AOL Time Warner Blames Piracy for China Losses
On a visit to Hong Kong, AOL Time Warner CEO Richard
Parsons blamed piracy for the losses it continues to make
in the China market. Parsons claimed that more than 90
percent of movies, music and software are illegal copies
in China, and said that AOL Time Warner would work to
stop piracy at the wholesale level.
In China, DVD copies of the latest US films are widely
available on the street for less than US$1 per copy.
In 2000, AOL Time Warner signed a deal with Legend Computers,
China's largest computer maker, to work together to create
content specifically tailored for the China online market.
At the time, AOL Time Warner said that it would move slowly
in the content area because of Chinese government restrictions.
Since then, not much has happened, and Legend has invested
in its own content team to develop web content and SMS
services. SMS (short message services) for mobile phones
in China have become a runaway hit in China. Along with
online PC gaming, SMS have been the two main revenue generators
in China for the three main China portals (Sina, Sohu,
Netease). All three companies, which are listed on NASDAQ,
have seen their share prices rise from a low of less than
US$1 in Sept. 2002 to more than US$30 today.
AOL Time Warner has completely missed out on these two
opportunities in the China market; it was too wrapped
up in the internal struggle between its online arm (America
Online) and media assets (Time Warner) in the US to take
advantage of any opportunities when they came up in China.
Now, the window of opportunity in China has largely closed,
as the significant China partners can see that an AOL
Time Warner partnership adds little value in the online
space. Even the name has lost a significant amount of
its glitter because of its record losses.
The company also lost significant momentum by failing
to hire and use senior level personnel who spoke Chinese
and had worked in the China market. As Microsoft
China's recent setbacks show, using Chinese senior
management is no guarantee of success and smooth sailing,
but it does remove a barrier to exploiting opportunities
in a highly dynamic and rapidly developing market.
Looking at Parson's Hong Kong statements, it appears
that AOL Time Warner has given up any plans of playing
any role in the development of China's online market.
Instead, it has decided to leverage its media assets,
and move
into film distribution in China. Although this has
a future, it is a much slower growth path, since it is
competing with home viewing of DVDs, which are much cheaper
than going to see a movie in a theater. In order to make
Chinese pay the premium of going to a theater, AOL Time
Warner will have to make sizeable development costs and
investment in theater management personnel, to turn theater
going into an "experience".
It appears that AOL Time Warner' s future China strategy
continues to be dictated by what has worked for it in
the US market, not by what the China market needs.
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