Our view on China’s largest entertainment industry.

Stadiums, Sports, and the Imagination Gap (Updated)

Hutong West
Beijing on Sunday
0800 hrs.

Visiting Winnipeg on business in April, I was treated to a personal, behind-the-scenes, roof-to-foundations tour of Investors Group Field, the gleaming, high-tech new sports venue that will host eight matches of the upcoming FIFA Women’s World Cup, including the sold-out pre-cup friendly match between China and the USA.

You would not necessarily associate Winnipeg with great sports business (beyond, say, sales of donuts at a hockey rink,) but what I found even more impressive than the physical plant of the 33,000-seat stadium was the care and thinking that went into creating a venue designed around a great experience for both spectators and athletes. Everything about the stadium, from concessions to security to the locker rooms, was designed and built to do one or more of the following:

1. Create the best possible experience for fans from the minute they leave home to the minute they get home: parking is ample, buses to and from the venue serve neighborhoods throughout the city; there is a huge grassy area just for toddlers where parents can still follow the game on screens: there are areas designated for people who want to watch the game in a bar or club-like environment; and seats and bathrooms are spotless;

2. Maximize revenue opportunities at every event, but do so without making people feel like their being gouged or nickel-and-dimed: concession selections were eclectic and reasonably priced, and there were numerous ways to “upgrade’ your experience;

3. Simplify the jobs of the people who have to bring the talent to and from the stadium, whether the managers of the home or visiting team, or Taylor Swift coming to do a concert: the venue was set up so that fans could see the stars pulling into the stadium and their specially-designed dressing rooms, but not obstruct or endanger them in any way;

4. Maximize revenue from the venue even when there are no events scheduled but in ways to make the events themselves more exciting: the venue had a series of boxes that are rented for parties (both for kids and adults) focused on the sports events; there was a huge fan store open year-round on the main level; plans are now afoot to commercialize the tour that I was given;

5. Make the venue as practical and simple to maintain as possible: there were numerous places where the designers could have added some flair and touches that would have made the venue more visually stunning or that would have been very “cool,” but they wisely chose to make the venue beautiful, comfortable, and hardy.

As I rode to dinner after the two-hour walk, I could not help but compare Investor’s Group Field with so many of the beautiful stadia in China. The nation has built temples to sport that are uplifting in their architecture and stunning in their scale. And yet few, if any, are delivering lasting value to their owners, to their neighbors, or to sport.

Beijing’s most iconic sporting grounds have become silent, aging white elephants. Yet Winnipeg, a city of around 700,000 that is so cold for five months of the year that locals dub it “Winterpeg,” can boast two new, prospering sports venues with two league-leading sports teams and dozens of events and commercial activities to support them.

I recognize that prosperous sports leagues and venues are, for a “developing” nation, nowhere near as high on a list of priorities as, say, putting a man on the Moon. But the constellation of decaying stadia that dot China’s cityscapes stand in mute testament to a national failure, not in finance or audience, but above all in imagination.

China’s leaders have focused on technological innovation as the nation’s pathway out of the middle-income trap. The focus is valid, but myopic. The silence of the Bird’s Nest is a hint that something else is lacking. In its quest to lead the world economically, culturally, and politically, Beijing must dare to stoke the imaginations of its people, its merchants, its scientists, and its athletes.

Six Ways to Help Zeebo Succeed in China

Oriental Plaza, Beijing

Hiding from the heat

1445 hrs.

A few days ago, I explained why I thought Zeebo is going to have a tougher time succeeding in China than we – or Qualcomm, the backer of the cellular game console – may think.

Today, my humble suggestions on what Zeebo will need to do to overcome those challenges.

1. Speed the Approval Process

Zeebo, the local carriers, and the game developers need to work together to create a fast-track process for game certification and local approval. Otherwise this is going to open the door for the first rival consortium that is able to put such a process together. Make a target of 30 days for game approval from the date of submission by the developer, leaving about three weeks of that time frame for the government to work through its part of the process.

2. Experience, Baby: Get Gamers Out of the Internet Cafe and Into the Living Room

Those much younger than I will probably not recall the days when the only place computer games could be played was in a slightly seedy joint crammed full of stand-up game machines. The one I hung out in was called Westworld (named after the 1973 Michael Crichton science-fiction film), two doors down from the landmark Fox Village Theater and a block south of the UCLA campus in Westwood Village.

Westworld started out pretty cool. And then, over time, it got seedy. It stopped being a wholesome hangout for the neighborhood pre-teens and it started to attract an element that was, well, incompatible with what our parents saw as a good crowd to hang with: creepy chain-smoking adult monomaniacs who blew their paychecks on beer, smokes, and Galaxian, and regarded us underage gamers on tight monetary rations as irritants or suckers. The management didn’t care.

It was this phenomenon – which I think parallels nicely what has happened in a lot of China’s Internet Cafes – that led to the emergence of home gaming consoles from Atari and Mattel, and eventually home computers (used heavily for gaming) from Apple and Commodore.

It took a while – the first generation or so sucked. But by the time we got our Mattel Intellivision in 1978, the experience was good enough that we never really missed Westworld.

This is the real opportunity for Zeebo – give parents an affordable device that will get their kids out of smoke-filled Internet Cafes, while giving the kids an experience that is as good as – or better – than what they would get in their local wangba.

The Zeebo presentation at the Game Developers’ Conference leaves us in a bit of doubt. We will know better when the first devices hit the market – in Brazil. But the experience will be critical

3. Mr. Jacobs, Tear Down These Walls

The initial Zeebo, as currently envisioned, uses its networking capacity only to discover, purchase, and download games into the box.

That’s not going to cut it. Many of us in the West may have grown up with discrete, solo gaming experiences. Some of us still prefer it that way (no crude comments, please.) But in China, online and multiplayer gaming is the rule, not the exception.

Yet just as important as offering a networked, multi-player gaming experience is offering the other major advantage of a truly online game: seamless cross-platform play. Play at home on your Zeebo, then when you leave the house, continue playing on your mobile phone, and maybe even continue play on a computer.

This is the gaming triple-play, the promise of a game that follows you wherever you go and is always ready for you to pick up where you left off. Zeebo needs to be a part of that mix, not the heard of a separate gaming universe.

4. Don’t Make Zeebo China All About Helping Foreign Game Companies

Success will come for the platform when Zeebo does more than give EA, id, Glu, and Digital Chocolate a way into the Chinese market. Sure, giving them market access is nice, and some people here do enjoy playing “global games.” But as with music, literature, television, and movies, we all want stuff that is relevant, not just cool.

Getting lots of local developers of all sizes on the platform has to be an immediate priority, even before plans are announced for China. Near-term Zeebo needs to think about splitting the offering 50% localized non-Chinese games and 50% locally produced. Longer term, that needs to shift to 25/75. That means getting busy. Now.

5. Staff Up

You may be able to develop a product with five full-time employees, but the time has come to start selling the sucker, and you will need reinforcements. Resist the temptation to scoop from Qualcomm folks (as smart as they are), and instead find people who understand how to market these kinds of devices globally.

6. A Brief Digression

Some years ago, I was speaking to a colleague in Hong Kong about the prospects of a major international game company here in China. He knew the guys inside the company fairly well, and there came a point in the conversation that I realized the company had a huge blind spot in its plans. Rather than look around at the market conditions, the culture, the economy, and the opportunities, they were determined to do the same kind of business in China that they did in the US.

What I suggested to my colleague was this: the company should give up on localizing games created for the American market and trying to sell them in software stores. Instead, the needed to go to the cable TV industry in China and work on a system whereby online version of their games could be delivered to cable televisions all around the country.

The cable operators had the bandwidth, were building digital systems that allowed for interactivity, and needed the revenue. Kids in China were used to playing online games but there were a lot fewer home PCs that there were cable households.

My colleague humored me, told me they’d never go for it, and promptly forgot my idea. And the company has now been chased out of China.

The big loser in all of that is going to be the cable operators, I think, because it looks like Zeebo is about to lead the telecom companies into the future of online console gaming.

If, that is, Zeebo and its guides can forget about what they think China needs, and start thinking about how to make Chinese gamers drool.

Zeebo and It’s Six Big Challenges in China

In the Hutong

Looking for a Snack

2020 hrs.

In case you missed it, one of the interesting developments coming out of the recent Game Developer’s Conference in San Francisco – at least as far as China is concerned – is an interesting item about a new game console called “Zeebo.”

Brought to you by Qualcomm, the people who invented third-generation wireless technology and the Eudora e-mail client (and many other useful bits of technology,) Zeebo is a game console designed for those of us who cannot afford – or cannot buy – an XboX, Wii, or Playstation. Created with the growing middle class in Brazil, Russia, India, China, and other emerging markets, Zeebo eliminates the need for game cartridges or discs by allowing you to select, buy, and download games directly to your console over a cellular telephone network – apparently even if you don’t have a mobile phone account.

There is much sexiness to the Zeebo idea, not least of which is the elimination of piracy as an issue for game publishers, , the use of an already-ubiquitous network for distribution, a local partner (the wireless carrier) to run the business, and other advantages that I’ll go into in another post.

From a business perspective, the device seems tailor-made for China. But Zeebo’s path to success in China is fraught with challenges.

Open a Window

Wireless devices inside the modern Chinese home face nasty challenges to what engineers call “signal propagation.” Most apartment buildings and free-standing homes in urban China are built of thick concrete reinforced by steel bars. These sorts of structures play hell on wireless signals.

In my home, for example, a wi-fi signal won’t make it past the next room over, and if I am more than 10 feet from a window, I lose cellular signal – even though we can see our carrier’s cell site form our windows.

Designed to be placed next to the TV set, Zeebo is not necessarily going to be next to a window within optimal range of a cell site. The value of the device, in other words, will depend on local signal quality. That’s going to create a few issues, and could conspire to give the device an unfair reputation among consumers.

(This is not an idle concern. For a long time, and for reasons having more to do with local conditions than problems with the technology, people in China used to joke about having to “open the window and let CDMA in.” That undeserved reputation has dogged the 2G and 3G versions of Qualcomm’s technology, a challenge Qualcomm has overcome only after considerable effort.)

Brand Power (Or Lack Thereof)

Buying a Zeebo – or any of the console gaming systems – is a tough decision for a consumer. They are, after all, not just buying a device, they are making a bet on a gaming ecosystem, committing to software, accessories, services, and upgrades to that ecosystem for years to come.

That’s a tough threshold to get consumers to cross. Just ask the XboX guys at Microsoft, or the Wii guys at Nintendo. If you want to get frugal consumers to place a bet on your new entertainment ecosystem, it helps if those consumers know you and trust you.

Zeebo, being new, has not yet cultivated this confidence, and Qualcomm has until recently placed little stock in building their brand with consumers. Why bother? The consumers, the thinking went, didn’t buy Qualcomm products. That lack of foresight is going to hurt the new console’s prospects in China.

A Brutal Approval Process

When it created BREW, Qualcomm established a rather involved certification process for the applications to be delivered over wireless networks. The reasoning was strong: given that these were applications that ran on the network as much as on the device, one bad line of code could not only crash the device, but potentially harm it and possibly affect the functioning of the network.

That involved process has come to the Zeebo. Apparently, first you need to become a BREW developer, then get Zeebo approval, then use the Zeebo software developer kit, then go through the approval testing firm NSTL, then reach the console.

In China, I can foresee two additional steps in that involved process. First, you would need to get approval from the carrier, who is going to want to have some say over what gets distributed over their network, and second, you are going to need to get approval from the General Administration for Press and Publications (GAPP), the government regulator with authority over games. And, if you’re not a Chinese company, you’ll probably need to find a Chinese distributor first.

And you thought it was tough getting your iPhone app approved.

That process will be time-consuming, costly, and for the last two bits in particular, frustrating, none of which endear Zeebo to already-overworked developers, nor will it help ensure a rush of new games to the platform. And that’s important, because regardless of what they may believe at Qualcomm headquarters in La Jolla, Zeebo will need more than Quake and World of Warcraft to succeed in China.

Local Developer Support

One of Zeebo’s advantages is that Qualcomm has already managed to corral the support of major game publishers and developers, including EA, PopCap, Capcom, Activision, Namco, and a host of others, giving the device 15 titles now and 30 within 90 days, with more to come.

Zeebo’s succesess in China, though, will depend on cultivating the support of popular local game developers creating games that Chinese people want to play. For all of the success of companies like Activision-Blizzard with Worlds of Warcraft in China, foreign companies hold a shrinking part of the pie. The majority of games played in China are locally created, and that proportion is growing.

The good news is that Qualcomm has some experience here, having built a healthy local developer community for its BREW mobile platform. The challenge, though, is going to be convincing developers to invest in this new platform. Already developers need to spread their resources among developing online games, PC games, half a dozen mobile platforms, widgets, and games on social networking platforms.

Shanzhai Nation

What Qualcomm has created is an inexpensive device with an ecosystem. Even if Zeebo enjoys only modest success, we can count on local companies duplicating the effort, creating a device for even less money and with the support of local game manufacturers.

It does not take much imagination to see the Chinese government supporting the creation of a TD-SCDMA based Zeebo clone, created in China, sold through China Mobile, and packaged with sales of TD-SCDMA networks overseas. I would be shocked if Qualcomm’s announcement didn’t set at least half a dozen such initiatives into motion here in the Middle Kingdom.

Unless Qualcomm cuts deals with all three mobile networks in China, we could see our own version of the Console Wars playing out among China’s carriers. Qualcomm would be faced with having to support an expensive marketing battle against a local champion (been there, done that, eh, Dr. Jacobs?) or bailing out entirely.

And if it chooses the latter, it opens the door for Zeebo competitors in its other markets as well.

It’s the Experience, Guys

In reading through the announcements and other supporting literature, it is clear that Zeebo’s primary appeal is how neatly it appears to solve several business problems in one fell swoop: piracy, affordability, and accessibility most prominent among them.

At the same time, I was amazed to see how Team Zeebo is playing down the importance of what is apparently an inferior experience. What is important, we are being told, is how inexpensive this thing is. So what if it is a little slow and the games are two generations behind the state of the art? What is important is that the games are in the homes.

If the average middle-class gamer had little exposure to what the world of games can offer, that would be one thing. But all you need to do to see an extremely cool, fast, and immersive game is walk into any Internet cafe in China.

The list of devices that have tried – and failed – in the PRC because they offered a low price but a downgraded experience should be enough to give the Zeebo folks pause. Just ask ASUS, or the One Laptop Per Child team in China. Or ask Microsoft. Anybody remember the Microsoft Venus Internet set top box?

Right. This is a place where workers save three months to buy a phone instead of one month because they want the best experience they can afford, not the cheapest.

Zeebo’s biggest challenge in the PRC is going to be delivering an experience that players will find more fun, more immersive, more addictive, and more appealing than what they can already get in a Web Bar. The battle is to entice them back into the living room, and Zeebo can only do it with a kick-ass experience.

Take a hint from Debbie Fields, Zeebos. “Good enough” won’t be. Not in this market.

A Step Back

None of this is to say that Zeebo won’t be successful in China. But the great thinking that has gone into the product’s design and the business model that will sustain it only address the most basic challenges.

But now comes the hard part: turning Zeebo into an awesome experience for gamers even as the company ensures it is a superior business for developers, mobile operators, and retailers.

Qualcomm’s hurdle is that as a company it lacks experience running a consumer-oriented business generally, much less a multi-sided platform in the ever-changing emerging markets. The company has to develop a whole host of competencies very quickly, all while gaining the trust of consumer it has all but ignored for over a decade.

But I hope they succeed. And I’m going to explain why tomorrow.

Borigami becomes eXboX

Jingshun Road, Nasty Traffic Because They’ve Closed the Airport Expressway for a VIP Visitor
0900 hrs.

As suggested recently in these pages, Microsoft would we well advised to give up reinventing the iPod wheel with it’s Origami product and instead putting its efforts toward morphing the platform into a portable XboX.

Well, according to Good Morning Silicon Valley today, that’s apparently what Microsoft is doing. The Softies have shifted some strategic resources into the effort – all the top people from their gaming side – and are working with the boys from Transmeta on architecture. GMSV says this is clearly a high priority project in the organization.

Now all they have to do is come up with something that kicks the PlayStation Portable. As the Sony tightens up its software to shut out hacks and tweaks that are the delight of so many key users, MS has an opening to exploit. Now the only questions are “when?” “what?” and “will the darn thing be any good on the first go around?”

All of this underscores our thinking on Origami – it is not a product, but a platform around which to create products that focus on niche markets. To see Origami – and ultraportables – as anything else will be to watch them all join the Newton, the Betamax, and other products at the bottom of The Chasm between early adopters and the mass maket.

Ads in Video Games – Making Pirates Pay

The Silicon Hutong Suite
Intercontinental Hotel
2325 Hours

Massive, an advertising company that focuses on ad and product placement in videogames, is now off the ground in New York with high hopes and some skepticism from the folks at Electronic Arts

If I were to really get into gamer mode on this, I would say “put advertising in my games? Give me games for free.”

But if I were to get into business mode, I would say that this might finally, somehow, hold the key to getting paid for all of those pirated copies out there.

If only they could figure out some way to do realtime measurement.

Video Game Wars: How Long Before the Chinese Catch Up

Silicon Hutong

So the United States Air Force wants to take a big step toward retiring the $2 million pilots flying $100 million jets, replacing them with smart kids sitting in air conditioned trailers outside of Las Vegas flying $4 million recon drones.

The pilot of the future is the video gamer of today. Technology changing air combat.

Now, how long before the PLA figures out they can stop buying Su-27s and Su-30s from the Russians at $34 million a pop, then deal with spares, then deal with the headaches they’re having integrating them into the force, and start buying projectable power on the cheap?

Nokia: Dis-N-Gage

In the Hutong after a Long Day

The capacity for institutional self-deception powered by hubris grows in direct proportion to your greatest accomplishments.

It is for that reason, perhaps, that just under a year and a half after the introduction of the Finnish Taco Game Phone, better known as the N-Gage, Nokia is still telling itself the thing can be saved. Despite lousy sales, a lack of titles, and just plain stupid features, NokNok still thinks its a good idea. The Espooians are about to spend a chunk of their shareholders’ money redesigning the ugly beast (2 years too late).

Which means they’ll probably get a whole bunch of guys who spend their lives commuting from one end of Espoo to another to sit inside a glass room and brainstorm what it should look like, what it should do, etc.

I hope Nokia has learned a few lessons. Lessons like, well, getting feedback from the rest of the world – end users, hardcore gamers, game designers, retailers, and a whole lot of people who would love to provide Nokia with feedback.

Finally, I hope Nokia has started to learn that it cannot possibly hope to do everything, from design, to components, to manufacturing, to marketing, to software, to services and hope to succeed. Not even Apple does all of that anymore.

But I have a funny feeling that as long as the company’s current leadership stays in place, Nokia will still try to do it all.

Games in for a Rough Ride in China

In The Hutong,

The Chinese government’s recently issued list of 50 banned video and computer games is going to grow, and I wouldn’t rule out the possibility of more aggressive moves against this genre of entertainment.

The problem with games goes beyond this current banning, which primarily content and anti-piracy focused. (I mean, come on – anybody who has played Command & Conquer: Generals can understand why the content nannies in the Beijing government might have a tiny problem with it.)

The real problem is that there is a growing sentiment in the market among parents, teachers, policymakers, and journalists that games are little more than an addictive, anti-social form of time wastage, like gambling without the cash, and that they have no redeeming social value. This sort of perception makes it difficult to build any kind of opposition to these sorts of administrative action, and they make the lives of game manufacturers uncomfortable.

The industry can either say “hey – parents, teachers, and policymakers: bite my game controller,” and deal with the results of that kind of approach, or they can take a more proactive approach to improve the image of gaming among those groups.

Guaranteed, if the industry DOESN’T do anything, these problems will grow. Soon.

You read it here first.

Sony’s Makeover

Sony’s Master of the Playstation is increasingly powerful at the House that Morita Built. He calls the company’s technology as its weakness. The streets of Beijing suggest that relevance will be Sony’s greatest challenge.

Today’s Wall Street Journal includes a great article about Sony’s attempt to save itself from the ignominy of commoditization . By appointing Ken Kutaragi of Playstation fame to head Sony Electronics, which makes up 70% of the Japanese giant’s business, the company’s leadership is making a move that will likely lead to the complete restructuring of the company.

Kutaragi correctly notes that at the core of the problem is the company’s need to regain its technology leadership.

But walking the streets here in Beijing and hearing the feedback from locals, there seems to be no question about Sony’s ownership of the technological high ground. But challengers are beginning to eat into that perception. PlayStations are under assault by Microsoft as the software giant invests more in marketing XBOX than Sony spends in all of its divisions in the PRC. Consumer electronics are being hammered by Samsung and LG who are focused far less on unique technology and far more on delighting customers with a vast variety of tightly targeted products. And in mobile phones, probably the single hottest part of the electronics market, more Sony-Ericsson phones are visible, but it is so far behind Motorola, Nokia, and Samsung that even local Chinese upstarts are beating Sony.

Really, for China the answer lies not in the technology, but in demonstrating that the products Sony brings to the market are far cooler, sexier, and more relevant than what rivals are delivering. Readers of this blog know I find “brand” an overused catchall excuse. Sony’s problem is not their brand – it’s the relevance of the company and its products to the Chinese.

Great technology and a powerful brand are terrific. But consumers can be wowed by both and still take a pass on your products. If Sony does not clearly demonstrate where their products fit in the Chinese home or business, they will find their vision of a digital future eclipsed by those being expounded by both foreign and local industry players.