Media Convergence Asia-Pacific is happy to send you this CONFIDENTIAL newsletter about recent developments in the region. This regular newsletter will be sent to media companies' CEO's and senior executives.

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Didier Guérin
President

Inside this issue:

With the growing need for consumers to buy basic necessities at any time, the network of convenience stores is expanding quite rapidly in Asia, especially in Japan, Taiwan, and also China (2,500 stores are already in Shanghai). Although they still carry a limited number of magazine titles, the convenience stores represent a growing number of new points of sales open 24/7 for magazine publishers. The largest chain in Asia is 7-Eleven (operated worldwide by Japan’s largest retailer Ito-Yokado with revenues of $25 billion) followed by Family Mart and Circle K. Some of these chains offer publishers a modern system of management, including weekly or even daily copy sales on-line reports. In the highest concentrated cities in Japan, Hong Kong and Singapore, convenience stores are visited by half of the adult population at least every other day.

Convenience Stores in Asia
Japan	Taiwan	Korea	Thailand	China	Malaysia	Hong Kong	TOTAL
36,000	6,851	5,600	3,812	3,300	952	700	57,215

Source: French Trade Commission in Hong Kong.

After being severely criticized for a risky business model when they were launched three to five years ago, China’s largest internet portals have all become profitable almost at the same time. After Sohu (www.sohu.com), which was the best performing stock on the Nasdaq in 2002, Sina (www.sina.com) and NetEase (www.163.com) have also ended the year 2002 in the black. All three portals experienced a price share increase between 390% to 580% in the six-month period ending last January. These spectacular results come from a change in the original business models. Moving away from advertising, the portals now deliver various paying services to consumers like mobile pay e-mail, MMS (Multimedia Messaging Service) and especially SMS (Short Messaging Service). These services bring minuscule subscriptions and fees per user, which multiplied by the growing audience of 200 million Chinese mobile phone users, translate into significant revenues and earnings. For NetEase and Sohu, the old banners, links, logos and various irritating pop-up windows now only represent between 10% to 40% of the revenues.

 

This is the number of internet users in Asia, representing one-third of the worldwide on-line consumers. Korea and Japan have the worldwide leadership in broadband connection. India and Indonesia represent the best markets in terms of short-term growth.

 

For close to one year, the Australian government has tried to pass through Parliament a revised media law to abolish the current system restricting cross media ownership (newspaper and TV in the same market) and media foreign investment (limiting non-Australians to a maximum of 15% of TV ownership and 20% of newspapers). There are no restrictions for magazine or radio ownership. The Howard government, which controls the House of Representatives, lacks the vote of four Senators to put their new media laws into effect. If the current negotiations are successful, Australia could have a new system by the middle of the year which would allow foreigners (like Rupert Murdoch’s News Limited) to buy a TV network, or Australian TV networks (such as Kerry Packer’s Publishing & Broadcasting) to own metropolitan newspapers. In this scenario, the media group John Fairfax would become highly attractive to foreign interests. Where else in the world could you acquire a media group with two major metropolitan newspapers (The Sydney Morning Herald and Melbourne’s The Age), the largest national financial daily (Financial Review) and the largest weekly business magazine (BRW)? With a market capitalization of about A$2.5 billion ($1.475 billion), Fairfax should deliver an EBITDA of A$268 million ($158 million) and a net profit of A$120 million ($70.8 million) by the end of its June fiscal year.

In China, Gruner + Jahr has been working on the launch of three magazines. Fitness will appear next March, with an expected circulation of 125,000 copies. It will be followed in April by the launch of Inc, with a planned initial circulation of 50,000 copies. These two monthlies follow the launch in April last year of Parents, which is now selling about 180,000 copies a month. For all these titles, Gruner + Jahr is using the traditional copyright licensing agreement model with a local Chinese partner.

In Indonesia, PC MAGAZINE will be launched in September by the Femina Group, who signed a license agreement with Ziff Davis Media. The Indonesian group already publishes several successful magazines (like Dewi and Femina), along with the local editions of Seventeen and Men's Health, under license from Primedia and Rodale. PC MAGAZINE is already published in 27 countries. Femina Group is also the licensee selected by the Reader's Digest Association (after extensive local research). The first Indonesian edition of Reader's Digest will appear in June.

In Korea, CosmoGIRL! was launched on February 14th by the local joint-venture between Hearst and JoongAng M&B, which successfully launched COSMOPOLITAN Korea 18 months ago. Three days after the first issue of CosmoGIRL! appeared (396 pages including 192 advertising pages), JoongAng M&B also launched Time Inc.'s local edition of In-Style with 442 pages and 178 pages of advertising. In early March, ELLE Girl will be launched by Hachette-Next Media, the local joint-venture which already publishes the 10 year-old ELLE Korea, along with Premiere and 25 Ans. ELLE Girl's first issue is no less than 490 pages with 241 advertising pages.

Still in China, Forbes will launch its first issue in April with an expected circulation of 75,000 copies to be distributed in Beijing, Shanghai and the largest cities of the coastal regions. The monthly magazine is to be published by Morningside Business Publishing, a division of Morningside, an international investment group founded in Hong Kong in 1986, which controls one of the largest outdoor media companies in China, along with Sohu.com, a leading internet portal on the mainland. Morningside publishes several local consumer magazines in China in addition to the Chinese edition of Harvard Business Review, which was launched last September.

In Malaysia, a local edition of Harper's Bazaar will be launched in April with a print-run of 25,000 copies. Published by the local subsidiary of ACP, Hearst’s Australian joint-venture partner who launched the fashion magazine in Singapore last year, Harper's Bazaar Malaysia will be competing with the local edition of marie-claire and the local Her World and Female.

In Japan, in April marie-claire Japon will leave its last local licensee Kadokawa Shoten to come home to be published by Hachette-Fujingaho, the local wholly-owned subsidiary of Hachette Filipacchi Media. The renewed title will join the five other women’s fashion monthlies published by Hachette in Japan. The new positioning is betting on the fact that Japanese women are now ready for the mix of high fashion and hard-hitting features that European editions of marie-claire have been known for. Also next April, after a three year absence on the market, GQ Japan will be relaunched and published directly by Nikkei Condé Nast. Separately, a minority shareholder of Kadokawa Shoten, Bertelsmann (with 3% of the capital), recently formed a 50-50 joint-venture with Japan’s largest magazine publisher, Kodansha, to create a cross-cultural book publishing partnership. Kodansha is also the largest trade book publisher in Japan and it developed an alliance with the prestigious book publisher Random House - Bertelsmann’s trade book publishing division - to publish European and American authors in Japan and vice-versa.

Other launches: In China, CosmoGIRL!, in March, to be published by Trends Communications following several test issues; in India, Seventeen in February with Apricot Publishing; and in China, Newsweek Select, under a license with Hong-Kong based Vertex Group. At the end of last year, other titles which appeared included: in Indonesia, CosmoGIRL! published by PT. Mugi Rekso Abadi; in Korea, last December, Maxim, under a license with DMZ Media; and in Malaysia, Loaded by Knowledge Media.

”The fear rather than the fact of war does more harm to consumer and corporate confidence, and thus advertising.” Adam Smith Head of Knowledge Management Zenith Optimedia Group (FIPP Magazine World, Q4 2002)

These two new books should be read by anyone looking at seriously expanding in the region. Big In Asia, 25 Strategies For Business Success, by Michael Backman and Charlotte Butler (Palgrave Macmillan, New York), provides some well-illustrated advice and tips about achievements and failures in doing business in Asia. The authors point out the need to do your homework as “too often, investment in Asia has been driven more by perceptions and less by facts”. The enormous importance of Guanxi - the connections and networks - is well emphasized as “having exchanged a business card with someone does not mean you have a ‘relationship’ with them”. The 360 Degree Brand in Asia, by Mark Blair, Richard Armstrong and Mike Murphy (John Wiley & Sons, Singapore), brings the marketing expertise of three Ogilvy and Mather senior executives in Asia. The brand building concept is demonstrated in eight local case studies from IBM to American Express.