Galleon – And Its 'Edgy' Strategy

Edgy. In the big, cool, world of media everything these days has to be ‘edgy’. Advertisements have to be ‘edgy’. Pop videos have to be ‘edgy’. TV comedy shows have to be ‘edgy.’

What is ‘edgy’? Is it what my parents used to call ‘unsuitable’? Or is it simply what the word implies – something that it is on the boundary of anything that has been done before? Whatever, like ‘solution’ it has become a buzz-word and as such is massively overused. Anyway, ‘edgy’ was the description given to me of a web-site called ‘Apollo’s Pad‘ – Apollo being a bar owner and the Pad being his bar. You can go to www.apollospad.com and judge for yourself whether this is ‘edgy’, fun, tasteless or what. But anyway it is the creation of AIM-listed Galleon Holdings, a media company that understands that members of the younger generation are far more inclined to go on-line for their entertainment than to turn on the TV.

Apollo’s Pad features brief on-line comedies starring animated characters, backed by contemporary music. According to chief executive Stephen Green the 16-24 year old target audience will first take an interest in the site, then exhibit ‘emotional commitment’ (i.e. they will tell their friends about it) and then they will actually take part in the activities offered on the site – for example they can edit some of the content using their own voice-over. If the audience grows sufficiently large – and thanks to the worldwide web there are no national boundaries - then eventually a TV show might be made as a spin-off.

So how does this business plan to make money?

This is the opposite of the traditional model that starts with a TV show and then attempts to launch web-sites and other spin-offs on the back of it. Green is hoping that advertisers will use Apollo’s Pad as a stage upon which to market products. Already Sony is supplying the music, while products can be ‘placed’ within the video clips.

Sponsorship and advertising on the site are other possibilities, but the ultimate for this type of venture is ‘viral marketing’, when one user sends some of the content from the site to his friends, thus spreading the name of a product throughout the on-line world.

Galleon is behind two other popular children’s TV shows, ‘Mysti’ and ‘Skunk fu!’ and it is launching a third called Sokator. It also has a subsidiary called Croco Worldwide supplying small plastic toys for insertion into packets of salted snacks. Croco has big contracts with the likes of Pepsico and Kraft Foods, has valuable expertise in the manufacture of cheap mini-toys toys that must be ‘food-safe’ and of the type that children like to collect. But the biggest potential for Galleon rests with the vast Chinese TV market. While not every inhabitant of this vast country yet has a mobile phone or internet connection (although internet cafes are found everywhere) they do all have a television set. Thanks to two acquisitions last year, Galleon is in a position to supply programs and interactive services to Chinese broadcasters, and also to capture some of the revenues that can be generated by a successful program format.

For example, Galleon has produced, in conjunction with the Guangdong Sports Channel and Chelsea FC, a show called ‘Super Soccer Star’, a soccer talent contest that gives the lucky winner the chance to train with Chelsea. Adidas and Samsung are amongst the sponsors while broadcasters will pay to show the program.

In addition to this, the program will have its own website, allowing viewers to interact, to see clips, and to read background information. And, of course, this site can carry advertising. Contestants will be voted on or off the show, generating revenues from mobile telephony. And finally, under the heading of ‘Outreach’, there will be merchandise, and the organisation of themed events at stores or sports grounds featuring the stars of the program.

Pushing further into China

Focusing on family entertainment, Galleon is planning to launch two other programs into Chinese living rooms later this year. One is called The Limit, a game show ‘with the family shopping experience as its focus’, and the second is called Perfect Start, another game show that aims to give one young couple ‘the perfect start in life’, this perfect start apparently including a honeymoon in the UK!

The business model is clear enough. Devise a format and then capture as much of the spin-off revenue stream as possible. What is less certain is just how successful these formats will be in what is a very competitive industry and furthermore in a country not famed for its respect for intellectual property.

At present it is the Croco toys business that is providing all of Galleon’s profit, while the Entertainment division is not forecast to make a profit until next year. On the stock market Galleon is valued at £20m. If it can crack the market of 720m Chinese television viewers then this could rise dramatically. We shall see. Galleon certainly has an ‘edgy’ strategy. But will it also be successful?

Regards,

Tom Bulford
for The Penny Sleuth
P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

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