Terrie's Take 513 -- DoCoMo Buys Oak Lawn Marketing, ebiz news from Japan

Mon Apr 13 08:16:59 JST 2009

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, Apr 12, 2009 Issue No. 513

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Seems that it is the season for selling companies. Yet
another group of foreign business founders in Japan have
received a huge earn-out, following on from the JPY21.9bn
sale price by James Gow and his partners at FXOnline late
last year. On Tuesday it was announced that wireless
carrier DoCoMo is purchasing 51% of privately held Oak Lawn
Marketing, for an impressive JPY31bn. Oak Lawn Marketing is
one of Japan's largest direct response marketing companies,
and is also one of its largest buyers of TV advertising.

Comparing the FXOnline and Oak Lawn deals, Gow of FXOnline
received a price that was just over 8.3x the JPY3bn in
earnings the company made for FY2007, while Oak Lawn seems
to have been sold for just over 7x their JPY8.6bn in
earnings (our guess, based on FY2007 figures). Thus
establishing that regardless of whether the buyer is
Japanese or foreign, in the Japan market at present,
companies that are in good condition, growing strongly, and
which have profit margins of 15% or better, the going rate
for earn-outs lies between 7x and 8x EBIT.

Oak Lawn was started by co-founders Robert Roche and
Tadashi Nakamura, back in 1991. Over the succeeding years,
they grew the business into one of the leading Direct
Marketing companies in Japan. Roche was an active member
of the American Chamber of Commerce in Japan, being the
first governor from the Chubu (Nagoya) chapter. However,
in 2004, Roche got itchy feet and decided to move his
personal base of operations to Shanghai, China. There he
started a Chinese version of Oak Lawn, naturally called
Acorn, and today that company is a listed company on the
NYSE.

[Continued below...]

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[...Article continues]

Back here in Japan, as Roche moved to Shanghai the company
operations were handed over to Harry Hill, who started out
as COO and who is CEO today. Hill has since guided the
company to record profits for a number of years in a row,
and has obviously figured out what motivates the Japanese
(housewives in particular) to buy from TV shopping,
online, and through catalogs. Under his stewardship, the
company had massive growth in FY2007 in particular --
thanks to the Billy Blanks exercise video phenomenon --
with sales jumping 75% from JPY228bn to JPY399bn. Profits
also soared, rising an incredible 295% from JPY30bn to
JPY86bn. The FY2008 numbers have not been released yet,
but obviously they must represent similar impressive profit
margins for DoCoMo to part with so much cash.

We emailed Hill and asked him for a comment about why
DoCoMo bought into Oak Lawn, and what will happen to the
management line up after the change in ownership. These
are his unofficial comments. Any journalists in our
readership should probably contact the company for more
formal statements.

*** Why DoCoMo bought in:
"Over the last several years, we believe that we have been
at the forefront of using TV media to create customers with
branded entertainment. We have also been innovating with
the convergence of marketing channels (TV, internet,
events) as well as sales channels (call center, e-commerce,
retail). We feel, and DoCoMo also feels, that our
relationship has the potential to be disruptive. It allows
OLM to explore new media frontiers. And it is opens up new
response channels. But ultimately it will allow for an
increasingly personal and interactive relationship with our
customers."

*** Where DoCoMo wants the company to go:
"When the Yamada-shacho became the new president of DoCoMo,
he talked about how DoCoMo wanted to move beyond being a
service provider to enabling customer lifestyles. We feel
that the partnership has great synergies for both companies
and moves us both in the direction we want to go. For
DoCoMo this is both their first foray into direct sales as
well as their largest domestic investment."

*** Who's staying, who's leaving:
"The sale was of existing shares, predominantly from the
two founders Robert Roche and Tadashi Nakamura, their
related entities, and existing management. DoCoMo will
appoint three outside board members to our board and will
second one director of internet and mobile marketing into
our company. So the current management remains intact under
my lead and we are extremely motivated to make this deal a
success."

So there you have it. The Oak Lawn Marketing founders have
exited, Hill and the current management will stay on, and
the company is poised to expand to mobile media. We have no
doubt that Oak Lawn will quickly figure out how to use
DoCoMo's customer base and content delivery and payment
platforms to carve out an even larger market for
themselves. It will be interesting to see what form direct
marketing takes on cell phones, because clearly the users
and usage patterns are rather different to housewives
watching TV.

But most importantly, Roche and Hill have proved beyond a
shadow of a doubt that Japan is completely open for
business to non-Japanese. Good ideas and good operational
skills are the keys to a successful result, not whether
you were born here or who you went to school with. This
is a lesson that many struggling non-Japanese entrepreneurs
should be taking to heart.

********************

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+++ NEWS

- Electronic cigarettes gaining popularity
- New stimulus includes interesting tax breaks
- JPY15.4trn second stimulus bill
- Solar subsidies aren't working
- Usen in serious trouble?

-> Electronic cigarettes gaining popularity

According to the Nikkei, battery-powered electronic
cigarettes were the 294th most searched item on Rakuten's
online shopping mall, proving that they are becoming
popular. The gadgets serve up a "hit" from a reloadable
cartridge, which comes in various flavors and scents. They
sell for around JPY10,000 to JPY15,000 each. ***Ed: We
suppose if you're addicted to nicotine and need to have
something in your hands and mouth, then these are as good
as anything.** (Source: TT commentary from nikkei.co.jp,
Apr 10, 2009)

http://www.nni.nikkei.co.jp/e/ac/tnks/Nni20090410D10HH639.htm

-> New stimulus includes interesting tax breaks

In addition to offering the elderly tax breaks to make
gifts to their kids in order to boost home spending, the
government's new stimulus packaging also has two
company-oriented tax breaks that could make for some
interesting opportunities. The first is a larger R&D tax
break, up from 30% to 40%, and better still the R&D
expenses can now be carried forward for up to 3 years
(previously 1 year). Another tax break is on entertainment
expenses, which will be significantly boosted. ***Ed: And
the Japanese do love to entertain for business...**
(Source: TT commentary from nikkei.co.jp, Apr 10, 2009)

http://www.nni.nikkei.co.jp/e/ac/tnks/Nni20090409D09JFA08.htm

-> JPY15.4trn second stimulus bill

The government has kicked things up another notch, by
announcing that it would place yet another major stimulus
program before the Diet on April 27th. The new program will
be added to 3 other bills passed since last year, bringing
to a total of around JPY26.97trn the amount of money
allocated to help the economy turn around. The new bill is
equivalent to around 3% of the nation's GDP and is expected
to ameliorate the shrinkage that was otherwise predicted.
(Source: TT commentary from upi.com, Apr 9, 2009)

http://tinyurl.com/chf5dr

-> Solar subsidies aren't working

Statistics from the Japan Photovoltaic Energy Association
show that although the government introduced since late
last year PV subsidies of JPY70,000 per kW for local
equipment sold to consumers, in fact there have only been
21,653 applications for the subsidies -- much fewer than
budgeted for. As the Association points out, the subsidies
only cover 10% of the purchase price for the costly PVs,
causing the average household to require a financial outlay
of JPY2.5m to fit PVs -- much more than they can afford.
***Ed: As has been witnessed in Europe, if the
government is really serious about getting people to switch
to PVs, they need to subsidize about 50% of a PV purchase,
thus reducing the amortization period of a PV investment to
less than 5 years.** (Source: TT commentary from
reuters.com, Apr 8, 2009)

http://tinyurl.com/cx8pue

-> Usen in serious trouble?

Although cable operator Usen is announcing that it will
make a JPY770bn consolidated group net profit for the
fiscal half ending February 2009, the fact is that most of
this was accounted for by selling off some of its internet
assets over the last few months. We conclude that these
sales were forced due to the fact that Usen last week
sold its video portal site Gyao to Yahoo Japan for just
JPY530m. The site had more than 20m registered users and
cost the company hundreds of millions of yen a year to run.
Usen has also just announced that it will be cutting its
workforce by 20%, including letting go of 800 employees of
major recruiting subsidiary Intelligence Ltd. (Source: TT
commentary from variety.com, Apr 9, 2009)

http://www.variety.com/article/VR1118002292.html?categoryid=19&cs=1

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

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The ideal candidate for this position will have excellent
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- Entry Level Java Engineer, JPY3m – JPY3.5m
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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

=> In TT512, we wrote about the success of the
Australia-Japan Working Holiday program, and how this has
blossomed for both countries.

--> Reader: It was interesting to read about the working
Holiday visa program. In 1980, the very first Japanese
students to arrive in Australia lived in my home in the
Blue Mountains, and I found them work at the Glassworks at
Penrith. The Sydney Morning Herald had reported that they
were stuck in a guest house in Woollahra with no Australian
contacts, and this contrasted very much with the support
that young Australians were getting in Japan. I recall
that there were five of them, and we managed to fit two of
them, a petroleum engineering student and a catering
management student, at our home, while the others all
visited frequently. It was a great experience. I had lunch
with John Menadue some years later, but didn't realize that
he had been behind all of this program.

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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