The Content Industry's online Distribution Strategies (or Lack Thereof) in Emerging Markets

The Content Industry's Online Distribution Strategies (Or Lack Thereof) In Emerging Markets (http://www.samleonel.com/blog/2011/8/29/the-content-industrys-online-distribution-strategies-or-lack.html)

Let me just start by saying that one of the main themes of this blog are likely to be issues related to how businesses are handling (or mishandling) their existing operations or expansion projects in Latin America and Emerging Markets as whole. It sounds like an appealing theme these days when most "established markets" seem to be too stagnant to secure continuing growth for most consumer markets, and when most big companies are aiming emerging markets as the only way to grow their businesses more than their domestic markets would otherwise allow.

However, on this very first post I will focus instead on the much more curious, and similarly important, subject of how consumer oriented large corporations (mostly content owners and its online distribution counterparts) are rather screwing up their market growth potential (not to mention shooting themselves in the foot as far as the war on piracy is concerned) in emerging markets.

As someone who has been splitting its time equally between US, Europe and Latin America for the last 10 years, I have collected a rather large compilation of rants about how some very well known brands have been scandalously ignoring, and most of the times even flat out blocking, their potential new consumers residing outside of the US and Europe.

E-commerce Risks

Let's start by pointing out the obvious here: everybody knows that emerging markets are riskier as far as online credit card transactions are concerned. And as such, many important e-commerce big names have decided that the added risk of having credit card transactions being charged back was not worth the risk of doing business in such regions. I suppose that has been true for, well... ever. But things have been improving a lot lately as credit cards are finally becoming the standard mean of payment across countries like Brazil and China and as credit card operators themselves are improving security for online transactions across the board. Besides, new forms of payments such as PayPal and other pre-paid systems are also helping reduce a lot of the risks involved in selling online throughout emerging markets:

"Merchants and risk management providers are getting smarter about how we deal with credit card fraud. New payment methods are going live all the time that minimize or eliminate fraud through prepayment or cash-based transactions. For merchants that have difficulty with maintaining compliance with chargeback levels the options are pretty clear. Pay hefty penalties and fines from the network providers (Visa, MasterCard, AMEX, etc.) or just stop taking credit cards altogether and offer an alternative method of payment." Steve Levy, Global Director of Publishing at NCsoft West (read full interview here)

But despite the risks involved with online transactions, e-tailers also benefit from much lower operational costs to allow them to serve emerging markets if compared to their brick and mortar competitors, specially when considering companies that do not even have to ship physical products, such as those selling digital goods only (which also goes a long way to reduce their losses even in cases where there is fraud involved).

App stores

Let's consider, for starters, the case of marketplaces for smart phones applications where most paid apps are restricted in most markets outside of the US and Western Europe. Although Apple and Google will say that developers themselves can set which countries they want to sell their iOS or Android apps in, the truth is that developers can only opt to sell in those few countries where these app stores are previously allowed (again, usually focused only US and Western Europe) for paid apps by Apple and Google (although it is fair to say the list is slowly, but steadily, growing). So, if you're not American or European, there is a good chance that you'll probably have to be contempt with mostly free apps. Which might not be a terrible thing as a starter, since there are many good free apps. However it is not uncommon to see cases where you can get the free demo of an application (with its limitations), but then you can't buy the full version depending on where you are on the planet.

Palm/HP on the other hand goes even further in their apps distribution policies as I, the unlikely owner of a wonderful Palm Pre 2 bought unlocked directly from HP online store in the US a couple of months ago (before all the current kerfuffle about HP dropping WebOS based devices and putting the OS itself in a limbo state), found out recently: In HP's app store on the internet you can't even get free apps if you live anywhere in the world outside a scant list of just 7 countries, as they tie the apps download process to the carriers by asking for your local mobile phone number in one of the countries they support (US, Canada. Mexico and 4 others in Wester Europe) to send you SMS messages with the links to download the chosen apps (be them free or paid ones). You can get the crappiest free apps directly on the phone, but, for some unthinkable reason, some of the best free apps for the WebOS platform, such as Accuweather or LinkedIn ones, are not available on the phone's App Catalog. But yeah... who cares about WebOS apps you say, right? Well, maybe if HP would allow emerging markets to join in the action maybe they would have a slightly better chance of increasing the size of the developer base for such platform. If they already sell factory unlocked phones, why not allow everyone to get the apps to go with those phones?

To be fair, there seems to be at least one app store that does a good job to cater emerging markets, which is Nokia with its Ovi store. But I suppose that is to be expected, since Nokia's market share in emerging markets is orders of magnitude larger than their presence in North America. But then, as a counterweight to that fact, Nokia has other much more "fundamental problems" hampering their ability to grow their smart phone business today anyway (and which they hope to fix by switching OSs).

Hollywood old licensing model

But let's face it: to find the biggest example of how stupid an industry can be, one doesn't need to look any further than the example set by the Hollywood and the music industry. As anyone living in most emerging market countries will be able to attest, it is virtually impossible to by online music and movies legally. You can try, but you won't

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