<img class="alignnone size-full wp-image-2482" alt="Post - TMT convergence graphic" src="http://redwingconsulting.com/wp-content/uploads/Post-TMT-convergence-graphic.jpg" width="700" height="293" />
<h4 style="text-align: justify;">Worldwide merger and acquisition activity in the technology and media sectors in 2013 is at its highest level since the Internet bubble of 2000, with industry participants of all types seizing their positions in the evolving eco-system. The entire industry is focused on achieving greater economies of scale, coupled with radical integration in the value chain. But convergence in Indonesia is likely to be slower than other markets, due to the difference in approach between the foreign-owned online powerhouses and the locally-owned companies that dominate the media and telco industries.</h4>
<h5 style="text-align: justify;">Demand in emerging markets is accelerating quickly</h5>
<p style="text-align: justify;">Across the globe, consumer access to digital content and associated experiences is being democratized by an ever-expanding broadband footprint and explosive growth in smart devices. The demands of the ‘connected customer’ are driving the creation of cross-regional media hub and content aggregation organizations.</p>
<p style="text-align: justify;">Media and entertainment businesses in the biggest emerging markets will expand at more than three times the rate to be seen in developed countries in the next five years, according to a recent study by PricewaterhouseCoopers (PwC).</p>
<p style="text-align: justify;">The media and entertainment sectors in the BRIC nations - Brazil, Russia, India and China - along with rapidly-growing markets such as Indonesia and MENA (Middle East and North Africa), will increase by a compound annual rate of around 12% until 2017, while developed markets such as USA and Japan will expand by less than 4% in the same period.</p>
<p style="text-align: justify;"><img class="alignnone size-full wp-image-2483" alt="Post - TMT convergence chart" src="http://redwingconsulting.com/wp-content/uploads/Post-TMT-convergence-chart.jpg" width="601" height="356" /></p>
<p style="text-align: justify;">These trends will be fuelled by the overall growth of the middle class population in the large emerging markets, with more people directing discretionary income into media and entertainment consumption i.e. products, applications, services and content-based experiences.</p>
<p style="text-align: justify;">In Indonesia specifically, growth in real income levels mean that up to 9 million people are predicted to join the middle class segment each year.</p>
<p style="text-align: justify;">Much of this media consumption - e.g. video and audio streaming, online publishing, social gaming, curated content, etc. - will be conducted on the mobile web, as consumers choose to bypass conventional wired Internet access and cable/satellite TV services.</p>

<h5 style="text-align: justify;"><b>Connected consumers are the catalyst for change and innovation</b></h5>
<p style="text-align: justify;">Consumers in both mature and emerging markets are increasingly connected ‘anytime, anywhere, anyhow’ and hence are able to exert hitherto unparalleled influence on prevailing market place dynamics and peer sentiment through mechanisms such as social media networks, micro blogs and crowd-sourcing.</p>
<p style="text-align: justify;">Accordingly media and entertainment companies will increasingly engage with new and more diverse customer segments, each having different needs and aspirations.</p>
<p style="text-align: justify;">At the same time these consumers are at risk of being overwhelmed by the so-called ‘digital storm’ - namely the plethora of content offerings and associated service delivery models made available to them both legally and sometimes illegally.</p>
<p style="text-align: justify;">As such, mass market technology and content providers will be obligated to apply continuous product and service innovation - coupled with operational agility - in order to understand and meet the demands of their various consumer audiences.</p>
<p style="text-align: justify;">With consumers migrating towards digital and, increasingly, mobile consumption across a bewildering array of platforms and devices, the shift in consumer expectations changes from ‘mass media’ to ‘my media’.</p>
<p style="text-align: justify;">The providers that successfully accompany their audiences along the way will be those that have the speed, flexibility and insight to engage and monetise an ever-more-diverse consumer base by delivering personalised, relevant and, ultimately, indispensable content offerings.</p>
<p style="text-align: justify;">In order to do so, every industry participant has a strategic imperative to invest relentlessly in the customer experience - by embracing collaborative business models enabled by cross-sector partnerships, leveraging insights from social network data analytics and adapting the processes by which new product and services are created and distributed.<b></b></p>

<h5 style="text-align: justify;"><b>Global consumer trends are being reflected in the Indonesian market</b></h5>
<p style="text-align: justify;">Indonesia is truly a ‘mobile-first’ market - consumer media, communications and commerce applications have all been largely subsumed by the wireless Internet.</p>
<p style="text-align: justify;">Across the entire demographic mix, Indonesians are highly social digitally and are increasingly ‘app-hungry’. The demand in Indonesia for popular applications such as Facebook, Twitter and Blackberry Messenger has surpassed all historic market forecasts.</p>
<p style="text-align: justify;">Similarly the rapid take-up rates in Indonesia of ‘over-the-top’ (OTT) mobile messaging applications such as LINE, WeChat, Whatapp and KakaoTalk has confounded all expectations.</p>
<p style="text-align: justify;">As an illustration, LINE has attracted 10 million users within the first year of operations in Indonesia (making it a top 5 global market for the Japanese parent company) on the back of a high profile TV advertising campaign.</p>
<p style="text-align: justify;">As their core messaging functionality is enhanced with broader social networking capabilities, these OTT applications generate significant additional web-based activity such as video streaming, photo sharing, collaborative content creation, interactive gaming, etc.</p>
<p style="text-align: justify;">The scope and scale of the consumer technology market opportunity in Indonesia is capturing the attention of foreign social media companies and mobile application providers - this represents a significant shift in the investment focus of foreign operating companies and investment funds, as they move beyond the established infrastructure, extractive and natural resource sectors.</p>
<p style="text-align: justify;">In turn, traditional media companies are eyeing the potential for growth across the entire advertising market - worth USD 10 billion in 2013 - on the back of Indonesia's rapid macro-economic expansion.</p>

<h5 style="text-align: justify;"><b>Embedded media industry interests in Indonesia will be hard to disrupt</b></h5>
<p style="text-align: justify;">The global advertising industry has been transformed by the propensity of the consumer audience to absorb an infinite variety of media content across multiple devices and platforms.</p>
<p style="text-align: justify;">In Indonesia, however, the pace of change is likely to be slower and the nature of the domestic media industry will constrain the scope for strategic partnership activity and investment in local companies.</p>
<p style="text-align: justify;">Our view is that traditional media assets will remain under closely-held ownership and control of Indonesian companies for the foreseeable future (at least until the 2014 Presidential Election process is stabilized and underway).</p>
<p style="text-align: justify;">These media companies are a key part of the fabric of the national political and business environment, having a major influence on government policy and the shaping of public opinion on key issues of the day.</p>
<p style="text-align: justify;">Inevitably, connections between business, politics and the media are endemic in Indonesia and the media owners exert significant direct control over the output of their companies in order to protect and promote their particular commercial and political interests.</p>
<p style="text-align: justify;">Compared to the size and strength of their teams in the US and Europe, the global Internet players such as Apple, Microsoft, Google, Amazon, Facebook, Yahoo and Twitter have relatively small teams in Indonesia (for example, Google has less than 100 employees in Indonesia versus tens of thousands worldwide). The major Chinese players have yet to develop robust international market development frameworks.</p>
<p style="text-align: justify;">These factors will constrain the ability of the mainstream online players to form close partnerships with local media and telco companies.</p>

<h5 style="text-align: justify;">Local-Foreign partnerships will need to be built</h5>
<p style="text-align: justify;">In essence, localisation of global product and service propositions in conjunction with the provision of market-sensitive content will be critical to the success of the major US and pan-Asian providers in Indonesia.</p>
<p style="text-align: justify;">Establishing a substantial in-country presence, which offers full service support both to local partners and end users is also a likely pre-requisite to the acceptance of a foreign entity as a committed and credible provider.</p>
<p style="text-align: justify;">Further, a number of Indonesia-specific factors will slow the near-term integration of the global Internet players into the Indonesian media space:</p>

<ul>
	<li>The regulation and governance framework for online activity is still evolving. The first Code of Conduct issued by the Indonesian Press Council in February 2012 emphasized rigid news reporting verification, the close control of user-generated content and the preservation of the right of reply.</li>
	<li>Industry consolidation between the media companies and the telecoms operators is occurring, but at present it is confined to locally-owned conglomerates. Recent market activity saw CT Corp acquiring an 80% stake in Telkomvision, a pay-TV unit of the dominant telecoms provider Telkom. Similarly PT Mahaka Media (in conjunction with Northstar Pacific Indonesia) acquired a 35% ownership stake in PT Hutchison 3 Indonesia (Tri).</li>
	<li>The rich cultural diversity of Indonesia, which embraces a vast array of local languages and dialects, makes the delivery of contextually-relevant content both complex and unwieldy on a national scale.</li>
</ul>
<p style="text-align: justify;">Ultimately, Indonesia will develop its own model of industry convergence. Foreign participation in the media and mobile technology markets - by way of direct investment and the forging of long term partner relationships - is likely to change positively once the 2014 Presidential Election process is stabilised and underway.</p>
<p style="text-align: justify;">What both the foreign and local companies need to figure out is how best to jointly take advantage of Indonesia’s booming market of media consumers, given their complementary capabilities.</p>