China Daily Global Edition (USA)
Media boom
German firm believes media market will become world’s second-largest after US
German media giant Bertelsmann believes China’s media market will become world’s second-largest after US.
In China, Thomas Rabe, chief executive officer of German media giant Bertelsmann SE & Co KGaA, prefers to be called by his Chinese name Han Tao, which he says makes him feel more localized.
In addition to this scholarly Chinese name, which means “great waves”, Rabe’s business card is also printed in two languages, with one side in English and the other side in Chinese.
Those very small details reflect the special importance the CEO of Europe’s largest media conglomerate by sales attaches to the Chinese market. He predicts that China will soon become the world’s second-largest media market after the United States. Growing in China
Rabe’s commitment to growth in China was reinforced in October when more than 100 of Bertelsmann’s top executives, including the entire executive board and group management committee, gathered in Beijing for the company’s first management meeting outside Germany
“As the second-largest economy in the world, China is a very attractive market for us,” Rabe said.
The CEO said Bertelsmann sees China as one of the most important growth regions and will play a key role in its global expansion plans, particularly at a time when it sees slowing growth in Europe and the US, where the company reaps the vast majority of its revenue.
According to a market survey jointly released by the School of Journalism and Communication at Tsinghua University and the Social Sciences Academic Press in May, the output value of China’s media industry had reached 637.9 billion yuan ($102 billion) in 2011, up 15.2 percent over the previous year. Of this, 42 percent was contributed by Internet-related business.
The survey also predicted that China’s media industry will continue to boom and is expected to become a pillar of the country’s economy in the next five years, with more capital flowing into it.
“The eurozone debt crisis has clearly had an impact on the macroeconomic environment, which led to a direct impact on Bertelsmann’s business,” he said.
“To fuel growth, we are looking to expand business in regions of sustainable high growth. China is the most important growth region for Bertelsmann to go forward.”
To highlight China’s key role in Bertelsmann’s strategic shift from the West to the East, the group plans to increase its presence in China to consolidate its media empire, which will in return help Bertelsmann to reshape into a faster growing, more international and digitally leading company over the next five to 10 years.
China is not a new playground for Bertelsmann.
In 1992, the company started its business in China with call centers and logistics services, becoming one of the first Western media companies with an operation in China.
Five years later, Bertelsmann brought its book club system to the nation, offering readers membership discounts and selling books through catalogs, bookstores and online stores.
The method, which at first proved popular among white-collar employees and young people and built up a membership of 1.5 million, then lost its appeal and experienced a significant decline when online bookstores began to boom in China in 2006.
In 2008, Bertelsmann eventually closed all of its 36 bookstores in 18 cities across China.
However, despite the closure, Rabe remains optimistic about his company’s business prospects in China.
Bertelsmann reported revenue of 7.6 billion euros ($9.7 billion) in the first half of this year, with its Chinese operations accounting for 2 percent of the total.
Rabe said although China currently contributes little to the company’s overall revenue, its business in the nation is expected to significantly increase over the next decade.
“Bertelsmann is benefiting from China’s emerging urban middle class, with its high purchasing power and affinity for all things digital,” Rabe said.
“We are ready for more significant investments to work with local partners, to increase our market share in China.” Venture capital
As a sign of its long-term commitment to the China market, Bertelsmann established Beijing Bertelsmann China Corporate Center in 2006. It was the first of the company’s three global centers set up in emerging markets.
“I can tell you that the China Corporate Center in Beijing is a role model for what we implemented in India and Brazil,” Rabe said, adding that with more than 20 years of experience in China, it has more advantages than competitors in exploring concrete strategies and tactics for business creation and expansion in China.
Currently Bertelsmann employs more than 4,600 people in the media and service sectors in China and the number is continuing to grow.
The company plans to boost its presence in China via investments in new media, education and business process outsourcing through its investment arm, Bertelsmann Asia Investments, a strategic venture investor focused on early-to-growth stage investments.
“The media sector is seeing double-digit growth, and the environment for foreign investment has improved in China in recent years. This is especially true in the sectors of digital media and education, where we plan to invest more in the future — worldwide, and also in China,” Rabe said.
The investment fund was established in 2008 in Beijing with 100 million euros. It has so far acquired direct or indirect shareholdings in 16 Chinese media companies with a focus on niche business fields that Bertelsmann wishes to expand, including digital publishing, social media platforms, e-commerce solutions and online education.
Three of those investments, involving China Distance Education Holdings Ltd, Phoenix New Media Ltd and Bitauto Holdings Ltd, have already been listed on the New York Stock Exchange.
“The Internet, mobile services, e-commerce, online advertising and gaming are experiencing a real boom in China,” said Annabelle Yu Long, head of Bertelsmann Asia Investments.
She said the fund was started as an experiment to understand the Chinese market via investing in startups in sectors that are relevant to Bertelsmann’s core businesses.
“We have been actively seeking investment and strategic partners in China. We believe we offer an ideal home for creative and entrepreneurial talent in China who want to put their business ideas into practice with a powerful partner,” Long said.
As Bertelsmann is busy preparing for a massive investment in China’s media market, some industry experts suggest it should be cautious in decision-making due to the nature of the country’s publishing industry.
“China’s current book publishing market is not standardized and still suffers from rampant piracy,” said Cao Yuanyong, an associate editor of Shanghai Literature and Art Publishing Group.
“Therefore, the business prospects of a foreign investor in China can either be rosy or sour. They totally depends on its knowledge of the local market and whether it knows how to establish good relationships with local content providers to cater to local readers’ tastes.”
Others believe now is the right time for foreign investors to tap China’s huge media market.
“Because China’s e-book market is still in the early stage of development, there has been no market leader so far, so Bertelsmann will not face strong local competitors, making it easier for the company to enter China,” said Yu Dianli, general manager of Commercial Press. Learning from the past
For Rabe, a constant review of the past is also very necessary.
He admitted Bertelsmann has made a few mistakes in China either in market strategy or business models over the past 20 years. To make improvements by learning from previous mistakes is vital to ensure Bertelsmann’s future success in China, he said.
“One mistake in the past is we did not make products that were sufficiently adapted to market requirements, but we’ve corrected those mistakes and learnt from those mistakes,” he said.
“It does not mean we will not make mistakes in the future, but we would like to limit the mistakes.”
Rabe said he would not underestimate the complexity of the Chinese market and will be committed to producing products more suited to the needs of the Chinese market.
“We transfer knowledge and expertise from Europe to China, but we don’t think what works in the US or Europe will also work in China. That would be a mistake,” he said.
To better understand the needs of target customers, Bertelsmann resorts to a very local approach in China by working exclusively with local management, which Rabe believes is key to business success in China.
“We bring expertise, content and brands to China, but what we don’t know is the local market. That’s why we hire local people.”
He said the media is a very creative industry, something particularly based on the creativity of local people. Therefore, Bertelsmann also counts on the creativity and innovation of his Chinese employees and will invest heavily in creativity to maintain its market share.
“We see China as a source of innovation for Bertelsmann’s other markets,” he said.
Bertelsmann is experiencing a digital revolution in the online age and needs to accelerate the transformation of its media businesses from physical to electronic, insiders said.