced.
“The market in China for mobile is just staggering,” Kranzler said.
Mforma joins Mobileway, Macrospace, iFone, Dwango Wireless, Walt Disney Internet Group and others in expanding into the nascent region. Indeed, Mobileway in April announced $23 million in venture funding, and in May announced the launch of its Chinese division through the purchase of a local Chinese content vendor. Mobileway said such acquisitions offer a quick, painless way to enter the sometimes complicated Chinese market.
“Certainly it was easier to go in through an acquisition,” said Larry Loper, vice president of marketing for Mobileway. “The primary benefit was (the company’s) existing contracts and relationships with the existing Chinese carriers. We think the timing is great.”
Mforma too said it will acquire several local Chinese vendors in its moves to grow its Chinese business, although Kranzler declined to provide details. Other companies such as Macrospace and Dwango have set up distribution deals through local Chinese wireless content vendors to sell their wares in the burgeoning market.
Although the potential is huge, the Chinese market also carries a significant amount of risk.
“There’s a lot of people (in China) paying less than $10 a month for wireless service,” said Seamus McAteer, managing partner and senior analyst at Zelos Group. “You have to temper your expectations for the market.”
McAteer said the addressable market for wireless content is relatively small, as most Chinese users have low-end, voice-only phones. Further, content like downloadable games sells for less than $1 in China compared with $3 to $4 in most of the rest of the world. Thus, margins are slim, and volume is key.
Kranzler said cutting out the local middleman and establishing direct connections with Chinese wireless carriers can overcome such challenges. Kranzler said Mforma is in an especially solid position due to its partnerships with major media brands like movie studio Paramount and video game vendor Activision. By combining such high-value brands and content with an understanding of the Chinese market, “the margins can be very effective,” Kranzler said.
“The key to being successful in every foreign country is to adapt to that country,” he said.
The reason behind content vendors’ interest in China is due largely to the dream of a worldwide footprint. If a wireless content and entertainment company can sell content into all of the world’s major wireless regions, that company will have a stronger position in scoring the rights to sell branded content from media companies like movie studios and record labels.
An interesting side note to the Chinese wireless content market is the emergence of several powerful local vendors. Enorbus, Linktone Ltd. and others have made an extremely profitable business selling content in China, and some appear to be planning international expansions. Indeed, Linktone recently posted an initial public offering on the Nasdaq, where it scored $65 million. The company’s stock is trading at around $12.20 per share.
“Linktone is a Chinese company and operates only in China-the world’s largest wireless market, which offers tremendous opportunities for additional growth,” said Mark Begert, Linktone’s chief financial officer. “There are no plans for overseas expansion at this time.”
