The entertainment and media industries in China, including music, radio, film, television, games, newspapers, magazines, and book publishing, in all of their varied forms.

Getting Real about the News Corporation Scandal

Rupert Murdoch
Image via Wikipedia

Hutong West
Back in the saddle
2137 hrs

As the world is treated to daily revelations centered around the defunct British tabloid News of the World, I am slowly crawling out of blog hibernation here at Hutong West, so to get things going a few comments on the News of the World scandal are in order. While analyzing this unfolding train wreck would be premature, there are several points that need to be made right now.

Before I begin, however, for the sake of full disclosure I must say that I am not in the pay of any organization with ties to News Corporation, nor am I a fan of either News Corporation or any of the Murdoch family. My writings should give ample support to that contention. As such, what is written below is meant as neither defense nor condemnation of either the company or its controlling family.

To The Grave Dancers of Fleet Street

Yesterday, the editors of The Wall Street Journal, in a sanctimonious, blame-shifting editorial defense of News Corporation that ill-serves the paper and its outstanding journalists, manage to make one point that strikes home. The media establishment is doing neither itself nor the public a service when it allows schadenfreude to seep into coverage of News Corp’s troubles.

One need only read headlines to imagine the gleeful editors and publishers who composed them: “The Tables are turned on Murdoch” crows Joe Nocera at The New York Times; “Just deserts for Murdoch” shouts Richard Cohen from the pages of The Washington Post. The blog and online coverage is downhill from there. As for the Times, once the standard-bearer of American journalism, Nocera goes so far as to try to make a virtue of a vice, explaining:

Well, yes, the schadenfreude is pretty darn thick. Who would deny it? The whole thing reminds me a little of the ending of Ian McEwan’s wonderful novel “Solar,” in which the many awful things the central character has done in his long life suddenly come together to bury him in an avalanche of comeuppance. I’m O.K. with that.

Joe is okay with that. And that is a worrisome problem.

Rupert Murdoch has made his share of enemies in the process of building News Corporation, many of them in the media industry, and some of these among the ranks of those with the power of the printing press. There is no shortage of people who have waited for a very long time for Rupert and his empire to get their requital. Further, I’m all in favor of companies sowing truth-based fear, uncertainty and doubt about competitors.

These are, however, extraordinary circumstances. If this scandal is as serious as it appears, the media have an especial duty not only to get the story right, but to maintain both the reality and appearance of balance in its coverage given that the target is a successful rival. The appearance of balance is eroded when you are reporting the story on page 1 while sticking it to Ol’ Rupert on the opinion page. Once that happens, it starts to smell like someone is settling scores, and the credibility of an important media outlet is undermined. That’s not serving the public or the media.

There will be plenty of time for schadenfreude when this is all over, and once more when the better reporters on this story line up to collect their Pulitzers. For right now, stick to the facts, folks, and take a little less public joy in the trials of rival: you’re starting to look exactly like the thing you hate the most: a pack of bloggers.

Rupert Is Not Going Anywhere

While there have been early reports that News Corp is considering replacing Rupert Murdoch as CEO, I would not give them much credence. Corporate watchdog Nell Minnow doubts the ability of the News Corporation board to do anything without the express, prior approval of Mr. Murdoch, so there are probably only two ways that Rupert will surrender leadership of NewsCorp: either at his own choice, or if they carry him out feet first under a sheet.

In a fawning editorial that compares Mr. Murdoch to Alexander the Great, Forbes publisher Steve Forbes promises us that Murdoch will survive and fight another day. In a rather less complimentary column in The New York Times, David Carr concedes that the News Corp. CEO still has his teflon armor:

Even as the flames of the scandal begin to edge closer to Mr. Murdoch’s door, anybody betting against his business survival will most likely come away disappointed. He has been in deep trouble before and not only survived, but prospered. The News Corporation’s reputation may be under water, but the company itself is very liquid, with $11.8 billion in cash on hand and more than $2.5 billion of annual free cash flow.

For better or worse, K. Rupert Murdoch is News Corporation. As long as there is a company, he will be calling the shots.

Aid and Comfort

What is most disturbing about this scandal is the impression it leaves in the minds of the people and government of China. In the west, we are fond of portraying a free and independent media as watchdog against lawlessness, corruption, and the abuse of power. As a whole, the media serves that function brilliantly around the world.

But if the allegations about News of the World are proven true, and worse, if the illegal and anti-democratic behavior extended beyond that single paper to elsewhere in the News Corporation empire, then the people and leaders of China can make the point that an overly independent media can actually become a vector of lawlessness, corruption, and the abuse of power. Under such circumstances, could China’s leaders not make a rational case that rather than have a media industry so powerful that government is in its thrall that it would be better for government to control the media?

You can bet China’s leaders will make that point, if they have not already. That can only be counted as a blow against progress in the world’s largest nation, a blow that must count against whatever good News Corporation did for media in China.

Is Film Finance in China About to Change?

In the Hutong
Break time
1120 hrs.

Since China began the reforming and opening process in the late 1970s, a small number of industries have been held outside the reforms that most other sectors have enjoyed. One of those industries has been the national defense complex, and the other has been media.

The media and entertainment sector in the world’s largest and most entertainment-hungry market has been kept in the hands of government at the insistence of the Party. This has meant that the government has rebuffed not only attempts by foreign investors to buy into domestic traditional media properties, but similar attempts by powerful local companies as well.

The result has been the anemic development of the domestic media industry, forced as it is to rely on its revenues, the government, and ingenuity to support its efforts. This has been particularly challenging for the film and music businesses in China, making it difficult for those businesses not only to finance new projects, but to make long-term capital investments and to attract and retain talent.

Not so constrained have been new media companies, in particular the online video websites, the largest of which are taking foreign venture capital investments, conducting offshore IPOs, and starting to produce their own television/video programming. This contradiction is a latent problem in Chinese policy, one that is frustrating to the leaders of China’s state-owned traditional media, and it becomes more severe as the online video sites grow in revenue and production capacity.

The government will have to level he playing field at some point. They can do so either by forcing the online video sites to buy out their foreign investors (not so easy after an IPO,) or by allowing traditional media companies to seek outside investment. The latter would mark a radical shift for Chinese policy makers, and one fraught with risk. The implicit belief in Beijing is that once private interests control media, the Party loses control. In China’s system, this risk is nigh unacceptable.

But there are some signs that the party is willing to experiment with a degree of private ownership in traditional media. South Africa’s NASPERS has long held an interest in Beijing Media Corporation, a marketing and advertising vehicle for print media in Beijing, and a joint venture with Anhui Daily Newspaper Group. These deals took place with the implicit approval of the Party, and it appears they are being watched with great care.

That degree of experimentation appears to have now extended to film. Last week, Beijing Xiangqiao International Media, a film and animation production company and subsidiary of state-owned Hunan Broadcasting, went private in a management buy-out, and there are apparent plans for a domestic IPO at some point in the future.

This will be an important development to watch. If this is allowed to go forward, this marks a limited but key precedent for wider privatization – and private finance – in China’s growing film industry.

This could also be a watershed moment for online video providers like Youku (YOKU) and Ku6 (KUTV). If regulators are prepared to allow domestic production houses outside investment, it could mean that they are also prepared to allow Youku, Tudou, Ku6 and others to continue their evolution toward becoming integrated media companies.

The Best of the Peking Review, January 2011

From our free-book-fixated sister blog The Peking Review, here is a list from among the January reviews that Silicon Hutong readers might find interesting:

Affairs of State: The Interagency and National Security

Communist China’s Policy Toward Laos: A Case Study 1954-1967

Contemporary Chinese Views of Europe

Current Studies in Japanese Law

Film Piracy, Organized Crime, and Terrorism

India as a New Global Leader

Managing a Changing Relationship (China and Japan)

Pacific Currents

Whither Strategic Communications?

Why Russian Policy is Failing in Asia

Pulling the Wings off of News Corp

In the Hutong
Almost Sundown…I think
1638 hrs.

In early February New York magazine ran a superb bit about News Corporation’s aging Chairman Rupert Murdoch and the looming prospect of a succession at the media giant. As Gabriel Sherman notes:

King Lear in the Storm, oil on canvas, painted...
Image via Wikipedia

“Those of us who care for Rupert, and I do very much, hope we don’t get the fifth act of King Lear,” says David Yelland, former editor of Murdoch’s London tabloid the Sun, now a partner with the Brunswick Gro

up. “You won’t find anyone to say anything critical about James Murdoch on or off the record. But the moment Rupert goes, that changes. Once he does pass, it will be very difficult to keep the company together. I almost wonder if he senses that and, toward the end of his life, we’ll suddenly wake up one morning and we’ll see an announcement he’s taking it private, or merge it with Google, or Microsoft, or [Liberty Media’s chairman] John Malone.”

Yelland offers some interesting scenarios. The alternative is to dismember the group into its component parts, selling them off one-by-one. The only bits worth keeping are the subscriber-driven businesses. If I were Mr. Murdoch, I’d be getting out of the ad-supported business right quick.

But, of course, that business is what he know. So it is unlikely.

I hope, for the sake of all involved that Yelland is right. If Murdoch clutches the lot to his chest until he takes his last breath, Wall Street’s carrion birds will be circling News Corp, not even waiting for it to fall over before picking it apart.

China Tiptoes into Hollywood

Entrance to Grand Ocean Cinema at Harbour City
Image via Wikipedia

In the Hutong
Windows open
1454 hrs.

It was one of those temporal ironies that remind me that the Almighty (or Chance, for you secular humanists out there) has a sense of humor. Not long after I wrote a post warning Hollywood to use care in its dealings with China, Legendary Pictures announced that it had accepted a strategic investment for 3.3% of the company from a subsidiary of Orange Sky Golden Harvest Entertainment.

What makes the deal even more fun here in the Hutong is that my brother-in-law is on the executive team at Legendary. But let’s set that aside for a moment.

Nikki Finke over at Deadline.com does a writeup of the details, so I won’t dive too deeply into the nuts and bolts, nor will I wax poetic about Legendary’s successes. It is worth noting, however, that Legendary’s fare has a Chinese audience: their most recent hit, Inception, recently took in over RMB200 million at the Chinese box office.

Relationships aside, I expect the deal will avoid the tripwires I outlined, for several reasons.

  1. Legendary is a production company rather than one of the big studios. Washington is unlikely to raise an eyebrow.
  2. While the amounts involved were not disclosed, logic and experience suggest that we are not talking billions of dollars in paid-in capital. This is a “toe in the water” for all involved, an opportunity to get to know your partners while the stakes are low.
  3. The investment is for a very small stake – this is more about strategic opportunity than control over content.

In fact, I expect this deal to be widely imitated: production houses that are not already looking for Chinese partners will start hunting, and Chinese film entities will now follow their cultural instinct to Keep Up with the Zhous by looking for similar tie-ups.

Therein lies the caveat: it is in the predictable imitative that reason lies for concern. If further deals match the modesty of the Legendary OSGH tie-up, and the partners remain as overtly commercial as Golden Harvest, the China-Hollywood link will build without outside interference.

But if the pace of deals grows too quickly in frequency and/or size, it will elicit a response that will serve neither the industry nor the companies well. In any case, firms on both sides of any deal need to be transparent about the rights and powers granted to each partner in the tie-ups. More important than confidentiality in these cases is the comfort of the governments and movie-going publics in the U.S. and China with the closer relationship between the two industries.

Hollywood and China’s Three Goals for Film

Cathay Cinema for the Shanghai International F...
Image by Toby Simkin via Flickr

Michael’s Ristorante, Shunyi
Bruschetta and Iced Lemon Tea
1245 hrs.

Jonathan Watts in The Guardian offers an intriguing contrast to The Washington Post article about China investing in Hollywood when he posits that the PRC is much more interested in defeating it on the global stage. He quotes Xiang Yong of the Institute for Cultural Industries at Peking University:

“There’s a saying that Hollywood is the real foreign ministry of the US, which shows the importance of the movie industry.

From a cultural perspective, the promotion of the movie industry is an important way to strengthen the soft power of our country.”

We have made this point before, but it bears repeating. The Party and the government have three identical goals for each of the media and cultural sectors. In the case of film, they are:

  1. To construct a commercial cinema industry that dominates the domestic market for filmed entertainment, regardless of means of distribution.
  2. To then build China’s local film industry into a major generator of export dollars by creating motion pictures with international appeal and wide distribution.
  3. To generate soft power by using motion pictures to convey positive and appealing messages, images, and impressions about China, the Chinese people, and Chinese culture to international audiences.

Against this, the seemingly contradictory articles in the WaPo and the Guardian both make sense. Chinese filmmakers seek to build ties with Hollywood that can help make use of major U.S. motion pictures to convey positive images and impressions about China, to better learn the “mojo” that makes Hollywood America’s shadow foreign ministry, and then (hopefully) to duplicate that success as a global competitor to Hollywood.

Hollywood – and in this I mean the major studios – walks a fine line in dealing with China, not only in that it is potentially forging a competitor in Hollywood’s increasingly critical international markets, but also in that such chumminess could undermine the industry’s “American-ness” in the eyes of legislators in Washington and audiences across mainstream America.

If the hysteria after 9/11 demonstrated anything, it is that the spirit that birthed McCarthyism lies dormant in the American polity, awaiting only a crisis or catastrophe to wake it again. In an era of Tea Parties, Hollywood needs to move with care and caution as it engages filmmakers who operate at the whim of Zhongnanhai.

And if the past three decades in China have demonstrated anything, it is that western companies who have invested in China have been most successful at manufacturing their own competition. The Chinese government and its interlocutors like Xiang Yong have put Hollywood on notice that they are next.

Now, is anyone between Santa Monica and Burbank listening?

Rebuilding Hollywood with BRICs

Hollywood is a well-known area of Los Angeles ...
Image via Wikipedia

In the Hutong
Running a sand-table exercise
1930 hrs.

Keith Richburg and Zhang Jie wrote an enjoyable piece in The Washington Post about the different ways in which the U.S. film industry is seeking to tap China. The article is encouraging in that it suggests that Hollywood is getting over its blinkered view of China as a really big version of France (big market, different language, resists our product, resistance is futile, will eventually be assimilated.)

The article notes that product placement, scripts (read “story ideas”) and locales have made China more interesting to Hollywood. There is even a bit about the importance of “co-productions.”

It’s Spelled O-P-M

The biggest attraction, however, is cash.

For Hollywood, the reason for the sudden interest in China might be described as more mercenary. Hollywood traditionally runs on other people’s money – and China has a lot of cash to spread around these days.

Our favorite films notwithstanding, Tinseltown’s most remarkable achievement is its consistent ability to get outsiders to fund a business that is as unapologetically opaque as it is inherently risky.

In succession, Hollywood has tapped (and tapped out) Main Street USA (Gulf & Western, Kinney, Coca-Cola, General Electric), Main Street Japan (Matsushita, Sony) Main Street Europe (Vivendi), and Wall Street (take your pick of hedge fund and private equity-funded film partnerships and virtual studios). In the wake of the financial crisis and the drying of the Wall Street wells, the emerging markets were a logical next target.

It took someone with the foresight (or desperation) of Stephen Spielberg to lead the way. Spielberg, a producer/director not normally associated with low-budget, high-return films, began the trend when he longtime collaborator Stacey Snider closed a $1.2 billion deal with India’s Reliance ADA Group to produce six films a year.

Barring an abrupt change in the mood on Wall Street, China looks to be next to fall into the celluloid web.

Or is it?

I’m Ready for my Closeup Now, Mr. Lou

Hollywood’s major studios and their affiliated production companies need literally billions of dollars a year to finance slates of films costing upwards of $100 million each to produce and market. There are a very limited number of entities in China capable of investing at that scale: the major state-owned banks, China Investment Corporation, and a handful of large state-owned industrial companies.

And while the leaders of those firms might well be attracted to Hollywood’s glamour, the Industry’s need comes at an inopportune time. CIC’s large paper losses in Blackstone Group caused an uproar, and the financial crisis has placed the stewards of the people’s funds under uncomfortable scrutiny at home. Senior cadres can well imagine the popular backlash that would occur if it were to become known that national wealth was lost investing in Hollywood flicks, and would be anxious to avoid such a scenario.

It is also instructive to remember the popular consternation whipped up in the US when Japanese keiretsu began to invest heavily in Hollywood. That storm would be a squall compared to the typhoon of opposition and angst blowing out of all corners of the US if a Chinese government-owned entity attempted to buy into Hollywood. Hollywood’s leaders need to think carefully about whether they want to fritter their political capital in Washington on such a quest.

None of which is to suggest that China will stay out of Hollywood: the kind of picture-by-picture deals that the WaPo article alludes to will continue and grow, and I think we can expect slow but growing connections between the US and Chinese film industries.

But we would be wrong to forget that the dynamics driving The Biz in the two countries are vastly different, as are the cultures they are spawning, and that it is a sizeable leap from an increase in co-productions to China replacing Wall Street as Hollywood’s Sugar Daddy.

The Case for Splitting Hollywood

paramount 117
Image by photoNiki via Flickr

In the Hutong
Focus…Focus…
1558 hrs.

While I was absorbing caffeine and beta carotene at a sunny Beverly Hills espresso spigot earlier this month, I came across a superb article in the Wall Street Journal explaining how the U.S. motion picture business is starting to make films that are aimed at an international market. The phenomenon has reached such a stage, in fact, that movies ONLY likely to appeal to a domestic U.S. audience are not getting the green light, and those films deemed promising but too US centric are being given script and casting makeovers to make themselves more appealing to international audience.

Darn those Foreigners Paying to See Our Movies!

About time Hollywood woke up to the rest of the planet, I say, but writing in The City Journal, New York’s local Neoconservative periodical, author Andrew Klavan apparently thinks otherwise. He suggests that the reason there is such poor fare in the theaters this summer is because Hollywood is spending too much time making movies for the rest of the world, and not spending enough time making American Movies.

“…perhaps the economic necessity of appealing to countries other than America has sapped American movies of their quality. For surely, the thing that once made American movies so great was the greatness of unique American values: individualism, self-reliance, a healthy disrespect for the powerful, and the romance of infinite territory.”

And it gets better (or worse:)

“American movies will not be great again until they’re made by artists who comprehend America’s unique greatness. Let the rest of the world make its own movies.”

Klavan’s xenophobia-suffused, evidence-free rant is unbecoming of a journal that one would think advocates the competitiveness of American enterprise abroad, in particular an industry as important to U.S. export numbers as film and entertainment. Let us take a look at why.

This Year’s Movies Are The Worst…Again

First, the summer is not without some fine examples of filmmaking. I saw four films while I was in the US, all dictated by the tastes and sensitivities of my eight-year old: “Toy Story 3,” “The Last Airbender,” “Despicable Me,” and “Cats & Dogs 2: The Revenge of Kitty Galore.” The first was superb, the second tolerable, the third excellent, and the fourth…well, let’s just say the kid really enjoyed it. It is a limited sample, I will grant, but it does not seem to imply that the US industry is incapable of making great films.

And the stream of complaints about the “garbage” coming out of Hollywood predates the establishment of the Motion Picture Production code of 1930. Hollywood turns out its share of dreck (as does Mr. Klavan’s own industry, publishing), but suggesting that somehow that Hollywood’s Crap Coefficient has increased of late without providing anything more than a single anecdote is a failure of logic. To go even further and offer a reason for such an unproven phenomenon is plain nonsense.

I think Hollywood actually goes through cycles, and is not on one-way elevator to Hell. Just as soon as people lose their tolerance for big-screen sludge, corrective action will be taken. It is worth noting, however, that usually the people decrying most loudly the poverty of what gets produced in Hollywood are those who either see themselves as artists rather than makers of commercial films, and those whose pictures get overlooked by The Dream Factories. It is hard, therefore, not to sniff the vintage of sour grapes in Mr. Klavan’s dismissal of recently released motion pictures.

America Alone Makes No Blockbusters, And That’s Good for America

Second, the lurch overseas is a good thing, both for Hollywood and America. As Mr. Klavan implied, the reason Hollywood makes the movies that it does (and by this I mean Big Hollywood: Columbia, Disney, Fox, Paramount, Warner Brothers, and Universal) is because the town has become addicted making their major bets on “tentpole” films. These large- and super-sized-budget films are believed to be necessary in order to get American viewers out from behind their small screens and over to a multiplex. That, in turn, has led to budgets so large that even a decent US showing with tickets selling for upwards of $10 a pop is no longer enough to deliver profits to the studios. With DVD sales flat or shrinking, there is only one place for a healthy American industry to go: overseas. Mr. Klavan and I both understand this “economic necessity.”

But here is where Mr. Klavan and I part ways: this trend is unlikely to cease, and I don’t think it should. From a purely American/Hollywood point of view, is it in fact better to let the world make their own movies? National motion picture industries around the world have followed similar patterns, but the result for most has been to surrender a lucrative chunk of their markets to American filmmakers. Those that have succeeded in making movies for themselves – like China and India – seek now to create global audiences for their own fare, reaching into Hollywood’s own back yard, much in the way that Britain’s better filmmakers have done.

General Motors, Ford, and Chrysler for many years focused their efforts on building American cars for American drivers, cars that expressed values believed to be uniquely American. The result not only clear on the roads of the world, but on America’s roads. Does Mr. Klavan wish the same outcome upon Hollywood as upon Detroit?

Time to Really Split Hollywood

As with the writings of Karl Marx, I don’t disagree quite as much with the writer’s observations as I do with his diagnosis and perscription. The real solution to Mr. Klavan’s conundrum is to recognize that there should really be two Hollywoods: one that makes movies for the world (including Americans), and one that makes movies for Americans.

The former would continue in the industry’s proven ways, spending heavily on films aimed at a worldwide audience, including (one presumes) the United States. This is where I suspect the Big Six studios, the membership of the Motion Picture Association of America (MPAA) to focus most of their efforts, endowed as they are not only with the financing and production resources, but also highly developed global marketing and distribution networks.

The other Hollywood would make movies for Americans, but because it was addressing the specialized needs of the U.S. market (and the remainder of the moviegoing dollar after Americans had enjoyed the global flicks). The budgets would be much more modest, the marketing more guerrilla and less major media. The MPAA members might make some of these films, but most of them would come from independent filmmakers.

One could argue that Hollywood is actually already moving in this direction now. What it is going to take to complete that migration into two parallel industries is much more vocal support for independent filmmaking from influential voices in the industry and from the movie-going public. With more public support for independent film, financing and distribution could give what Mr. Klavan would call The American Film a fighting chance in an increasingly global industry.

However the present trend shakes out, one brutal fact must be acknowledged: the films of the sort that Mr. Klavan once made cannot be delivered with eight-figure budgets. If the heyday of The American Film is to return, then the makers of those films must rediscover a treasured but nearly lost American virtue: thrift. As a fellow conservative, I find it disturbing that Mr. Klavan is silent on Hollywood’s budgetary profligacy even as he skewers the Administration for the same failing. I would argue that the sheer cost of making a movie has already done more lasting damage to the industry than catering to global audiences ever could.

Perspective, Please, on China

In the Hutong
Fixing my Social Network
1125 hrs

A common complaint about reportage on China in the mainstream media is that despite having reporters who are immersed in China and its culture, some of the most prestigious media outlets continue to get the story wrong. Now, it seems, that the guardians of the journalistic craft, the Columbia University Graduate School of Journalism and its prestigious professional periodical, the Columbia Journalism Review, have discovered the problem, and Peterson Fellow Holly Yeager dives into why.

“We’d just note that once a meta-press-narrative gets rolling, it tends to take on a life of its own, for a lot of reasons. Intra-newsroom dynamics play a role. It’s just easier to get a story in the paper that fits the meta-narrative than one that pushes against it. The former are the kinds of stories that, once pitched, make an editor’s head nod up and down like a bobble-head doll.”

Those of us living and working in China have suspected a problem with mainstream coverage of China for years, but have always found it difficult to put our finger on exactly what that was the case. We know the people writing the stories, most of them are as savvy as we are (or more so), and yet still the issue.

Yeager’s post is an excellent start, but I think it needs to go one step further.

Editors are not the final arbiters of an editorial approach to any given story. The vortex is complex, involves the publisher, the advertisers (there really is no perfect “Chinese Wall” in for-profit news organizations – not anymore, anyway), and the perceived attitudes of the readership.

Let’s face it: most of us, most of the time, do not like reading or viewing media that challenges our personal assumptions on any topic. If the case were any different, Al-Jazeera would be America’s leading news source, not CNN or FOX. That does not make us bad, it makes us human. Being uncomfortable, whether physically, mentally, emotionally, or spiritually, is not fun, and most of us prefer comfort.

News media recognize this, and respond accordingly. This does not mean that journalists and editors are required to pander to readers, but it does mean that they can only go so far in challenging our core assumptions before the channel is changed, the paper is tossed, the advertisers lose their target market, and journalists lose their audience.

We should not expect journalists to challenge the preconceived notions of their readership. What those of us with our own “power of the press” need to do is to find another way to begin changing attitudes. Those of us with only our peers and our readers to answer to are actually in a better position to do so. And in the meantime, let’s give our journalist friends a little break.

The Atlantic: Management Secrets of the Grateful Dead

Very interesting treatment of the plans to put the papers of the Grateful Dead at the library of the University of California, Santa Cruz.

I want to believe that the model that the Dead used can form the underpinnings of a new entertainment and media industry, especially here in China. But to me it still sounds like so much snake oil sold by utopian info-libertarians.

I want very badly to be wrong. How cool would it be, after all, if we could discover the future of the media business by plumbing the papers of a legendary rock band

Is the Future of Film About Relativity

The Silicon Hutong Suite
Overlooking Orchard Towers, Singapore
1409 hrs.

As China’s film industry struggles to turn itself into a real industry (rather than a government-sponsored propaganda tool-cum-art form,) producers and filmmakers are searching for near- and long-term sources of finance and distribution. Seeking new models with which to finance China’s growing film biz, the gaze of mainland producers naturally turns to markets outside the mainland.

A Bunch of Cash Holes

What they find is that the entire global industry is engaged in the quest for new sources of cash. Even people like Steven Spielberg and Ron Howard, bankable filmmakers both, are finding that it is harder than ever to get the money they need to make their films. Spielberg has not only had to cut a long-term distribution deal with Steve Jobs’ crew over at Disney, he has had to go to India’s Reliance BIG Entertainment for cash as well.

Spielberg’s hunt for production money is a symptom of a wider contagion that has affected the film business. Production costs continue to rise, digital revenue is not ramping up as quickly as is we had all hoped, and younger audiences are spending more time online or playing games. More immediately, the financial crisis has meant that the usual sources of cash have either slowed or evaporated.

All is not gloom, though. For several years now, a new crop of film finance companies pairing hedge funds and private equity directly with producers has not only given Hollywood a much-needed new conduit of cash, it has in some cases brought a more bottom-line approach to production. (Full disclosure: my brother-in-law is an executive at one of these companies.)

A New Kind of Mogul…

At first glance, one of the most intriguing examples of the type is Relativity Media, profiled in this month’s Esquire magazine. The article sounds a hopeful note, positioning Relativity and its 34 year-old leader, ex-venture capitalist Ryan Kavanaugh, as honest water merchants in an increasingly dry land.

Relativity appears to do some smart things. They focus on getting movies made, not optioning a hundred properties and turning one into a film. They ensure costs remain in line with good business sense. They try to earn profit by being sensible about costs and distribution, not trying to make blockbusters.

…Or Just Another Old Quant?

I was really prepared to put Kavanaugh into my pantheon of people who are building the future of Hollywood. But when I got down about two-thirds of the way through the article, things started to go a bit awry. I think this was the paragraph that set off the alarm bells:

“Before Relativity commits to financing a particular movie — either through its slate deals with Sony and Universal or on its own — it’s fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments based on the past performance of similar products.”

Now, I am nobody’s idea of a “quant,” but neither am I the anti-quant. I like playing with spreadsheets and plugging in assumptions and variables a lot more than I like to admit in polite company. I also think there is a dearth of analytical, quantitative thinking in creativity-driven businesses.

So I like the fact that Kavanaugh and Relativity are trying to bring the sensibilities of management accounting to Hollywood. The future of film is not the subordination of art to business, but the quest for an equitable balance. Kavanaugh’s bottom-line focus while rising above gratuitous bean-counting is a step forward in this regard.

Yet while Relativity would protest that only a part of their decision-making is driven by their computer models, I see cause for concern. Basing investment decisions using computer modeling based on past performance or market behavior is a riskier proposition than the quants might have you believe. Long-Term Capital Management leaps to mind, as do a half-dozen major financial organizations that have similarly vanished into clouds of hubris in the past year.

The Black Swan Cometh

In the entertainment industry, where tastes and media consumption are in the throes of massive change, common sense demands we be especially selective about using the past as a guide. What is the half-life of a set of audience assumptions in a single market like the US, then multiply that across the worlds markets, from whence comes 2/3 of the average film’s revenue.

If, on the other hand, the company’s investment decisions are driven by the knowledge and instincts of its executives, it is likely making decisions on a basis little better than anyone else in Burbank, Santa Monica, or points between.

Relativity may have convinced themselves that the modest goals of their approach  (“don’t lose your shirt”) are enough to stave off an unforeseeable catastrophe – a major box-office flop, or even several in a row. If so, I think they are kidding themselves. The recent history of the finance industry has proven that betting your money on the mathematical rationalization of the irrational behavior of millions of decision makers is pure folly.

All of which is why I hope that, despite Relativity’s apparent success to date, we in China decide to eschew such an approach to film finance, at least for the time being. There are far too many more fundamental steps that the industry here could be taking to improve its bottom line and its box office performance.

CORRECTION

Seeking Alpha reader and film executive Andy Almay noted that I my characterization of Spielberg going to Relativity was in error:

“Spielberg didn’t go to Reliance.  It was the other way around. Reliance wanted to buy into Hollywood.  They also made deals with a number of name performers and down the line they may rue the day.  Performers have been notoriously bad at picking successful projects.”

The point, though, remains. When the man who is arguably Hollywood’s most successful and esteemed producer needs to turn some of his creativity to fundraising, all producers will need to do more of the same.

Seeking Truths in Marketing

Silicon Hutong Table, Peters Tex-Mex Grill

Experiencing Tryptophan Withdrawal

12:22 hrs.

Despite valiant efforts to convince ourselves otherwise, it is a truism that the marketing and communications crafts have lost their way after a decade-long deluge of online media. We put on a brave face in public, but in truth we have been attempting to deal with an entirely new phenomenon with old tools.

I am on the verge of taking a six-month semi-sabbatical in 2010 to read, write, and blog about this issue and what it means in the context of the rise of Asia generally and China specifically. Frustrated by the often soporific, wishful, It’s Going to Be Okay As Long As We Buy 20% More Display Ads This Year thinking that passes for futurism in our business, I have started to prepare by going back to the seminal thinking that laid the groundwork for modern marketing and communications. I figure this is a safe bet, based in part on my status as an amateur historian, and in part on my wife’s success as an Neo-Grahamian value investor.

My first three stops in the process are David Ogilvy’s Ogilvy on Advertising, Claude Hawkins’ Scientific Advertising, (Ogilvy based a lot of his approach on Hawkins’ work), and, somewhat closer to home for a corporate communicator, Edward Bernays’ superior Propaganda.

Full disclosure: I am an advertising skeptic (too much push in the way it is practiced today), and a public relations skeptic (too much spin, not enough conversation), but I think the issue is more in how these tools are practiced and the belief systems that have built up around them than in the crafts themselves. In Tim Burton’s Batman, the Joker famously proclaims of Gotham “this town needs an enema.” He could just as well been strolling up Madison Avenue.

So I hunt for the grains of truth supporting the ziggurats of a decaying industry.

I’ve just finished Bernays for the second time (a simple feat – Bernays was so pithy that his work disappears on my bookshelf twixt weighter tomes), and I explained what I thought was one of his enduring truths in an OpEd in Media Asia: The public relations industry has become the captive of its tactics, bastions of execution that have either forgotten how to be counselors on business conduct or who have blown whatever credibility they may have once had in that role.

And China, where the industry has an opportunity to start with something of a blank slate, we are off to a tough start. Execution is wonderful, but we are all too often either swimming in a sea of spin or we are reduced to wrangling reporters.

The other two works are somewhat harder going, for me, anyway. David Ogilvy was the quintessential (M)Ad Man, and his prose carries the assurance of a man offering a service for which the need is a given. Hawkins is somewhat better, but the matter of advertising is a matter of “how” rather than “if.”

Yet good things surface. Ogilvy assumed pandemic attention-deficit disorder in his audiences, and he built his craft firm in the conviction that people had to be convinced to care. This seems self-evident, but it is too often forgotten in China. How, after all, are we to convince anyone of anything with a commercial that lasts less time than it takes us to read a headline?

To me, banner ads, search ads, and meat-grinder public relations that counts clippings from China’s content-xerox websites too often assume the audience cares.

Something is wrong, and so many of us know it. If we are ever going to have the cojones to do something about it, we need to begin by calling bulls**t on ourselves.

The Financial News Sidestep

In the Hutong

Timing intervals twixt interruptions

1211 hrs.


Last year, the Chinese government, in an effort to further formalize the status of foreign financial information providers (i.e., Bloomberg, Dow Jones, Thompson/Reuters, etc) operating in the PRC, assigned the group a regulator: Xinhua, The New China News Agency.

The SCIO Bomb

The foreign financial information providers (FFIPs, or “fips”), understandably upset that an ambitious local competitor was going to serve as their regulator, cried foul, and the United States, the European Union, and Canada all protested to the WTO. Thus forced to concede that having the local champion serve as regulator carried the faint smell of protectionism, China agreed in a settlement to have the State Council Information Office (SCIO) serve as regulator.

Interestingly, the settlement also accepted a fairly broad definition of financial information, going beyond just prices and data and including news and other information. But more on that in a minute.

Congratulating themselves on a fairly satisfying and sagely compromise, the FFIPs returned to business.

Until yesterday.

Before heading off for the three-day May Day weekend, the SCIO published the regulation that formalized the agreement. Then, it noted that the FFIPs, while allowed to sell their business and corporate information services in China, would not be permitted to conduct news gathering activities.

And You Thought the WTO Was the Last Word

Speculation reported in the Financial Times suggested that the restriction on news gathering might have been inserted as a fillip to Xinhua. That may be the case, but I think there is a larger issue at stake for the Chinese government.

PRC law and long-standing policy prohibits foreign ownership of domestic news outlets. Nothing in the terms and conditions surrounding China’s accession to the WTO is going to compel the government to change this. And the FFIPs know this.

And getting all of the countries involved in last year’s WTO settlement to agree that “financial information,” broadly defined, included news probably sounded to the FFIPs that they had made a huge step forward. As it turns out, that may have opened a door allowing the government to ignore the distinction between an financial information provider and a news organization and roup the FFIPs in with the news business.

“Hey, What’s That Camel’s Nose Doing in Here?”

Because what I believe has happened in this case is that someone suggested to the SCIO that any organization capable of both gathering news inside China and of distributing news inside China is, effectively, a domestic news outlet. As financial information now includes news under the terms of an international agreement, that meant that Xinhua and its allies in government and the Party could make a good case that now Thompson/Reuters, Dow Jones, and Bloomberg were operating as de-facto domestic news outlets.

Confronted with that rationale, the Chinese government only has two choices: a) ban the FFIPs from distributing in China, which wouldn’t work because the WTO case would reopen and Chinese financial institutions would suffer for the lack of critical timely information; or b), prohibit FFIPs from engaging in news gathering, a restriction that is much more difficult for international organizations to challenge and ensures international financial information flows to domestic institutions.

So SCIO chose the latter. And now the ball is back in the court of the FFIPs in terms of how they want to play this.

Get Me Rewrite!

There has already been some outrage online and in the news, but if I may make a suggestion to my friends in the Fourth Estate, this would be a very good time to keep cool heads about this.

First, as with any regulation in China, the time delay between promulgation and enforcement is often long enough to allow for some discussion. Rather than make a formal case and get governments publicly involved, it is time to start tapping your sources of information, having quiet, off-the-record discussions with the people you know in government – as many as possible – and learning why this happened.

Second, we need to recognize that this could get a lot worse. Given that the wall between what is “news” and what is “financial information” has been destroyed by international legal agreement, Xinhua’s next move could be to declare that any financial information developed in China is the same as news, thus prohibiting the FFIPs from distributing so much as quotes from the Shanghai Stock Exchange within China. We don’t want to go there, now, do we? And Xinhua would love to have a captive market in the PRC for its real-time financial information service.

Third, remember that the FFIPs have natural allies in China that have helped them before. It is time to call upon those allies again. But that is not enough – you have gone back to that well too often – it is time to get more allies, and that means going public. Stop positioning yourselves as news companies (at least in China) and start making a public effort to demonstrate that you offer a service that is essential to the future of the Chinese nation and to its role as an emerging financial power.

What the CCTV Building Really Means

In the Hutong

And back in the proverbial saddle

1136 hrs.

Beyond its visually stunning architecture, Rem Koolhaasnew headquarters for China Central Television (CCTV) is provoking commentary for a range of reasons, not least being the curiosity of an old-media giant spending so much money on an iconic building.

As tempting as it might be to suggest that hubris combined with a sense of monumentalism compelled CCTV to burst into Beijing’s central business district in such a spectacular way, but I think there is actually more to it.

I think we’re seeing the beginnings of a new attitude over at CCTV, one that recognizes the massive challenges the state broadcaster faces as it struggles to sustain growth, and I think the new building is neatly symbolic of that. Check out “The Bowing Tower” at Media’s website and let me know what you think.

Another Reason the Long Tail Doesn’t Exist in Chinese Music

Beneath Kerry Center Beijing

I love the smell of fresh paint in the evening

1625 hrs.


Beijing music promoter Ed Peto posted a superb article on OUTdustry a few days ago that dissected the way the Chinese music business develops hot new artists.

They don’t.

A&R, Chinese Style

They use homemade monitoring systems to identify the songs that are getting the most play and illegal downloads on the Internet. When they see that they already have a hit on their hands, they swoop in, sign the artist, and promote the hell out of the ringtones.

Ed believes, with some justification, that this has led to the homogenization of music in China. We don’t have a host of genres, sub-genres, and the like. What we have is millions of people all listening to the same straight-up-the-middle stuff. Ed sees a bad moon rising:

“What has resulted is a kind of echo-chamber effect, in which only the low common denominator, crowd-approved pop music is fed back into the network through these curated bottlenecks. The priority of the Chinese labels is to please the network and make it into these bottlenecks, not push musical boundaries forward, as failure to make it into these top strata of recognition brings with it a hefty price. As one of the only other major sources of industry income, brands focus the bulk of their sponsorship monies on the highly viable hit artists, compounding the relatively anonymous non-chartees to further suffering.”

Ed makes a convincing case, and no doubt this “echo-chamber” has a lot to do with the vast differences between the Chinese and foreign music industries. And the part of me that believes that a healthy diversity of acts and a great talent scout (known in the biz as an artists and repertoire, or A&R guy) is the key to success in the music business wants to believe he is right.

I’m not gonna try it…

But the not-so-hidden hand of opportunistic moguls is not the only factor at work in China. First, it is essential to step back and understand the consumer behavior on a wider stage. China is an insanely referential culture, which means that people – especially young people – make consumer choices of all types in large part because of the social implications of those choices. You pick your music, your phones, your clothes, your shoes, your hairstyle, and make dozens of other choices in an effort to be a part of a group.

Making choices outside of the set “norm” in your peer group is risky behavior. At best, you will be the recipient of some serious ribbing, and at worst you will be shunned for making an errant choice.

Not too long ago, I asked my nephew why he used a certain brand of mobile phone. He told me “sure, I hate the way it looks. The quality sucks. But everyone else in my dorm owns the same phone, and if I go and buy another brand, people will give me a hard time. Worse, if it doesn’t work, I look like an idiot in front of everyone.”

Thus it is with music. Young people – insecure beasts in any culture – are in China constrained more by fear of being wrong than by discomfort with conformity.

Too young to know

Second, some historical perspective is in order. If you have seen the movie School of Rock with Jack Black, you might remember a blackboard diagram his character drew laying out the evolution of rock music. If you don’t remember, click this for a fast look.

Done? Good. I’ll continue.

What you will notice is that the diverse, multi-genred and sub-genred American music scene was by no means always thus. In fact, if you go back as recently as the 1940s, popular American music was a pretty monotone place. Classical, jazz, ragtime, big band (swing), and country was about as diverse as it got. Any given city had maybe half a dozen radio stations, and there was a lot of sameness in the programming.

Sounds like China today, huh?

Back to the U.S. in mid-century. Pop music grew up in the 1950s, folk came to the fore, country began to diversify, and rock-and-roll hip-thrusted onto the scene. Sometime between 1955 and 1963, an explosion in diversity and variety took place, both feeding and being fed by a generational shift and political and social change. Nearly a half century later, we have as many types of music as there were popular acts when my parents were kids.

A little perspective is in order. China’s music business is young, China’s youth culture is just beginning to evolve into the socially sanctioned “rebellious period” we know of in the west.

And remember – China is but three decades removed from the largest spasm of enforced social conformity in the history of the human race, the Great Proletarian Cultural Revolution. For centuries, if not millennia, you excelled in Chinese society by being redder than red or more Confucian than Confucius. The rebellion, the urge to non-conformity, thinking in a way that deviates from the norm has not been beaten or bred out of the Chinese, but it is going to be a while before young people allow those urges to bloom enough that being different will be cool. And it is the coolness of difference that nurtures diversity of tastes and behavior.

It is against such a background that true musical diversity will bloom. And when that happens – just as it happened in the west – the suits in the music business will have no choice but to follow.

The Dragon’s Longer Tail

The change could start literally at any time. The early signs of it are there – not least of which was 25,000 young Chinese singing along with Linkin Park at the top of their lungs in Shanghai last year, plus a growing club scene, and the falling cost of composing, producing, and uploading your own music.

What China needs more of is Ed Peto. I’m not calling on the nation to clone one passionate Englishman. Rather, I think the time is quite near when a small but passionate group of young Chinese and foreigners are going to kick the Chinese music scene into serious overdrive.

China’s rich music heritage meets the world’s music meets a quarter of a billion kids who just wanna have fun.

The mind reels.