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As far back as the middle of 2004, video game publisher Electronic Arts (NASDAQ:ERTS) was making moves to establish itself in China (and across Asia).  It’s since developed a substantial presence with a regional headquarters in Hong Kong and studios in Shanghai, Japan, Singapore and Australia.

Yesterday, EA announced it was buying a 15% stake in Chinese video game company The9 Limited.  The announcement is noteworthy, even if largely overshadowed by the more widely reported we’re-going-to-China news from private equity firm the Blackstone Group (which announced China’s national investment agency was making a $3b investment with them to buy a 10% non voting stake).

In the Electronic Arts deal, EA is paying $167m to gain its 15% share of The9 (Nasdaq: NCTY).  EA will also give exclusive licensing rights to The9 for the distribution of EA’s multiplayer FIFA Online game in China.  It’s a deal similar to one EA struck in South Korea with Neowiz in March (EA bought 19% for approximately $105m.)

China is a difficult market to understand and break into if you are aiming to sell products or services to Chinese consumers. (EBay, Yahoo and other companies have learned that the hard way). Not only are customer behaviors different (in gaming, for example, the market tends to favor multi–player online games -so called Massively Multiplayer Online Role-Playing Games (MMORPG) – much more than in the West), but there are also the Governmental and Regulatory bureaucracies to navigate.  Simultaneously trying to learn and manage marketing, sales and political considerations is not an easy task.

The EA deal seems to mark a new type of strategy for wishful corporate suitors. Rather than trying to break in like an adventure traveler with a backpack, a visa and a sense of adventure, Western companies are increasingly trying a more measured “Tour-Guided” approach.   They’re looking for partners who know the landscape and will guide them to the best places to visit.  For EA, the FIFA Online license deal is likely the first of many steps on that walking tour.  If it’s successful, I’d expect to see EA offer similar deals, or partnerships, on the release of other titles as well.

As far as the numbers go, China unquestionably presents a lucrative market opportunity.  IDC has estimated there were 31m online gamers in China in 2006 and Click to Read More

Going, Going,… Gone … Private?

Earlier today, London news wires starting buzzing with reports that one of the globe’s “Big 4” record companies, UK based EMI Group, had agreed to a buyout from private equity firm Terra Firma for £2.4b ($4.7b) (including debt the deal is reported to be worth £3.2b (approx $6.27b)).

At this stage, the deal has only been approved by EMI’s board of directors which characterized the deal as “fair and reasonable.”  In a statement carried on BBC, EMI’s Chairman, John Gildersleeve justified the deal saying, “Terra Firma’s offer delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company.”

The 265pence-per-share offer from Terra Firma still must be approved by the shareholders.  In the event that the deal doesn’t close, EMI will pay a breakup fee of £24m (approx. $47m)

EMI has been struggling over the past year to adjust to the changing landscape of the music industries, particularly the increase it downloadable music.  In a break from it’s peers, and in an effort to capture more from online sales, EMI recently announced deals  to offer its music without Digital Rights Management on both Amazon’s upcoming music store and at industry leader, iTunes.  On Thursday, EMI announced that it had accrued a 65% drop in pretax profit the past year.

Over the course of the year, EMI has been the subject of several takeover rumors.  Previously rejected a takeover bid from US industry rival Warner Music (though some suggest Warner was again a bidder this time).  EMI also supposedly entertained other offers from at least 3 private equity firms before deeming Terra Firma’s bid the most "attractive.” 

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Music download service Napster (NASDAQ: NAPS), yesterday reported a wider loss for Q4 but met or beat analyst consensus estimates.

Consensus estimates according to Thompson Financial were for a loss of 20c/share on revenue of $27.9m. For the period ended March 31, Napster reported a net loss of $8.5m (20c/share) as compared with a loss of $4.4m (10c/share) for the same period last year. Revenue for the period was up 9% to $29.1m ($26.8m for the same period last year). Worldwide paid subscribers were also up, reaching a total of 830,000, including 225,000 former AOL Music Now users. The number of paid subscribers was up 37% from the year-ago quarter.

In fiscal year reporting, Napster reported a net lost of $36.8m (85c/share), down from a loss of $54.9m for the prior year. Net revenue was up 17% to $111.1m. Cash reserves at year end were reported at $66.6m.

For the coming quarter, Napster set expectations for a first quarter loss of $6-$7m on projected revenue of $31m – below an average analyst expectation of $34.2 million.

With recent partnerships struck between Napster and AT&T, Circuit City and Motorola, the company is betting heavily that MP3 playing cell phones will increasingly replace standalone MP3 players. Napster is also hoping the partnerships will help reduce some of company’s marketing expenses.

More detailed press coverage on Napster’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Wednesday, Hewlett Packard and Sony both released quarterly earnings. HP narrowly beat analysts estimates but there was little surprise after an accidental leak of news last week. The news for both companies was mixed.

Sony:
Sony’s reported a Q4 loss of 67.6 billion yen ($563 million) down from a loss of 66.5 billion yen a year earlier. The loss was attributed to substantial development costs for the PS3 and the intense competition with Nintendo’s Wii. Sales for the quarter were up nearly 13% to 2.01 trillion yen ($16.8 billion). For the fiscal year, Sony reported net income of 126.3 billion yen ($1.04b), up 2.2% over the last year.

Sony was extremely optimistic and aggressive in guidance provided for the next fiscal year. CEO Howard Stringer has set a goal of generating $5 of profit for every $100 in sales. (The company’s 5% operating profit margin target can be compared against a 12.7 percent margin at Apple Inc.) To meet the goal, Sony is forecasting they will cut PS3 losses by near 80% through increased sales and decreased production costs. The game unit is projecting a loss of 50 billion yen ($414 million) for the year ending March 2008, well below Bloomberg’s analyst survey of 83 billion yen.

Sony also expects to increase sales of their Bravia television line. Overall guidance is for a near doubling of net income to 320 billion yen ($2.7b) for the next fiscal year. Consumer electronics will account for a substantial portion of that but there should also be a significant increase in film related revenue thanks to Spider-Man 3 and the expected fall release of the latest movie in Sony’s popular Resident Evil film franchise.

More detailed press coverage on Sony’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Hewlett Packard:
HP reported revenue for Q2 was up 13% to $25.5 billion. Net income was down 7% to $1.78 billion compared with $1.9 billion for the same period last year. Earnings per share came in at 65c, down 1c over the same period last year. Adjusted for a one–time charge, EPS would have been 15 cents/share.

CEO Mark Hurd noted in the conference call that this was “[HP's] strongest quarterly revenue growth since the year 2000.” The company raised its revenue guidance for the year to a range of $100.5 billion to $100.9 billion, up from its prior guidance of $99 billion.

More detailed press coverage on HP’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Long before computers, or blogs, Alexis de Tocqueville sad, “The power of the press is second only to that of the people.”  Yesterday morning, around 11am EST, popular gadget website Engadget demonstrated just how powerful a part of the press blogs have become.

At 11:49am Engadget, which is part of the AOL owned blog-network Weblogs, posted  a story that Apple’s much anticipated iPhone and Leopard operating system would both be delayed by months.  The story was based on a reported internal memo from Apple that Engadget had been forwarded. 

Believing the memo was accurate, and confident the memo came from inside Apple (a “trusted source” they reported), Engadget ran the story.  Like a viral epidemic,  the news of Apple’s delays rapidly spread around the web – through major RSS feeds re-broadcasting the Engadget story, through Engadget’s own direct audience, and through other sites that repeated the apparent news.  Within minutes of the posting Apple’s stock began to drop, quickly falling more than 2% (around $4b in Market Cap) as investors began to sell off and panic.

20 minutes after posting the story, a second announcement began to circulate suggesting the supposed memo was a fake.  A short while later, Apple issued an official release saying there would be no delays with either the iPhone or Leopard and Engadget formally corrected its earlier release.

As the stock chart reprinted here shows, the volume spike and price drop were short-lived. Apple’s stock price largely recovered, and it did so quickly. Shareholder’s who didn’t panic were likely unscathed. Other’s who pulled the trigger based on trading behavior were not so lucky. Apple closed down on the day only $0.18 despite hitting an intraday low of more than $5 a share below its opening price.  (AAPL was also trading up in after-hours trading).

There will no doubt be ongoing investigations to determine if the hoax was related to some hacking or break in into Apple’s mail systems, a malicious act, or any form of market manipulation (either people shorting the stock, buying on the drop – both with straight equities or options and other derivatives). At this point there have been no released statements and it’s much to early to even guess what motivated the hoax, or how it happened. Those facts may take months to come out, if at all.

It’s no shock that news travels fast in our connected world but the pace at which the news effected the market was remarkable.  It’s a certainty there will be rumblings and grumblings from all sides over the next week – not to mention a few calls of criticism about the blog-o-sphere and journalistic integrity. 

Yesterday Amazon acquired popular London-based digital camera review site DPReview for undisclosed terms. DPreview, which was founded in 1998 by Phil Askey, offers unbiased, reviews of digital cameras and accessories as well as discussion forums, industry news and a product comparison database.

The DPReview site, which has fans on both sides of the Atlantic, has become extremely popular. For March, the site had more than 7m unique viewers. That coincides with the rapid growth in the digital camera marketplace. Last year (digital still-photography) generated nearly $18b in camera sales.

An article on financial news blog Seeking Alpha is noting that the back&ndashend infrastructure for DPReview’s ecommerce links has been provided historically by CNET. If that report is accurate, the purchase by Amazon could steal away some traffic from CNET’s monthly totals.

Following the announcement, web forums have been filled with speculation about the terms of the deal. The web has also been abuzz with questions of whether DPreview will retain its editorial independence. DPReview has largely been known for its unbiased reviews. Fans are questioning whether they will continue to be able offer the same unbiased quality of services that built the site’s reputation if it is now owned by a retailer who will have a vested interest in the reporting it offers. Without that independence DPReview will be no different than any of the many companies providing professional, or user-rated, reviews of cameras: from Yahoo to AOL, etc.

Last week was relatively busy with news about Apple and its products. Here’s a quick consolidated look at what came out of the shareholder meeting and what else is brewing from Apple-land in Cupertino:

Beatles are coming to iTunes

Not officially yet, but soon.  The rumors have been swirling since Steve Jobs played the Beatles song Lovely Rita during the announcement for the iPhone in January (not to mention Apple resolving its issues with Apple Corps and EMI).  But this week, Paul McCartney confirmed that a deal is imminent.  He said the Beatles library would be available soon in an interview with Billboard magazine.  He characterized the deal as “virtually settled.”   The report also confirmed McCartney’s next solo album “Memory Almost Full” will be available for download.  The press reports would lead me to expect the Beatles music will be available within the month but I wouldn’t be surprised if Apple waited to announce a deal until it rolls out the iPhone in mid June.  That kind of two-pronged high-profile announcement fits well with the company (and its CEO’s) showmanship style.

Two Sided Device Possibly in the Works

News of a January patent filing specifying a hand–held device with a smaller touch sensitive screen on one side and a larger touch/pressure-sensitive input screen on the back, flooded the web.  The basic concept of the patent was a device with user controls on one side and user-displays on the other. The most likely application is to allow the use of a full virtual keyboard on future devices (something that’s long been wished for, but that would be difficult to use even as on overlay on a full screen device) Speculation abounded as to whether this might be for a next-generation iPod (Nano or Full Size), or even a second generation iPod, or a new device altogether.   As is sometimes the case with patents, what has been filed may be defensive and never implemented – accordingly, speculating on what device this is for may be futile. The one sure conclusion is that Apple remains committed to improving and advancing user-interface technologies (and defending their IP in the space). Click to Read More