A Trillion Dollars in Purchasing Power

That’s the estimated amount of purchasing power hispanics in North America have at their disposal. Impressive, and too big to be ignored!

A reader of ours recently attended the Geeks on a Plane (GOAP) event in South America. I asked him to come back to me with some thoughts on the event, and any opportunities he identified while touring.

This is what he said: “It’s not easy for foreign angels to access the startup scenes in countries like Brazil. The entrepreneurs desperately need capital yet there are few angels. Thus, creating an incubator in South America could be lucrative. I would also focus the incubator on the online education market. Universities, vocational colleges and technical courses are ripe for massive disruption. Foreign angels might have the side benefit of a Brazilian passport…”

Chris and I agree with his thesis wholeheartedly!

As you probably know by now, I spend a good amount of my time in Uruguay, and also more recently in Chile. I wrote a piece for another newsletter about Chile a few months ago, specifically their Startup Chile program, which grants $40,000 to entrepreneurs who agree to spend 6 months in the country working on their idea.

When our reader sent me his comments from the GOAP tour I sent him back an email saying, “We need to talk!” He didn’t know it, but I was already planning the piece you’ll read today from Maria Del Carmen, the founder of MundoHablado.com. Maria and I have been speaking for a couple of months on this very subject!

MundoHablado.com is positioning itself smack dab in the middle of the space that our savvy reader pointed out is ripe for “massive disruption.” Read on…

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Mark: Maria, your resume and experience reads like something most politically-focused journalists would kill for. Give us a recap of your career and how it’s led you to your current focus… that of Spanish and English language audiobooks, courses, podcasts, webinars and continued adult education for the Latin American market.

Maria: I was beginning to suffer from the well known cynicism of journalists when I caught myself and decided that was not the way I wanted to continue my path in life. I had already seen and reported enough of what I did not like all over the world through the prism of politics and felt I was due for other things that both I and my audience would find more gratifying.

So, I gradually started moving away from hard core politics toward more social media campaigns in the US, Latin America and Africa (Nigeria), the production of documentaries for international organizations working in community development, music, educational programs and translations of existing material (books and videos).

I lived 70 miles away from Washington, D.C., in glorious Rappahannock county at the foot of the Blue Ridge Mountains, which allowed me to decompress daily from my very hectic and stressful work environment. Part of that cooling down took place in the car on my hour and a half commute where I would “read” while driving. I was one of the first avid consumers of audiobooks when they first began appearing in the bookstores and public libraries as far back as the late 80’s.

That was when I first started  asking: why are there none in Spanish!??

The media is constantly heralding the market value of 44+ million Hispanics in the States… but that is a blatant mis-representation of the market, which only helps feed the deep pockets of the Spanish language media and their advertising agencies. There is an incredibly SMALL percentage of those 44+ million who actually speak Spanish FLUENTLY as a native language (at best, no more than 2-3 million!)… and even those are a dubious market for Spanish audiobooks because they also tend to be highly educated, fully integrated into the mainstream society, truly bilingual, and like me, consume audiobooks and other educational/entertainment content in ENGLISH.

I actually presented a project to Recorded Books in 1994 to start producing Spanish audiobooks. By then they were the leading provider of audiobooks to all the libraries in the US and UK. They finally did pick up on my idea but it was not until 2000. Thanks to that the 10 audiobooks I later produced out of Costa Rica in 2003-2004 I sold to Recorded Books. Yet, by then I had learned enough about the product and the market to know that Recorded Book’s belated response to my first promptings was really not a good idea!

Recorded Books has always sold almost exclusively to the libraries. Libraries have budgets with specific allocations for the different community groups they serve. So libraries buy the Spanish titles according to budget guidelines, even if nobody ever listens to them.

In 2002 I left the States and moved to Costa Rica where I started to produce Spanish audiobooks, but after my initial contract of 10 translations and audiobooks for Recorded Books I quit. In Costa Rica I could not find the talent, technical personnel, technological infrastructure and studio professionals needed. Also, at the time audiobooks were still being packaged for sale in cassettes and CDs, making the distribution expensive and, in Latin America, prohibitively so.

But by 2010 things had changed considerably. Now the technology makes possible the sale of this product as a digital download. All over the hemisphere everyone is already carrying a cellular phone in their pockets, the Latin countries are already set up for e-commerce, and credit card purchases online continue to increase exponentially in Latin America.

I had already been burnt in my try in Costa Rica so I was not ready to jump again blindly into the project. With some personal funds I set out to see if it could be done. I knew I had to be in a major Latin market, so I headed toward Buenos Aires with the sound conviction that I would not do anything until I first had access to the qualified Narrators, studio technicians and web developers needed. It took me almost a year but I managed to find and put together an awesome team of people in Argentina. My crazy idea was not only feasible, its time had come and with the track record of the industry’s success in the US for support, we even managed to attract our first Angel investor in the US.

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Mark: So, you conceived the idea of MundoHablado.com as a “virtual venue” for the creation and dissemination of Spanish and Portuguese downloadable digital content?

Maria: Initially my intent was simply to provide a medium to reach the market with the product with a website that engaged in promotions at an international level, offered encrypted downloads of the files and gave customers a means to store their purchases in a safe and readily accessible manner (like Audible did in the States which led to the explosion of the audiobook industry there).

Between the Spanish speaking countries (over 400 million) and Brazil (around 200 million) our market universe is bigger than Audible’s 300 million in the States.  It only took Audible 9 years of operation to get bought by Amazon for $300 million. That is a feat just waiting to be repeated in this part of the world.

The audiobook market by itself is potentially an incredibly lucrative one, no matter how you make your calculations. BUT, as far as I am concerned today that is only part of what the offering should be for an overly eager public!

Let me start by saying that (much as was the case in the States 12-13 years ago when Audible started) this is STILL a NON-EXISTENT product in Latin America. That means we have to start from the ground up creating a new audience for the new product. Given that, why do it ONLY for audiobooks when today one of the fastest growing sales through Internet are digital downloads: be they movies for entertainment or “how-to” and self-help courses, to University level and continuing adult education for specific professions (such as medicine and law) that require constant renewal of the practitioner’s knowledge base?

At the moment there is an inordinate amount of CONTENT in English. This content is extremely interesting to the Spanish speaking consumer if produced as a translated/dubbed/adapted content. And just as with audiobooks in the States, when a medium is developed to reach the market, that automatically promotes new productions… the same thing will happen with content originally in Spanish.

At the onset we need to spearhead the offer with our own productions, but ultimately (again, as with the Audible model) just operating as a broker of content leaves us wallowing in more money than we can figure right now! And, it is in order to offer all this content that I have conceived of the virtual town for MundoHablado.com.

Mark: What will this virtual venue look like? Are we talking about a portal like an Amazon or iTunes, or something more intricate, like a SecondLife or virtual campus?

Maria: It will not look like anything online at the moment! I want to merge the graphics and interactivity of the video game into a virtual town where people can go to look for the content we offer.

Why a town?  Because just as in real life, the universe of the offering can be overwhelming, but if you compartmentalize by interests then everyone is free to go after what they specifically want. And very important, It makes it FUN to visit… and the technology is already with us, why not use it?

Something else in our model that is VERY, VERY important… A leading feature of the website will be the offering of Virtual LIBRARIES to all Members so they can permanently store anything they purchase from us. But this does NOT mean providing a listing of titles in a white background page (as Audible’s Virtual Library offers). The idea is to offer the user a virtual environment which can be customized to look like they want, to store the digital content they want (not only ours) and give them a “place” where they can INTERACT ORALLY and in PRIVATE with other Members.

Essentially this Virtual Library environment will create a new type of social networking where the individuals can TALK (as opposed to write) with their guests, share contents (as you would when you invite someone physically to your home library) and do so in PRIVATE exchanges, as opposed to public walls.

These features are uniquely appealing to the Latin American who has deeply ingrained in their culture the constant exchange of ideas and opinions with friends over a cup of coffee, mate or a drink. Also Latins are “groupies” per excellence. They create their personal social niches and can be very exclusive of everyone else. Like it or not, that is the way they are, so the idea is to give them a way to engage in their social exchanges, in the manner they feel comfortable with, but expanding the reach of those interactions beyond their immediate communities into the whole breath of Latin America (or the world, for that matter).

Mark: How large is the Spanish/Portuguese language market opportunity for downloadable digital content? It’s got to be massive! How much of that market do you expect to capture?

Maria: We only need to capture 1% of the Spanish or Portuguese market to be talking millions in sales! Also, bear in mind that the primary mode of income generation is contemplated as a fixed monthly membership fee to download at least 1 audiobook and other “basic” offers. Beyond that it will require additional purchases of credits for other content, be they audiobooks, movies, podcasts, online courses or special webinars.

As I said before, no matter how you calculate the potential penetration and sales, it never looks bad… Take this example: If we use the data about the known sales of Audible.com in the US market, let’s assume their level of market penetration (audiobooks still represent only 3% of the book market in the States) would not be too dissimilar in other markets. So, if we take the published 2007 sales of Audible.com of $110 million and divide that by the US population of 312 million that gives us a value of $0.35/person/year.

Then for each target country we multiply that value by the population of any given country in Latin America, adjust that value by the ratio of the per capita GDP adjusted by Purchasing Power Parity for that country to the same respective value for the US, and we end up with an estimate for the expected sales in that country per year if a similar level of market penetration is achieved.

Summing those values ONLY for Argentina, Chile, Uruguay, Florida and Puerto Rico (roughly 87 million in population) we get a value of $14 million.

Applying the same model to all Latin American countries yields a value of $49 million.

Mark: Why have the Spanish and Portuguese language markets been ignored by these larger players? Are they just waiting for a MundoHablado.com to come in and create the content and/or validate the market?

Maria: That is a GREAT question!

Not unlike what initially happened in the States and the English speaking world, the big publishing houses tried to hold back the development of the e-books and audiobooks sales channel because it meant losing their tight grip over the market and all its players. In the States the forecasted  disappearance of the bookstore is already a fact.  The book publishers had no choice but to  adapt to the new digital ways of consumption that were inevitable.

This process has not happened yet in Latin America… but the tidal wave is fast approaching shore. The international publishers (mostly out of Spain) are still sitting on a lot of audiobook rights and refuse to produce them. The authors have found that when they sign a contract with a big publisher they automatically end up relinquishing the rights to “any other version” of their work and are left powerless to do anything about it.

But things are changing fast! Literary Agents are getting smarter and now they don’t let their clients give away those “other version’s” rights when signing a book deal.

There is still a lot of reluctance to engage in the productions. MOSTLY because the few who have tried it have ended up with the cassettes or CD’s gathering dust in some forgotten warehouse corner and the general consensus is that there is no market for this product in Latin America! (There was no market for it in the States either a decade ago!)

It’s the chicken and egg situation. There cannot be a market while there is no offering of product… there is no incentive to generate product because it is too expensive for any one producer to reach the market on their own. In Latin America there is also a huge fear of piracy.

Enter MundoHablado.com to solve all those problems… and then some!

The production of audiobooks, and other digital content for entertainment and educational purposes in Latin America, will not flourish until there is a way to reach the market with them. That is what MundoHablado.com will provide. Also, the big wigs like Audible/Amazon ARE interested, but not until there is enough product. They moved into France and Germany, where they are today one of the leading distributors of audiobooks in those countries, but only when they could boast of at least 20,000 titles in those languages.

One of MundoHablado.com’s potential exit strategies is our eventual sale to a big wig when we have managed to spearhead productions and open the market, exactly like Audible did in the States.

Mark: So why will the Spanish and Portuguese speakers be drawn to MundoHablado.com? How are you going to create the “community” aspect that will be necessary to achieve the growth you’re forecasting?

Maria: CONTENT. This will be a content driven site. We will “build it” (our virtual town) and they will come! The features of the Virtual Libraries will make it possible for the users to generate their own unique social interactions, which are currently not offered anywhere else.

Mark: Maria, Chris and I are more about backing the “team” rather than the technology or the idea. We figure if we identify strong, capable management with the ability to execute and actually run a business, we’re way ahead of the game. You’ve told us about your background; who else is involved, and why are they qualified to get involved with such an ambitious project?

Maria: I spent 4 months in Buenos Aires looking for a studio where I could get the expertise and quality needed to produce a good audiobook. I won’t go into the details here, but I will mention that it is easier to record and edit a music band performance than a single voice recording!

My choice was further validated when, only months after we started working together, Sony Entertainment Europe hired the studio to do all the Spanish dubbing of their leading video games.

So, I found the studio AND a partner who understands the Latin American market as much as I do, if not more. He has been involved with advertising all his life working with the likes of Young & Rubican and others in Argentina. He is Argentine but was raised in the States, speaks flawless English and, like me, understands the work ethic of the States and the idiosyncrasies of the Latin market.

Mark: Not to interrupt, but that’s a great point.

Maria: It is important to have that breadth of cultural experience I think. I managed, after a lot of blood, sweat and tears, to find people to develop the site with a great deal of the back-end we need. But, I am not happy yet with that component of the team.

In the States I identified a leading virtual games developer who could undoubtedly do what we want for the virtual town and the virtual libraries. But, I would like to incorporate into our business structure the key players in this development. I want them to have a vested interest in seeing this done the right way, rather than just fulfilling the needs of a paying client.

Mark: Hence the reason we met… You contacted us regarding our work with an incubator we’re involved with that works with companies like Mundo Hablado.

Maria: Yep, exactly…

Mark: So are you running the company out of Argentina or Uruguay where you live? I ask this question because frankly Argentina is in a slow motion trainwreck phase right now. Doing business in the country scares the crap out of me. Uruguay is a bit more stable, and maybe setting up in one of the free zones makes sense?

Maria: Well, interestingly enough, neither. We are a US-registered company. I will avail myself as much as possible of the advantages of operating an “international” Internet company.

Mark: I’ll read between the lines…

In the wake of the recent FaceFlop IPO, raising money for social media startups is likely going to get tougher. You’ve already raised a small amount of capital, presumably from the founders and/or friends and family, and of course the angel investor you mentioned… Where are you at right now with your development, capital raising, etc.?

Maria: I am in the process of expanding our team to help do what I am not qualified to do. I understand and can manage the business, but creating the technology, selling the deal to the market, etc… That isn’t my strong suit.

Mark: Chris and I like to get in early where we identify a team we believe in. This presents us with the most upside, but it’s also the riskiest time to get involved because your still proving up the concept/idea. Your long on enthusiasm and hope, but short of cash. Assuming the company takes flight, what’s the exit strategy for early stage investors like us?

Maria: Really it is almost impossible for us to do so badly that we cannot commit to funding via convertible debt and things of that nature. You mentioned recently where Peter Thiel, an early Facebook investor structured something like that.

Mark: Yep, it’s a great strategy for seed investors. We’ve done it, and Chris actually wrote a post about how that works.

Maria: The point is we are confident enough in the business, and it’s early enough that we can structure it so it makes sense for our early investors. Ultimately we are working toward a buy out within 5-10 years. It could be sooner of course, but you plan for the worst-case.

Mark: It’s important to keep perspective there. I think a lot of people involved in the startup tech world have unrealistic expectations for liquidity events. It’s not a matter of throwing together a whiz bang technology and selling it for $100M in 18 months. It’s refreshing to hear something a bit more realistic!

Maria: Right, that is not lost on us. As I mentioned before, we are after a model of something totally new on the web, which I strongly believe will be extremely successful in all international markets. We can develop it for the Spanish/Portuguese market while leaving the door open to port it to English. I am happy to just work with the Latin American end of it, which is already a lot to deal with, so we can also envision licensing our IP to others to use as well. We can’t do it all, nor do we want to.

Mark: You have your hands full, that’s for sure. Thanks for sharing your ideas and experiences with us Maria.

Maria: De nada Mark!

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Maria is definitely onto something in our opinion. In full disclosure, Chris and I have not yet become involved with MundoHablado.com. We may step up to the plate shortly, as we think the Lat Am market is ripe for ALL KINDS of opportunities, and a trillion dollars in purchasing power really is tempting to tap.

We’re also going to present MundoHablado.com to the incubator we are involved with, as we think it’s a perfect project for that venue.

If you want to learn more about the Spanish language market for digital content, or MundoHablado.com, Maria is the person to talk to. Drop us a note and we’ll send you her contact information.

- Mark

“The chief enemy of creativity is ‘good’ sense.” – Pablo Picasso