MediaFile

The end of the story…

……is the cash cow for Chinese company Shanda Literature Ltd, a
subsidiary of Shanda Interactive Entertainment.

The company’s business model is simple: read the first half
of a book online for free, and if you want to know the rest
(which usually is the case if you have read that far) you need
to pay for it. Revenues are split with the stories’ authors.

In China, this proves to be successful. According to Shanda
Literature CEO Hou Xiaoqing, the company now has cash reserves
of $1.8 billion, with 800,000 authors creating up to 80,000 new
pages of content per day, he said at the Frankfurt Book Fair.

On web portals such as www.qidian.com and www.hongxiu.com,
customers can chose from a huge variety of stories, and the best
even make it into print.

Xiaoqing said the company has also teamed up with China
Mobile
to distribute literature via mobile phones, a
business model that he said was “very promising”.

Gamescom lands on gamers’ map

Two days ago, Sony finally announced it would cut the price for its flagship
PlayStation 3, reacting to slumping sales which have lagged
behind those of Nintendo’s Wii and Microsoft’s Xbox 360.

But industry experts, who had long expected such a move,
were more surprised about the location Sony chose for its
announcement than about the decision itself.

“The fact that Sony decided to announce the PS3 price cut at
Gamescom shows the importance they attach to it. This has been
one of the most important decisions they’ve made in the
segment,” said Ed Barton, analyst at London-based media research
company Screen Digest.

Wednesday media highlights

News about the media industry:

Netflix looks to future but still going strong with DVD rentals (USA Today)
“Netflix CEO and co-founder Reed Hastings doesn’t think his 58 distribution centers are in immediate danger of becoming obsolete, but he knows that day will come. He believes DVD rentals have four to nine years to keep growing, despite inroads in Internet delivery of movies to set-top TV boxes and other video-on-demand options,” writes Jefferson Graham.

Is the bell tolling for Clear Channel? (San Antonio Express-News)
David Hendricks writes: “Analysts believe Clear Channel, now with about $22 billion in total debts, will have trouble making scheduled payments later this year. The company, already down to about 800 stations from its peak of about 1,200 stations, either will have to start selling stations itself or go into bankruptcy, where lenders will put stations up for sale.”

Foes No More, Ad Agencies Unite With Internet Firms (NYT)
Eric Pfanner writes: “With consumers spending more and more time online, analysts say Internet companies and ad agencies have no choice but to work together to develop ways to make money from digital media.”

Outlook grim for media and entertainment deals

Deal-making in the U.S. media and entertainment sectors is going to be down this year, says a new PricewaterhouseCoopers survey (request a copy here). Now, that’s not a new or startling conclusion given the state of the economy, but it’s just another piece of evidence that when consumers and advertisers get thrifty, deal makers can end up become benchwarmers as companies struggle with cost cuts and other exigencies.

Here are some industry trends for 2009 from the PWC survey:

    Declining consumer spending is hitting many media and entertainment companies. What’s more, these declines were exacerbated by technological convergence, as these firms adapt to and look for ways to make money off new Internet technologies. Overall U.S. advertising market is going to shrink as sponsors cut ad budgets across retail, consumer goods, automotive, financial and other sectors. Companies will continue to divest their non-core assets, but those that don’t get a good price will prefer to hold on rather than sell at bargain prices. Bolt-on deals will likely be popular for risk-averse companies, so deals below $1 billion — mostly small and mid-market companies — will be a rising trend. Private equity will remain quiet since the debt markets aren’t really healthy yet. Deal structures will change this year, given the difficulty of getting debt financing. The strategic rationale for doing a deal will be more important than getting a favorable capital structure.

But all hope is not lost, according to PWC’s Transaction Services Entertainment & Media Leader Thomas Rooney:

With M&A activity ingrained in the DNA of so many companies and the ever growing presence of private equity, E&M deal activity might not be as quiet as many expect in 2009… History has shown the E&M industry to be one of the more active M&A sectors irrespective of market and economic conditions.