RicDay on Publishing

Media coverage of the Shortcovers morph into Kobo has tended to focus on the Borders connection, and missed something potentially a lot more important — the involvement of Instant Fame.

Most media coverage just mentions that Instant Fame is a subsidiary of Cheung Kong Holdings of Hong Kong; some mention that Cheung Kong is a property developer. What they didn’t get is the scale and impact of the company.

Cheung Kong is a core part of Li Ka-Shing’s global family empire. The Canadian connections:

• Li was the largest shareholder of Canadian Imperial Bank of Commerce (CIBC) until he sold his holdings in 2005 and donated the money to charity.
• Li is the majority shareholder in Husky Energy.
• Li’s Canadian real estate interests include Concord Pacific and its development of the old Expo 86 lands in Vancouver.
• Both Li’s sons (Victor and Richard) are Canadian citizens.

The Empire

Cheung Kong and other related Li interests constitute a huge, sprawling global empire. I will concentrate on the elements which could impact the Kobo deal.

TOM Group has diverse business interests in Internet (TOM Online), Outdoor Media (TOM Outdoor Media Group), Publishing, Television and Entertainment across markets in Mainland China, Taiwan and Hong Kong. Headquartered in Hong Kong, the Group has regional headquarters in Beijing, Shanghai and Taipei with over 3,300 employees in more than 20 cities. TOM has the exclusive operating rights to the official NBA Websites in Mainland China, Taiwan and Hong Kong. This connection alone could give Kobo an early and very large entry into the China market.

Hutchison Whampoa Limited (HWL) has operations in 54 countries and approximately 220,000 employees worldwide. The company is a member of the Fortune 500. They launched the Orange brand in the UK about 5 years ago, and were an early investor in VoiceStream (now T-Mobile USA).

HWL owns an international 3G video mobile network under the “3” brand, operating 3G networks and equipment in Australia, Austria, Denmark, Hong Kong, Ireland, Israel, Italy, Sweden and the United Kingdom since early 2003. It was the first company to launch 3G services in Europe and in August 2009 had 16.7 million customers in Europe (5.6 million in the UK and Ireland, 8.9 million in Italy). HWL’s mobile businesses have over 37 million customers. Lets assume Kobo will be pushed as the preferred source of ebooks on the 3 network.

Hutchison Telecommunications International Limited (HTIL) operates mobile telecommunications services in Indonesia, Vietnam, Sri Lanka and Thailand. Hutchison Telecommunications Hong Kong Holdings Limited (HTHKH) operates GSM dual-band and 3G mobile telecommunications services in Hong Kong and Macau under the licensed “3” brand and provides fixed-line telecommunications services in Hong Kong under the licensed “Hutchison Global Communications” (HGC) brand. HTIL and HTHKH tend to be dominant players in each market they are in. Again, Kobo gets access to a vital delivery service with a huge customer base.

In Australia, Vodaphone and Hutchison Telecommunications (Australia) Limited have merged into a 50-50 joint venture, VHA Pty Ltd. Kobo’s Australian investors are no doubt talking to VHA.

Brick and Mortar

We can add to the telecommunications reach of companies with family ties to Cheung Kong, the brick-and-mortar A.S. Watson (drug store) chain with stores in 80 cities in China — 150 new stores were opened in China in 2009 alone, reaching a total of over 500 stores (the stated goal is to have 1,000 stores in China). In some ways A.S. Watson resembles the London Drugs chain in western Canada, with interests in retailing electrical and electronic products. More than that, every Watsons store represents a point of presence for selling telephone and internet services.

Worldwide the A.S.Watson chain has a network of over 8,400 retail stores in 31 countries and a stated goal of having 10,000 stores by 2011. New store openings in 2010 will average two stores per day throughout the year. In August 2009 the company had 28 million customers in their database — a rather nice mailing list to promote e-books!

Intangibles

The Li family interest in telecommunications and technology is not new. Back in the 1980s they financed the launch of Asia’s first TV broadcast satellite, which had a footprint stretching from the Korean peninsula to Iran and the Middle East. They later sold the Star TV service to Rupert Murdoch’s News Group.

The Li family connections in Asia provide Kobo a tremendous opportunity to break into the fastest growing economies on the planet. And not just for Chinese language books. China and the Far East’s population of people who speak English is expected to exceed the West’s population of English speakers within the next decade.

Finally, it is worth noting that all current e-reading devices (Kindle, Sony, etc) are manufactured in Asia, and Prime View International (PVI) of Taiwan now owns the technology behind the e-ink display, as well as being the reader maker for Amazon, Sony, and Plastic Logic. Apple also sources its displays and manufacturing in Asia and will likely have its “iTablet” produced there if the item ever passes the vaporous stage. If as suggested Kobo wants to sell its own e-reading device(s), having strong connections in Asia is essential and the new partner certainly has those.

Conclusion

Shortcovers and now Kobo have been very specific about e-tailing books on a global basis. Borders and REDgroup bring established retail and Internet services to the table; the Cheung Kong connection potentially brings Europe and Asia into the fold with a heady mix of Internet presence and retail outlets, not to forget very deep pockets. This should be interesting.