How to dominate China Next Generation New Culture Business ?
HUGE OPPORTUNITIES IN CHINA KIDS ENTERTAINMENT BUSINESS INDUSTRY.
There is a huge growth in the Chinese kids entertainment and culture industry involving animations, toy, children clothing and online games. A selected handful of companies that understand this industry had been steadily growing China next generation kids companies on the same path as Disney, Nickelodeon, Cartoon Network, Hasbro, Mattel, Bandai and Mega Bloks. In 2009 Guangdong Alpha Animations (*SHE 002292) successfully listed on the Shenzhen GEM board and raised RMB 860 million, Alpha immediately acquire 60% stake in Guangdong JiaJia cartoon channel for RMB 90 million. Following Alpha in 2010 3 more toys companies got IPO on the Shenzhen board – XingHui Auto (*SHE 300043), Goldlok Toys (*SHE 002348) and Guangdong Huawei (*SHE 002502).
There is a huge opportunity in China as well as worldwide for Chinese toys companies to grow. Taomee a kids virtual world and online games company in Shanghai will be making an impressive USD 1 billion IPO on NASDAQ in early 2011. Taomee had proven that the kids online space in China is indeed a very lucrative market space. In next 2 years we shall see more kids companies in China getting IPO and a lot of M&A (mergers and acquisition) will be happening within China and probable also outside of China.
LET’S PEAK INTO CHINA TOYS COMPANIES.
Below are 4 listed toys companies on Shenzhen GEM board.
Company 2009 Revenues Market Cap Remarks
ALPHA
600 million
PE : 61
90% of revenues – China
10% of revenues - International
XINGHUI AUTO
250 million
PE :
RMB 3,000,000,000
90% of revenues – International
10% of revenues - China
GOLDLOK TOYS
300 million
PE : 21
Raised RMB 800 million
90% of revenues – International
10% of revenues - China
GUANGDONG HUAWEI
300 million
Raising RMB 207 million
15% of revenues – China
85% of revenues - International
o Xinghui Auto Model Co.,Ltd. is principally engaged in the research, development, production and sale of model cars. The Company's model cars include static model cars and dynamic model cars. The Company's model car series include BMW X5, Benz GL-CLASS, Nissan 350Z, Lexus, Hummer, Lincoln, Land Rover, Mini Cooper, Lamborghini and Fiat, among others.
o Goldlok Toys Holdings (GuangDong) Co., Ltd. is principally engaged in research, development, manufacture and distribution of electronic and electrical plastic toys. The Company’s major products include electric trains, remote control simulated planes, robot toys, electrical automobile toys, dolls and magnetic word pads for learning, among others. The Company also
involves in trading business. It distributes its products in domestic and overseas markets, such as the United States, Latin America, European Union (EU) and other Asian regions.
From the previous report *CHINA TOYS AND ANIMATIONS INDUSTRY 2010 and from the above sales we can see that China still have much room to grow for the local market. 90% of ALPHA sales are from the local Chinese market and this year ALPHA is expected to pass RMB 800 million in sales. The business model of ALPHA is simply – using animations to create brands and characters then use these mechanics to sell toys. The gross margin in toys range between 40% - 45% makes it an impressive business to be in.
International Toys Companies 2009 Revenues Company 2009 Revenues *USD
MEGA BLOKS
340 million
WALT DISNEY
36.1 billion
MATTEL
5.4 billion
HASBRO
4.07 billion
Chinese company like ALPHA is learning the trick of the industry quick. Building key brands and characters via animations, setting new standards in the Chinese animation quality allows ALPHA to move into new markets internationally. In the next 3 years Chinese animations will be on par with Korea and many western animation studios, if not already !
THE KIDS BUSINESS MODEL.
If the formula of copying the west is right to get huge success in China such as the case of Baidu (*Google), Sina (*Yahoo), Taobao (*EBay) and QQ (*ICQ) then let’s look at Disney, Nickelodeon and Cartoon Network business segments:
*US top cartoon company business segments are almost identical.
Related to the China situation would be the following sectors:
a.) Animations.
b.) Toys.
c.) Kids Portal.
d.) Kids virtual worlds and online games.
If we study closely on the models and key business sectors we will see similarities to the current Chinese animations and culture business development especially for companies that have grasp the know-how and understanding. Notice that in the kids space there is no escaping – animations + licensing + toys + kids online games as key sectors. In fact these are the segments that Disney, Nickelodeon and Cartoon Network specifically own either via acquisition or as key internal division.
CHINA COPY THE WEST KEY STRATEGY FOR TOYS
Hasbro *BEYBLADE toys is supported by BEYBLADE V-FORCE animation series. In China TEENBO and ALPHA had done similar “GYRO” toys and launch its TV animation series as well in 2008. TEENBO ‘Gyro’ toy is a big winner with sales of above RMB 100 million. However we can’t say that China copies the product as ‘GYRO’ is a traditional toy just like ‘YoYo’ and there are many toys companies that produces ‘YoYo’ toys worldwide. MEGA BLOKS have a similar popular ‘GYRO’ toy called – BATTLE STRIKERS too.
The most important element here to learn is the know-how of how to design a ‘Brand’ and ‘Characters’ that kids can relate towards and purchase the toys. China, Japan, Korea and the West had done so via animations specifically designed to sell toys, we call these animations – Product Animation. Japan was
the innovator of this concept, super popular GUNDAM was the best example of “Product Based Animation” where the animation is written and produce specifically to sell and license products. Today Chinese companies like ALPHA, LINGDONG, TEENBO and a few others had mastered this formula for the Chinese market.
CHINESE SUPER HEROES AND ICONS
“Pleasant Goat and Big Big Wolf” is the first of many to come locally produce Chinese animation ICON characters that is not just popular but is widely recognized China-wide among all ages and generation. In the coming next few years China will have its very own home-grown Super Heroes like Spider-Man and it won’t stop here for key Chinese companies are already planning to be the next China Hasbro, Bandai and Disney. When quality of Chinese animation reached the international level plus the current production and development capability of Chinese toys makers and kids online games studio, we will see Chinese companies dominating a niche worldwide in the kids space.
KIDS ONLINE GAMES A MUST HAVE COMPONENT IN KIDS STRATEGY.
Video Games vs. Traditional Toys
Toy sales in the U.S. have been growing at a very low rate for the last few years. In fact, in 2008 toy sales in the U.S. fell 3%. This is mainly because of the shift from traditional toys towards video games. In 2008, sales of video game software units (actual games as opposed to consoles) grew 15% in the United States and 26% in the United Kingdom. Without a major foray into video gaming, toys companies could stand to lose significant market share as youth turn to digital entertainment over traditional toys. We can see this in the strategy by the major players such as Warner Bros, Disney, Nickelodeon, Cartoon Network, Hasbro, Mattel, Lego and now even Dreamworks is investing significantly into kids online games.
China is still a virgin marketplace for – animations, toys and kids online games. But the market will pick up next year at a great speed and there will be new winners and new players emerging. The ultimate winner would belong to the company that manages to master all 3 areas:
a.) Animations
b.) Toys
c.) Kids Online Games
Once the above 3 areas is captured and interlinked then only we will start to see the emerging Chinese Disney or Hasbro which capture the key essence of kid brands creation, development of toys and control of the kids online space. This makes the complete dragon triangle for kids entertainment business in China. Next year we will start to see more Chinese animations + toys moving side by side into the West which will include the US market as well.
Kids MMO will be an area that every toy and animation company can’t ignore and will become a “MUST-HAVE” strategy within their plan for the kids space.
KEY TOYS CATEGORIES
The following are the key toys categories that are being repeated almost every year in different format and brands. It is said that there is a success formula for kids entertainment …
1.) CARS - Model - Remote control
2.) YOYO
3.) HANDHELD GAMES - Digital games
4.) GYRO (tuo lou)
5.) TRANSFORMATION TOYS - Toys like Transformers
6.) CARD GAMES
7.) ACTION FIGURES - Figurines
8.) GUNS AND SWORDS
9.) BLOCK BUILDING - Lego
10.) ACCESSORIES - Accessories toys from animations
11.) PLUSH TOYS
12.) DOLLS
In the West there are slightly more categories than China such as train sets for the European market and planes for US. The above categories did not include Toddlers toys, video games and girl toys in a more specific manner. Boy toys dominates more than 70% of the market in China currently.
CHINA KIDS HANDHELD GAMES DEVICES A MISSING AREA
In the previous report we have touched a lot on animations and toys, in the report we have also highlighted an important missing area in the Chinese toys segment – electronic games and gadgets. While Nintendo DS and Sony PSP held huge market share worldwide in China these handheld games did not become a key trend for kids like in the West. Their market share has recently been pressed by Apple iPod TOUCH and iPAD. This market segment in China is missing and new technology today enable new locally produce handheld devices to prosper if the right mechanics are applied correctly.
THE FINAL WINNER WILL COMBINE ALL 3 KEY ELEMENTS
The company that manages to combine all the 3 key components ( *Animations + Toys + Kids Online Games ) seamlessly integrated together will be the next Disney or Hasbro of China. Like Chinese online games moving worldwide, Chinese animations and toys will follow suit this path only stronger and meaner than the competitions. Watch-out here comes China again !
Friday, December 31, 2010
CHINA ANIMATIONS AND TOYS MARKET OPPORTUNITY REPORT
2010
BY CALVIN NG
APPLE TOON.com
China Animations and Toys Market Opportunity Report
China animations industry is growing steadily …
Animation Market is an emerging sector in China and is expected to grow steadily. Favorable policies framed by the Government and allocation of funds by the provinces are benefiting the players today. The market trends reveals that players in the market are forming joint ventures, mergers and acquisitions are taking place while private equity and venture capital firms are investing in the business of the animation companies.
The Chinese-made animated movie industry is also booming, “The Pleasant Goat and Big Big Wolf” an animated movie base on the same IP TV series launched at the beginning of 2009 and hit a box office of above RMB 80 million with a production cost of just RMB 6 million. In addition to children, many white-collar workers liked the film. "How to marry a husband like the Big Big Wolf" became a hot topic on the Internet.
China's cartoon industry has been expanded to more than 170,000 minutes of animation last year and half of this year had already shot pass this figure. The continuous efforts of the government, which set up supporting policies to boost domestic animation industry, will spur continuous growth. During the first five months of this year, 221 Chinese-made cartoons (more than 270,000 minutes) were produced for domestic television channels, according to the State Administration of Radio, Film and Television (SARFT).
In 2000, the State Administration of Radio, Film and Television (SARFT) required local TV stations to get approval from the administration and set quotas for imported cartoons to air on TV. In 2004, it issued another regulation, stipulating that at least 60 percent of cartoon programs aired in any given quarter had to be domestic. In September 2006, the SARFT banned all foreign cartoons from 5 p.m. to 8 p.m. Last February it extended the ban to 9 p.m. Additionally, the Chinese government has made an annual investment of 200 million yuan in the animation industry since 2006. Last year July, the Ministry of Finance and the State Administration of Taxation jointly issued a favorable taxation policy to support the development of comic and animation industry.
China currently has above 6,000 companies making cartoons and comics. According to a report from the Ministry of Culture (MOC) and the industry now employs more than 400,000 workers. However, besides the lucky "The Pleasant Goat and Big Big Wolf" whom hit it big time on the silver screen others such as the Hong Kong co-production “McDull”, Kung Fu Kindergarten, other animated films, including The Magic Aster, Happy Running, and the 3D Prequel of the Monkey King didn't do so well at box office.
China’s growing ambitions coincide with an ominous industry-wide slump in Japan.
After peaking in 2006, the number of anime minutes made for television fell 20 percent to 108,342 in 2009, according to the Association of Japanese Animations. Overseas anime revenue fell 21 percent between 2006 and 2009. The world’s hunger for anime accelerated around 2000, with Hollywood incorporating anime scenes into films and children clamoring for Pokemon.
Since 2006, however, a trend toward adult-oriented (and often sexually explicit) niche titles has turned off the general audience. Moreover, the industry is losing young talent due to persistently low pay and poor working conditions, forcing Japanese animation companies to outsource much of their work.
“The Japanese anime industry basically gave China, Korea and all these countries the keys to the candyshop, by outsourcing so much work to them, they trained this work force of people who are now far more ambitious and far more hungry than a lot of Japanese animators are.”
Japanese anime industry is beginning to realize that it cannot ignore China — as an emerging rival or a potentially lucrative new market. For both countries, cooperating appears to be the best option for now.
One of the most successful joint projects so far is the “Romance of Three Kingdoms,” a historical animated series currently airing across China. The program, produced by Japan’s Takara Tomy and a subsidiary of China Central Television ( CCTV ).
China toys market
In 2009 due to the financial crisis global toys sales hit US$80 billion, an increase of 3.6% compared with 2007 US$ 77 billion in 2008. As the global economy recovers gradually in 2010, the toys market is forecasted to increase by 5.4% hitting above US$ 85 billion. The USA, Japan and China rank top 3 of toys sales worldwide respectively hitting – US$ 21.5 billion, US$ 5.8 billion and US$ 4.9 billion, while UK, France, Germany, Brazil, India, Australia and Canada take the 4th to 10th position. These top 10 countries occupy 66% of global toys sales.
China is the world’s largest toy manufacturer and exporter, and over 2/3 of global toys are made in China; the export value of Chinese toys in 2009 reached US$7.8 billion. Guangdong, Jiangsu, Zhejiang, Shanghai, and Shandong are the foremost production and export bases of toys in China, accounting for
more than 90% of the annual sales of Chinese toys, of which, Guangdong gives priority to electric toys and plastic toys; Jiangsu and Shanghai are mainly engaged in plush toys; Zhejiang gives first place to wooden toys.
From the perspective of annual average consumption of toys by children worldwide, China sees only US$20, while Australia and the USA reach respective US$401 and US$280. At present, the population of Chinese juvenile and children has hit above 300 million, so, there is huge potentiality of toy consumption in domestic market especially so since China have its one child policy creating even stronger bond to the child. On the other hand, as we entering 2010, the Echo Boomers born in 1980s will become the main force of toy consumption. It is predicted that the demand of domestic toy industry will increase dramatically in the following several years.
Facing the rising market demand, major toy enterprises in China have worked out ambitious development plans.
Guangdong Alpha Animation and Culture Co., Ltd. raised RMB860 million from the IPO in 2009, which enables it to carry out integrated operation of animation industry chain through merging and acquiring excellent domestic enterprises. In March 2010, it invested RMB90 million to acquire a 60% stake in Guangdong Jiajia Cartoon Film Co., Ltd. in an effort to obtain rare media channel resources and promote the release of animated films and the selling of cartoon toys.
Based on the current 21 brands and 190 models of model cars, Xinghui Auto Model Co., Ltd. plans to get the model car authorization of foreign brands including Porsche, and domestic brands including Hongqi, Chery and BYD in the coming three years, striving for the authorization of 26 brands and over 300 models. Restricted by output capacity, the products of Xinghui Auto Model Co., Ltd. are mainly sold to foreign countries and first-tier domestic cities like Beijing and Shanghai; the company will further expand its market in second and third-tier domestic cities after the improvement of its output capacity in the future.
China existing key toys players :
Guangdong Alpha Animation and Culture Co., Ltd [] SHE 002292 *2009 IPO
Xinghui Auto Model Co., Ltd [] SHE 300043 *2010 IPO
Goldlok Toys Holdings (Guangdong) Co., Ltd [] SHE 002348 *2010 IPO
Lung Cheong International Holdings Limited [] HKG 0348
Jiangsu Goodbaby Group
Guangdong Huawei Toys Craft Co., Ltd [] SHE 002502 *2010 IPO
Guangzhou Teenbo
Guangzhou Starjet Toys Co., Ltd
Guangzhou M&D
Guangzhou Wangtong
Guangzhou Kaleeto
Guangzhou Toys & Wonder Ltd
Shanghai Toonmax Media Co., Ltd [] Pending IPO 2011
Beijing Kaku Cartoon Culture Co., Ltd [] Pending IPO 2011
Camino Trading (Huizhou) Company Limited
International toys players in China :
Mattel
Hasbro
Takara Tomy
Lego
Bandai Namco
Local toys dominate the market today …
China's toy market has huge potentials for development. Since 2006 the tide of toys sales have changed in China, local toys IP and brands dominates the market today. Back in 2005 and 2006 overseas toy brands in China dominate the markets and toy stores, various sized Mickey Mice and Donald Ducks have occupied the most eye-striking positions. Blond Barbies are sold in special counters. Transformer, Spiderman, Robot Cat, Ultraman are almost all imports, and there are few toy products with a Chinese brand. In the great consumption market with a scale of tens of billions of RMB, domestically produced toys only seize 16 percent of shares.
This is not true today, thanks to animations and the smart use and development of local IP, characters, stories and brands via animation being continuously screen on hundreds of TV stations in China had help companies like Guangdong Alpha IPO with a PE of above 50x.
A good example would be the overseas “POWER RANGERS” versus “ARMOR HERO” ( by Alpha ), kids in China chooses Armor Hero over Power Rangers toys. This is the key trend today and with effective use of the power of animations as a key media promoter to push brands, IP’s (intellectual property rights) and cartoon characters across to Chinese kids and teens, China very own toys companies is dominating the new toys market. With proper implementation of brand strategy and marketing techniques plus a deeper understand of the Chinese culture China’s toy enterprises can win the upper hand in the market. “The Pleasant Goat and Big Big Wolf” is a good example of an animation whom brings in the local culture into play, the animation rights is rumor to be acquired by DISNEY for above US$ 100 million.
The future will lies within brand and IP building as well as innovating development of electronic and dynamic toys based on China home grown animation stories and characters to have the added values raised.
The Digital handheld game trend
Once dominated by Nintendo and Sony PSP a new player had emerged … Nintendo still dominates with kids in the portable space, however Apple is becoming a significant player. 44% of tween girls (8-11) and 58% of teen girls (12-15) use an Apple device to play games. iPod Touch has sold 130 million units, near the same sales as Nintendo Co.’s DS handheld game system. Additionally, while the DS has sold more than 700 million games, Apple has sold 1.5 billion games for its iOS platform.
The fastest growing model is the iPod Touch, which represents 40 percent of the "iPhone platform". BusinessWeek quoted, "Apple could be on the cusp of claiming the crown as the world's leading in pocket gaming,", referring to the use of an iPod Touch as a portable games device. To emphasize the company's point further, it touted that the PlayStation Portable has 607 games available, the Nintendo DS has 3,680 games available, and the prices of the games for both platforms are easily higher than games sold at App Store. 2009 Stats
Technically, there are more than 30,000 games are now available from the App Store. iPod Touch is fast becoming an MP3 player and a high-end pocket games device in the US.
Many industry professionals do argue ( *especially Sony and Nintendo ) that the games on APPLE App Store are too basic and simple as compared with what’s available on the Nintendo DS and PSP. This same argument can take a note from the “Social Games” versus “Casual Games” arena whom social games is winning the market by miles ahead of the latter and creating an entire new games segment.
However at RMB 1,500 to 2,500 the iPod Touch is still too expensive to Chinese kids. Another key winning point for handheld gaming device is the games available for that particular platform, as in Nintendo DS, it is the “Super Mario” franchise that’s matters most to kids buying the device.
These points’ gives an opportunity for a local specific Chinese handheld game device designed specifically for the Chinese market embedded with key Chinese games IP such as those from famous animations. From 2008 to 2009 Bandai sold more than 150 000 units of “Tomogotchi” handheld games in China with a retail price of between RMB 129 to 259 each.
How the business works ?
Huge market opportunity still exist in China
The Pleasant Goat and Big Big Wolf - has come out and created a miracle for the Chinese local animation films with a box office of up to RMB 90 million since it was screened around the Spring Festival of 2009 and above RMB 100 million in 2010 box office. The animation film with more than 500 episodes has also successfully expanded its audience from children aged below 6 to all the age groups.
US, Japan and South Korea are three major countries with a relatively large animation industry in the world. US, the originator of the animation industry with an output of more than US$200B, the animation industry is the second largest industry by export, just next to the computer industry. Japan has become the world's largest producer by combining animations, cartoon books and electronic games, representing 65% of the world market and 80% of the European market. The animation industry has grown into the third largest industry in Japan, accounting for 10% of GDP. Even South Korea, a late-comer in the industry, takes 30% of the global animation output, just after America and Japan, and 30 times that of China.
All these above-mentioned data are enough to spur the optimism of the Chinese animation insiders although investment and M&A in the Chinese animation sector is still relatively small it is growing today as investors begin to understand why a handful of entrepreneurs are the one that is making the big bucks. Guangdong ALPHA IPO and the huge success of “The Pleasant Goat and Big Big Wolf” provided an eye opener to many whom had neglected this industry in the past and also highlighted the secrets towards making money from the animation creative and culture industry.
The animations and toys industry chain
The industrial chain of animation industry seems simple and is composed of the following links including creation, production and distribution of animation works and development, production and sales of derivative products. Every link is far-reaching. Compared with the established complete industrial chain and profit mode in the United States and Japan, domestic enterprises are still exploring a suitable road and attempt different "portfolios" in this aspect.
Some attempt to create and distribute animation works at first, and then launch derivative products according to market reaction; some attempt to pay equal attention to both animation works and derivative products and pave the way for derivative products early in creation link to make and launch derivative products in synchronism with animation works. In comparison of the said two attempts, the former needs relatively small investment in early stage and faces low risks in late stage.
The reason is that derivative products are developed on the basis of feedback of target group to ensure minimum risks at the cost of a prolonged investment pay-back period. By contrast, the latter needs relative large investment in early stage and faces high risks in late stage accordingly. However, the investment pay-back period is short. Furthermore, launching derivative products in synchronism with animation works reduces the risks of losing initiative opportunities for copyright piracy.
Presently, Chinese animation industry lacks harmony among links and fails to establish sound win-win mode among them. The decisions of links in this business may defer from companies to companies each with its own agenda. Therefore, a mature industrial chain must be built, the exchanges and cooperation among the enterprises of each links shall be unified and promoted where each efforts are done to perfect the industrial chain in order to develop animation industry.
Three Drawbacks of China's Animation Industry
The followings are the three current drawbacks of the Chinese animation industry which directly reflects the towards the toys industry as well.
1. Creative industry needs to upgrade its creativity
The domestic animation works lack innovative design concept. Instead, many have kept to the beaten track of producing low budget production simply to get government funds. Most of the images are borrowed from foreign works. The movements of the cartoon figures are also very similar, and lack fresh innovations. Kung Fu Panda, a Disney animation has achieved a great success in China market. The animation easily hit a box office of more than RMB100M during a ten-day show. Chinese animation companies are good at producing teaching-oriented animations, such as 3,000 Questions of Blue Cat and Naughty and Mars Baby Learns Chinese Characters. These animations always lack the space for expansion, and do not generate a high profit, despite a high audience rating.
2. Poor marketing ability
Many animation producers lack the market awareness and know-how needed. Durniok, a little merchant who bought the 20-year copyright of Nezha Conquers the Dragon King from China ten years ago, has built the envious Durniok Mansion by distributing the modified version in Europe, and become a major producer and publisher in Europe. When Nezha Conquers the Dragon King was played in Japan tens of years ago, a Japanese garment company worked overtime to produce a lot of T-shirts printed with the Nezha image. When the audience walked into the theater in the T-shirts, the boss of the garment company was also overjoyed. In China, both films and TV series lack sound marketing and promotion strategies - As a result, they cannot attract the attention of the audience in the early stage, catch the eyeballs of the audience in the middle stage, or find derivatives favored by the audience. Therefore many fail in this industry.
3. Incomplete industrial chain
Japan has developed a mature animation industrial chain, a complete cycle from animation publishing, animation production, broadcasting, copyright licensing, derivative production and sales to export licensing of some animation products, deep development of successful animation products and development of new animations. This mode is relatively sound, as every link is very professional and has formed a scale, and different links are well connected. The matrix of responsibilities along the industrial chain is very clear. In comparison, the industrial chain in China is far from mature, and relevant links are short of collaboration. Consequently, many animation companies have become part of the industrial chain of others, and earned the fame of OEM for the Chinese animation industry.
In reality, the Pleasant Goat and Big Big Wolf is not a heavy-investment production. Usually, the unit investment of local animations ranges from RMB3,000-5,000 per minute and even RMB10,000, if the 3D technology is used. With an even lower cost of RMB2,000 per minute, the Pleasant Goat and Big Big Wolf has triggered such a large market response, which has definitely given us a good lesson. In content, the animation has abandoned the teaching-oriented route, but introduced some very popular elements at present to deliver a vivid and lively style. In addition, the broadcasting fees paid by TV stations are far from enough to cover the production cost, which is also a headache of many local animation companies. Now, the derivatives of Pleasant Goat and Big Big Wolf can be seen everywhere, which have entirely benefited from the company's forward-leading practice of reserving the space for future derivatives before the project started. At the same time, the Pleasant Goat and Big Big Wolf has also broken the mode that the animation images are applied to toys, stationery and food, and expanded the image licensing to more extensive industries.
The success of the Pleasant Goat and Big Big Wolf has set a very good example for local animation enterprises. How far this outstanding animation will go still depends on the overall strategy and new creation of the producer.
The special few companies that understand these drawbacks …
These drawbacks actually created opportunities for a special handful of companies whom fully understands the market and its mechanics towards managing the limitations today and creates success from it. The animations coming from ALPHA are world-class quality with equipments and story-board written from Japan. LingDong hires Japanese and Hong Kong designers to design its characters for its toys and animations.
The other hidden secrets unknown to many are:
1. The ability to create “Toys Animations” that’s purely designed to sell products.
2. The ability to design toys for the local market as well as international market.
3. The ability to understand the local market needs and culture.
4. The ability to network and distribute to a mass audience base in China.
5. The ability to connect all the industry chain and links together.
6. The ability to get the animations on to top TV stations at prime time and across as many provincial TV stations as possible.
7. The ability to grasps, creates, develop and manage brands and IP’s.
The Chinese animations industry is set for a big change in the coming next 3 to 5 years as these companies expand their market share in China and abroad to Asia and eventually worldwide. We will also be seeing more IPO, mergers and acquisition happening in 2011 and 2012 as key leaders expand their grasp on the market. The new growth area in 2011 will be the kids online games and portal sector, where we will see the world first kids online games company goes IPO on NASDAQ *Taomee USD 1 billion IPO will spur the industry to grow further.
Expect China very own Hasbro, Mattel, Disney and Cartoon Network in a years time!
BY CALVIN NG
APPLE TOON.com
China Animations and Toys Market Opportunity Report
China animations industry is growing steadily …
Animation Market is an emerging sector in China and is expected to grow steadily. Favorable policies framed by the Government and allocation of funds by the provinces are benefiting the players today. The market trends reveals that players in the market are forming joint ventures, mergers and acquisitions are taking place while private equity and venture capital firms are investing in the business of the animation companies.
The Chinese-made animated movie industry is also booming, “The Pleasant Goat and Big Big Wolf” an animated movie base on the same IP TV series launched at the beginning of 2009 and hit a box office of above RMB 80 million with a production cost of just RMB 6 million. In addition to children, many white-collar workers liked the film. "How to marry a husband like the Big Big Wolf" became a hot topic on the Internet.
China's cartoon industry has been expanded to more than 170,000 minutes of animation last year and half of this year had already shot pass this figure. The continuous efforts of the government, which set up supporting policies to boost domestic animation industry, will spur continuous growth. During the first five months of this year, 221 Chinese-made cartoons (more than 270,000 minutes) were produced for domestic television channels, according to the State Administration of Radio, Film and Television (SARFT).
In 2000, the State Administration of Radio, Film and Television (SARFT) required local TV stations to get approval from the administration and set quotas for imported cartoons to air on TV. In 2004, it issued another regulation, stipulating that at least 60 percent of cartoon programs aired in any given quarter had to be domestic. In September 2006, the SARFT banned all foreign cartoons from 5 p.m. to 8 p.m. Last February it extended the ban to 9 p.m. Additionally, the Chinese government has made an annual investment of 200 million yuan in the animation industry since 2006. Last year July, the Ministry of Finance and the State Administration of Taxation jointly issued a favorable taxation policy to support the development of comic and animation industry.
China currently has above 6,000 companies making cartoons and comics. According to a report from the Ministry of Culture (MOC) and the industry now employs more than 400,000 workers. However, besides the lucky "The Pleasant Goat and Big Big Wolf" whom hit it big time on the silver screen others such as the Hong Kong co-production “McDull”, Kung Fu Kindergarten, other animated films, including The Magic Aster, Happy Running, and the 3D Prequel of the Monkey King didn't do so well at box office.
China’s growing ambitions coincide with an ominous industry-wide slump in Japan.
After peaking in 2006, the number of anime minutes made for television fell 20 percent to 108,342 in 2009, according to the Association of Japanese Animations. Overseas anime revenue fell 21 percent between 2006 and 2009. The world’s hunger for anime accelerated around 2000, with Hollywood incorporating anime scenes into films and children clamoring for Pokemon.
Since 2006, however, a trend toward adult-oriented (and often sexually explicit) niche titles has turned off the general audience. Moreover, the industry is losing young talent due to persistently low pay and poor working conditions, forcing Japanese animation companies to outsource much of their work.
“The Japanese anime industry basically gave China, Korea and all these countries the keys to the candyshop, by outsourcing so much work to them, they trained this work force of people who are now far more ambitious and far more hungry than a lot of Japanese animators are.”
Japanese anime industry is beginning to realize that it cannot ignore China — as an emerging rival or a potentially lucrative new market. For both countries, cooperating appears to be the best option for now.
One of the most successful joint projects so far is the “Romance of Three Kingdoms,” a historical animated series currently airing across China. The program, produced by Japan’s Takara Tomy and a subsidiary of China Central Television ( CCTV ).
China toys market
In 2009 due to the financial crisis global toys sales hit US$80 billion, an increase of 3.6% compared with 2007 US$ 77 billion in 2008. As the global economy recovers gradually in 2010, the toys market is forecasted to increase by 5.4% hitting above US$ 85 billion. The USA, Japan and China rank top 3 of toys sales worldwide respectively hitting – US$ 21.5 billion, US$ 5.8 billion and US$ 4.9 billion, while UK, France, Germany, Brazil, India, Australia and Canada take the 4th to 10th position. These top 10 countries occupy 66% of global toys sales.
China is the world’s largest toy manufacturer and exporter, and over 2/3 of global toys are made in China; the export value of Chinese toys in 2009 reached US$7.8 billion. Guangdong, Jiangsu, Zhejiang, Shanghai, and Shandong are the foremost production and export bases of toys in China, accounting for
more than 90% of the annual sales of Chinese toys, of which, Guangdong gives priority to electric toys and plastic toys; Jiangsu and Shanghai are mainly engaged in plush toys; Zhejiang gives first place to wooden toys.
From the perspective of annual average consumption of toys by children worldwide, China sees only US$20, while Australia and the USA reach respective US$401 and US$280. At present, the population of Chinese juvenile and children has hit above 300 million, so, there is huge potentiality of toy consumption in domestic market especially so since China have its one child policy creating even stronger bond to the child. On the other hand, as we entering 2010, the Echo Boomers born in 1980s will become the main force of toy consumption. It is predicted that the demand of domestic toy industry will increase dramatically in the following several years.
Facing the rising market demand, major toy enterprises in China have worked out ambitious development plans.
Guangdong Alpha Animation and Culture Co., Ltd. raised RMB860 million from the IPO in 2009, which enables it to carry out integrated operation of animation industry chain through merging and acquiring excellent domestic enterprises. In March 2010, it invested RMB90 million to acquire a 60% stake in Guangdong Jiajia Cartoon Film Co., Ltd. in an effort to obtain rare media channel resources and promote the release of animated films and the selling of cartoon toys.
Based on the current 21 brands and 190 models of model cars, Xinghui Auto Model Co., Ltd. plans to get the model car authorization of foreign brands including Porsche, and domestic brands including Hongqi, Chery and BYD in the coming three years, striving for the authorization of 26 brands and over 300 models. Restricted by output capacity, the products of Xinghui Auto Model Co., Ltd. are mainly sold to foreign countries and first-tier domestic cities like Beijing and Shanghai; the company will further expand its market in second and third-tier domestic cities after the improvement of its output capacity in the future.
China existing key toys players :
Guangdong Alpha Animation and Culture Co., Ltd [] SHE 002292 *2009 IPO
Xinghui Auto Model Co., Ltd [] SHE 300043 *2010 IPO
Goldlok Toys Holdings (Guangdong) Co., Ltd [] SHE 002348 *2010 IPO
Lung Cheong International Holdings Limited [] HKG 0348
Jiangsu Goodbaby Group
Guangdong Huawei Toys Craft Co., Ltd [] SHE 002502 *2010 IPO
Guangzhou Teenbo
Guangzhou Starjet Toys Co., Ltd
Guangzhou M&D
Guangzhou Wangtong
Guangzhou Kaleeto
Guangzhou Toys & Wonder Ltd
Shanghai Toonmax Media Co., Ltd [] Pending IPO 2011
Beijing Kaku Cartoon Culture Co., Ltd [] Pending IPO 2011
Camino Trading (Huizhou) Company Limited
International toys players in China :
Mattel
Hasbro
Takara Tomy
Lego
Bandai Namco
Local toys dominate the market today …
China's toy market has huge potentials for development. Since 2006 the tide of toys sales have changed in China, local toys IP and brands dominates the market today. Back in 2005 and 2006 overseas toy brands in China dominate the markets and toy stores, various sized Mickey Mice and Donald Ducks have occupied the most eye-striking positions. Blond Barbies are sold in special counters. Transformer, Spiderman, Robot Cat, Ultraman are almost all imports, and there are few toy products with a Chinese brand. In the great consumption market with a scale of tens of billions of RMB, domestically produced toys only seize 16 percent of shares.
This is not true today, thanks to animations and the smart use and development of local IP, characters, stories and brands via animation being continuously screen on hundreds of TV stations in China had help companies like Guangdong Alpha IPO with a PE of above 50x.
A good example would be the overseas “POWER RANGERS” versus “ARMOR HERO” ( by Alpha ), kids in China chooses Armor Hero over Power Rangers toys. This is the key trend today and with effective use of the power of animations as a key media promoter to push brands, IP’s (intellectual property rights) and cartoon characters across to Chinese kids and teens, China very own toys companies is dominating the new toys market. With proper implementation of brand strategy and marketing techniques plus a deeper understand of the Chinese culture China’s toy enterprises can win the upper hand in the market. “The Pleasant Goat and Big Big Wolf” is a good example of an animation whom brings in the local culture into play, the animation rights is rumor to be acquired by DISNEY for above US$ 100 million.
The future will lies within brand and IP building as well as innovating development of electronic and dynamic toys based on China home grown animation stories and characters to have the added values raised.
The Digital handheld game trend
Once dominated by Nintendo and Sony PSP a new player had emerged … Nintendo still dominates with kids in the portable space, however Apple is becoming a significant player. 44% of tween girls (8-11) and 58% of teen girls (12-15) use an Apple device to play games. iPod Touch has sold 130 million units, near the same sales as Nintendo Co.’s DS handheld game system. Additionally, while the DS has sold more than 700 million games, Apple has sold 1.5 billion games for its iOS platform.
The fastest growing model is the iPod Touch, which represents 40 percent of the "iPhone platform". BusinessWeek quoted, "Apple could be on the cusp of claiming the crown as the world's leading in pocket gaming,", referring to the use of an iPod Touch as a portable games device. To emphasize the company's point further, it touted that the PlayStation Portable has 607 games available, the Nintendo DS has 3,680 games available, and the prices of the games for both platforms are easily higher than games sold at App Store. 2009 Stats
Technically, there are more than 30,000 games are now available from the App Store. iPod Touch is fast becoming an MP3 player and a high-end pocket games device in the US.
Many industry professionals do argue ( *especially Sony and Nintendo ) that the games on APPLE App Store are too basic and simple as compared with what’s available on the Nintendo DS and PSP. This same argument can take a note from the “Social Games” versus “Casual Games” arena whom social games is winning the market by miles ahead of the latter and creating an entire new games segment.
However at RMB 1,500 to 2,500 the iPod Touch is still too expensive to Chinese kids. Another key winning point for handheld gaming device is the games available for that particular platform, as in Nintendo DS, it is the “Super Mario” franchise that’s matters most to kids buying the device.
These points’ gives an opportunity for a local specific Chinese handheld game device designed specifically for the Chinese market embedded with key Chinese games IP such as those from famous animations. From 2008 to 2009 Bandai sold more than 150 000 units of “Tomogotchi” handheld games in China with a retail price of between RMB 129 to 259 each.
How the business works ?
Huge market opportunity still exist in China
The Pleasant Goat and Big Big Wolf - has come out and created a miracle for the Chinese local animation films with a box office of up to RMB 90 million since it was screened around the Spring Festival of 2009 and above RMB 100 million in 2010 box office. The animation film with more than 500 episodes has also successfully expanded its audience from children aged below 6 to all the age groups.
US, Japan and South Korea are three major countries with a relatively large animation industry in the world. US, the originator of the animation industry with an output of more than US$200B, the animation industry is the second largest industry by export, just next to the computer industry. Japan has become the world's largest producer by combining animations, cartoon books and electronic games, representing 65% of the world market and 80% of the European market. The animation industry has grown into the third largest industry in Japan, accounting for 10% of GDP. Even South Korea, a late-comer in the industry, takes 30% of the global animation output, just after America and Japan, and 30 times that of China.
All these above-mentioned data are enough to spur the optimism of the Chinese animation insiders although investment and M&A in the Chinese animation sector is still relatively small it is growing today as investors begin to understand why a handful of entrepreneurs are the one that is making the big bucks. Guangdong ALPHA IPO and the huge success of “The Pleasant Goat and Big Big Wolf” provided an eye opener to many whom had neglected this industry in the past and also highlighted the secrets towards making money from the animation creative and culture industry.
The animations and toys industry chain
The industrial chain of animation industry seems simple and is composed of the following links including creation, production and distribution of animation works and development, production and sales of derivative products. Every link is far-reaching. Compared with the established complete industrial chain and profit mode in the United States and Japan, domestic enterprises are still exploring a suitable road and attempt different "portfolios" in this aspect.
Some attempt to create and distribute animation works at first, and then launch derivative products according to market reaction; some attempt to pay equal attention to both animation works and derivative products and pave the way for derivative products early in creation link to make and launch derivative products in synchronism with animation works. In comparison of the said two attempts, the former needs relatively small investment in early stage and faces low risks in late stage.
The reason is that derivative products are developed on the basis of feedback of target group to ensure minimum risks at the cost of a prolonged investment pay-back period. By contrast, the latter needs relative large investment in early stage and faces high risks in late stage accordingly. However, the investment pay-back period is short. Furthermore, launching derivative products in synchronism with animation works reduces the risks of losing initiative opportunities for copyright piracy.
Presently, Chinese animation industry lacks harmony among links and fails to establish sound win-win mode among them. The decisions of links in this business may defer from companies to companies each with its own agenda. Therefore, a mature industrial chain must be built, the exchanges and cooperation among the enterprises of each links shall be unified and promoted where each efforts are done to perfect the industrial chain in order to develop animation industry.
Three Drawbacks of China's Animation Industry
The followings are the three current drawbacks of the Chinese animation industry which directly reflects the towards the toys industry as well.
1. Creative industry needs to upgrade its creativity
The domestic animation works lack innovative design concept. Instead, many have kept to the beaten track of producing low budget production simply to get government funds. Most of the images are borrowed from foreign works. The movements of the cartoon figures are also very similar, and lack fresh innovations. Kung Fu Panda, a Disney animation has achieved a great success in China market. The animation easily hit a box office of more than RMB100M during a ten-day show. Chinese animation companies are good at producing teaching-oriented animations, such as 3,000 Questions of Blue Cat and Naughty and Mars Baby Learns Chinese Characters. These animations always lack the space for expansion, and do not generate a high profit, despite a high audience rating.
2. Poor marketing ability
Many animation producers lack the market awareness and know-how needed. Durniok, a little merchant who bought the 20-year copyright of Nezha Conquers the Dragon King from China ten years ago, has built the envious Durniok Mansion by distributing the modified version in Europe, and become a major producer and publisher in Europe. When Nezha Conquers the Dragon King was played in Japan tens of years ago, a Japanese garment company worked overtime to produce a lot of T-shirts printed with the Nezha image. When the audience walked into the theater in the T-shirts, the boss of the garment company was also overjoyed. In China, both films and TV series lack sound marketing and promotion strategies - As a result, they cannot attract the attention of the audience in the early stage, catch the eyeballs of the audience in the middle stage, or find derivatives favored by the audience. Therefore many fail in this industry.
3. Incomplete industrial chain
Japan has developed a mature animation industrial chain, a complete cycle from animation publishing, animation production, broadcasting, copyright licensing, derivative production and sales to export licensing of some animation products, deep development of successful animation products and development of new animations. This mode is relatively sound, as every link is very professional and has formed a scale, and different links are well connected. The matrix of responsibilities along the industrial chain is very clear. In comparison, the industrial chain in China is far from mature, and relevant links are short of collaboration. Consequently, many animation companies have become part of the industrial chain of others, and earned the fame of OEM for the Chinese animation industry.
In reality, the Pleasant Goat and Big Big Wolf is not a heavy-investment production. Usually, the unit investment of local animations ranges from RMB3,000-5,000 per minute and even RMB10,000, if the 3D technology is used. With an even lower cost of RMB2,000 per minute, the Pleasant Goat and Big Big Wolf has triggered such a large market response, which has definitely given us a good lesson. In content, the animation has abandoned the teaching-oriented route, but introduced some very popular elements at present to deliver a vivid and lively style. In addition, the broadcasting fees paid by TV stations are far from enough to cover the production cost, which is also a headache of many local animation companies. Now, the derivatives of Pleasant Goat and Big Big Wolf can be seen everywhere, which have entirely benefited from the company's forward-leading practice of reserving the space for future derivatives before the project started. At the same time, the Pleasant Goat and Big Big Wolf has also broken the mode that the animation images are applied to toys, stationery and food, and expanded the image licensing to more extensive industries.
The success of the Pleasant Goat and Big Big Wolf has set a very good example for local animation enterprises. How far this outstanding animation will go still depends on the overall strategy and new creation of the producer.
The special few companies that understand these drawbacks …
These drawbacks actually created opportunities for a special handful of companies whom fully understands the market and its mechanics towards managing the limitations today and creates success from it. The animations coming from ALPHA are world-class quality with equipments and story-board written from Japan. LingDong hires Japanese and Hong Kong designers to design its characters for its toys and animations.
The other hidden secrets unknown to many are:
1. The ability to create “Toys Animations” that’s purely designed to sell products.
2. The ability to design toys for the local market as well as international market.
3. The ability to understand the local market needs and culture.
4. The ability to network and distribute to a mass audience base in China.
5. The ability to connect all the industry chain and links together.
6. The ability to get the animations on to top TV stations at prime time and across as many provincial TV stations as possible.
7. The ability to grasps, creates, develop and manage brands and IP’s.
The Chinese animations industry is set for a big change in the coming next 3 to 5 years as these companies expand their market share in China and abroad to Asia and eventually worldwide. We will also be seeing more IPO, mergers and acquisition happening in 2011 and 2012 as key leaders expand their grasp on the market. The new growth area in 2011 will be the kids online games and portal sector, where we will see the world first kids online games company goes IPO on NASDAQ *Taomee USD 1 billion IPO will spur the industry to grow further.
Expect China very own Hasbro, Mattel, Disney and Cartoon Network in a years time!
Sunday, December 5, 2010
The Next Niche in China Kids Entertainment
When we look into animations there are 3 main focused categories basically:
Hero
Friendship
Funny
“Hero” style animations are the most popular and successful worldwide, IP such as Gundam, Ultra-Man and Power Rangers are in this category. “Friendship” animations are the hardest animation to be produced’ Doraemon is an example of such animations. And lastly in the “Funny” category we have Smurf, Popeye, Tom and Jerry but writing and producing such scripts is hard.
In China the “Hero” category is heavily hit with many animations IP but none know the secret towards building a lasting brand, image and character till the emergence of the “Pleasant Goat and Big Big Wolf” which showed that a constant broadcasting of a single animation can leads towards a much bigger success than having multiple animations IP projects. “Pleasant Goat and Big Big Wolf” showed it with more than 500 episodes and still in production, it is rumored that the price Disney paid above USD 150 million but announced a signed a licensing deal for 10 years in China for RMB 100 million instead.
Alpha quickly adopted this strategy on to all its key animations IP and do 2nd round of production for ARMOR HERO 2, FRUITY ROBO 2 and BLAZING TEENS 3 live TV action series for 2011. Blazing Teens animations was a huge success in China with more above RMB 600 million in retail sales of their “YoYo” toys.
In the “Funny” category there are Pleasant Goat and Big Big Wolf, Fruity Robo and Kaixin BaoBei. It is said that in China the talent for producing such animations is rare.
The Age Groups
Basically we are looking at kids of 5 years old to 12 years as the key target audience simply because these are also the key age where toys sales are most apparent. While there is a niche for the teenagers segment of above 12 to 16 there are no serious toys sales here in China as yet. However as China economy grows this market will open up eventually for a higher quality toys such as “collectables”. In the US comics characters and replica items from the animated movies and comics are popular among the teens.
The Missing Niche
Pre-school market in China will be the next key target market for certain. The company that moves into this area first will get the first mover advantage for certain. Babies products is already a key hot item today and in the West pre-school series like “Tele-tubbies” are super popular. Here we are looking at kids between 3 to 5 years old. However in this area you will need to be addressing a different market segment and making the series for an entirely different audience “babies”.
Hero
Friendship
Funny
“Hero” style animations are the most popular and successful worldwide, IP such as Gundam, Ultra-Man and Power Rangers are in this category. “Friendship” animations are the hardest animation to be produced’ Doraemon is an example of such animations. And lastly in the “Funny” category we have Smurf, Popeye, Tom and Jerry but writing and producing such scripts is hard.
In China the “Hero” category is heavily hit with many animations IP but none know the secret towards building a lasting brand, image and character till the emergence of the “Pleasant Goat and Big Big Wolf” which showed that a constant broadcasting of a single animation can leads towards a much bigger success than having multiple animations IP projects. “Pleasant Goat and Big Big Wolf” showed it with more than 500 episodes and still in production, it is rumored that the price Disney paid above USD 150 million but announced a signed a licensing deal for 10 years in China for RMB 100 million instead.
Alpha quickly adopted this strategy on to all its key animations IP and do 2nd round of production for ARMOR HERO 2, FRUITY ROBO 2 and BLAZING TEENS 3 live TV action series for 2011. Blazing Teens animations was a huge success in China with more above RMB 600 million in retail sales of their “YoYo” toys.
In the “Funny” category there are Pleasant Goat and Big Big Wolf, Fruity Robo and Kaixin BaoBei. It is said that in China the talent for producing such animations is rare.
The Age Groups
Basically we are looking at kids of 5 years old to 12 years as the key target audience simply because these are also the key age where toys sales are most apparent. While there is a niche for the teenagers segment of above 12 to 16 there are no serious toys sales here in China as yet. However as China economy grows this market will open up eventually for a higher quality toys such as “collectables”. In the US comics characters and replica items from the animated movies and comics are popular among the teens.
The Missing Niche
Pre-school market in China will be the next key target market for certain. The company that moves into this area first will get the first mover advantage for certain. Babies products is already a key hot item today and in the West pre-school series like “Tele-tubbies” are super popular. Here we are looking at kids between 3 to 5 years old. However in this area you will need to be addressing a different market segment and making the series for an entirely different audience “babies”.
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