The story about how a Mexican and a Czech built an international company starting in communist times

In itnig’s Podcast #23 Arturo Quintero, partner at itnig, shares the story of Moravia with us: How he set up the translation company together with his partner in the 90s, how they internationalized and created a global structure and what he has learned in the process.

Moravia is the story of a project that starts in a local market, is proven and reaches success and then takes the next step to internationalise.

At itnig every Friday we sit down to talk with interesting people whom we meet throughout the week and we make a podcast (in Spanish) out of our conversations. You can listen to it on iTunes, subscribe to our channel on Youtube or enjoy it through iVoox.

For this Podcast #23 Bernat Farrero, CEO at itnig and Jordi Romero, CEO at Factorial meet with Arturo Quintero, one of our partners at itnig and founder of Moravia to talk about his experiences.

https://upscri.be/5c88ff/

Arturo grew up in Ciudad de México and with luck found his way to study in Poland. During the communist regime, without any political interest he found himself studying in Krakow. “I spent some years there until arriving in Budapest where I met a student whose parents were translators. At that time there were only governmental translation agencies but as you know in this time there were a lot of changes in Europe. Dynamic times when all services like transport and restaurants were liberated. So if you had an idea there was a good chance to build something.”

This is when Moravia, named after the region in Czech Republic, was created. Today it is one of the biggest companies in its sector with a yearly revenue of 50 million $, a strong client base and presence in 9 countries.

It was a great adventure of 22 years leading this company!

You tell your story so easy, but a lot of times this internationalization is hard. How did you take your first steps out of the Czech Republic?

We had big ambitions as we kept seeing that what we were doing was satisfying our clients. They were happy with us. Our business idea in itself is multicultural — localization means adapting the product as if it was created locally — so going global was a natural step for us.

To a certain degree you have to follow your intuition, to just go for it, but you also need a bit of structure, a plan. It’s a mix of both.

Who were your first clients?

Tech companies like Minolta and Hewlett Packard. We were doing translation from English and Czech. And they were looking for local companies to translate manuals and later on displays of photocopy machines. We also started working with Oracle, who already had a team for European languages in Holland, and they gave us their first big contract for Czech. Oracle really liked what we did and asked us to translate to Polish as well. So we set out to create an office in Poland and started working. Next up Hungary and soon we were known for localization to ‘exotic languages’ like Bulgarian, Hungarian…You have to remember the times! There was no internet and all technology, like translation memory, was new.

These first assignments allowed us to see the potential we had. Our goal was to work for Microsoft.

And we finally reached this goal of working for Microsoft in 1995. We added more and more languages and employed technology to help us in our processes. Translation memory is such a technology that allows you to recycle translated pieces as they are saved with their source. The software analyzes the text so that when a similar phrase appears, the translation can be reused. This makes the process quicker, consistent and efficient as we can use content created by other translators in our network as well.


Business model — What is it and how has it evolved?

We follow an Enterprise model lets’ say with few clients but high volume.

When we started out I was the first sales person. Before there was Internet getting access to people who know a certain language or people who know a certain technology was really hard. I am not saying it’s easy today either but there are certain advantages. I was the one who brought the first clients, at that time I did not even consider myself a sales man but if I look back at it, yes I was doing sales, growing our company.

Later on you need a process, a sales methodology and a lot of discipline. As we were working with big companies, they already had processes in place and a clear budget and visibility of the market. However, when the buyer has a lot of knowledge, it makes it also hard to defend your prices and keep your margins.

What is most impressive for me is how you opened up new offices in different countries. What does it mean to open an office in Japan or China?

Every experience was different and we were learning continuously. In general there were two reasons to open an office:

  • be closer to our clients
  • have a cost advantage in production.

China, Czech Republic and Argentina were places with highly qualified people, high talent to develop software at competitive costs. Japan, USA and Ireland were close to our clients, here our sales was strong working on product acceptance, budget etc. Translation is always done by an agency with translators — we do the compilation and quality control.

How big was your sales team by country?

We did not structure our teams by country. Our customers, take for example a company developing software for architecture with Asia, Europe and the Americas decide whom to work with. We had to convince all three of these points and we realized they were very well connected. I could not offer a discount to the office in Singapore as there was direct communication with California office. We replicated this structure in Moravia as well. Connecting our offices and making sure we had the same communication.

Operative point of view : Did you move the HQ of your company from Czech Republic to another place?

No, it remained in Czech Republic and from there creating subsidiaries. When I left the company, of course, I don’t know what changes have been made.

There were enough consultants who came and offered a move to Ireland. But it was never our goal to maximize for tax purposes.

Venture Capital — Have you ever raised outside capital?

No, every year was of growth and profit so we were able to reinvest our profit into growth. When I left private equity entered the company but not before. We did not need it. Now looking back I can see that it could have been an advantage but it had never crossed our minds before. I think venture capital allows you to be faster. You are able to

  • grow more quickly,
  • implement technology &
  • do strategic acquisitions.

It’s not just the money but also the people behind it with their experience who can guide you in the growth in the company.

Why did you decide to leave Moravia and how was this process?

There is not one reason. With the birth of my daughter my perspective on life changed a bit and there were different dynamics with my partner as I was looking for a more aggressive growth as we were entering a more competitive market.

It’s a pleasure being part of the beginning of such a successful company.


Listen to our podcast to learn more about Arturo Quintero and Moravia’s story. Learn more in this Podcast in Spanish on our Youtube channel, listen to it on iTunes or enjoy it through iVoox and subscribe to our newsletter to stay always up to date.

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T.

The reasons why Disney will dominate the media industry

The perception that Disney is only a producer of children’s content is long gone. The company has managed to multiply by 10 its market capitalization in 10 years and I believe it will do it again in the next 10 years based on 3 factors: content, the entry in new businesses and spillover effects on current businesses.

CONTENT

Disney has been making movies for almost a hundred years. They have been movies for all the family but targeted to kids, which are the ultimate decision-makers when going to the movies. This is an example of the classical content they were producing up until the last 10 years.

Found in Pinterest https://www.pinterest.es/pin/129548926755761740/

Despite having a powerful content library, Disney has amassed the most impressive collection of content in the world via acquisitions:

  • 21st Century Fox: 71B
  • Lucasfilm (2012): 4B
  • Marvel (2009): 4B
  • Pixar (2006): 7B
  • Hulu (2009): ??. They acquired 30% and an additional 30% with the acquisition of Fox

With the recent acquisition of Fox, there are only big four other movie studios left in the market: SonyWarner BrosUniversal, and Paramount.

Just to give perspective. This is the list of the top 3 grossing movies for the last 3 years. Spoiler, they are all from Disney:

  • 2017: Star Wars The Last Jedi (rubbish if you ask me), Guardians of the Galaxy 2 (not great) and Beauty and the Beast.
  • 2018: Black Panther, Avengers: Infinity War and Incredibles 2.
  • 2019: Avengers: Endgame, Captain Marvel and Aladdin (Still not counting with Toy Story 4, Spiderman, The Lion King, Frozen 2 and Star Wars: The rise of Skywalker)

Having content as an asset in the movie industry is relevant because of the fact that over 90% of every year’s Top Box Office Hits are not original. Notice that the 9 hits mentioned above are not original content, including Captain Marvel which is a character well known despite debuting in theaters. Moviegoers are risk-averse and showing characters the public is familiar with is synonymous of success in a market where the production of a movie can cost hundreds of millions of dollars.

Another essential part of the content are the actors. They give credibility to a movie and top talent can’t wait to appear on a superhero movie. Just look at the roster of Avengers Endgame with cameos from the likes of Robert Redford, Rene Russo, Michelle Pfeiffer, Michael Douglas, Natalie Portman, William Hurt, Samuel L Jackson or Ken Jeong, the Asian character on The Hangover. All of this without accounting for the main characters. Where else can you see this?

Source: https://www.editorchoice.com/avengers-endgame-cast/

NEW BUSINESS

One of the acquisitions mentioned is Hulu, a streaming platform in the US which also allows watching live content. I believe this is the future. Cable TV operators are doomed. The number of subscriber to Cable TV in the US has declined over the past years.

Source https://www.statista.com/statistics/536356/cable-shopping-networks-revenue-usa/

It’s clear the consumers are opting in to streaming on-demand platforms such as Netflix, HBO, Hulu, and Amazon Prime. That’s why Disney is launching Disney +.

This is a global trend. People across the world may not own a TV, but they have smartphones and internet connection. Netflix has launched a 3$ monthly cell-only subscription in India. Check this relentless growth of subscribers by Netflix.

Take a look at the last Shareholders report by Netflix, a public company that is burning billions every year -3,5B$ in 2019- and is expected to invest 15B$ in 2019 alone in new content. In my humble opinion, Netflix has by far the best streaming platform and the content is remarkably good, just look at the masterpiece Stranger Things season 3.

Source: https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2019/q2/Q2-19-Shareholder-Letter-FINAL.pdf

Netflix will be the main competitor of Disney, who will claw back its content from other platforms over the next years, reducing the earnings of licensing rights, but attracting customers to their platform. I believe there will be a time where platforms won’t share much content, but eventually, this will rise opportunities for multiplatform viewing apps and some years from now, platforms will reshare content once they settled a loyal customer base. Users will be subscribed to multiple platforms and they would still like to watch what’s best in every one of them. It’s not a winner take it all market.

My final bet is that there’s another big piece of content that is currently slipping away from streaming platforms, live sports. This is the last resort of traditional TV and cable TV operators who have been able to tell customers when and where to watch TV. This is no more, TV is dead.

SPILLOVER EFFECTS

Let’s get some perspective here. Disney is a corporation that currently (2019) has annual revenues of around 70B$ and a net income of around 13B$ (15–20%). Where do they make money from? This is a comparison YoY between the fiscal years ended on September 30th. of 2018 vs 2017. All areas grow except for merchandising. Figures in B$.

Source: company reports

MEDIA

The main source of income is Media Network, which comes from ESPN, Disney Channel, ABC… Here’s the evolution of this revenue stream fro the last decade.

Source: https://www.statista.com/statistics/193211/revenue-of-walt-disneys-media-network-business-since-2008/

With the acquisition of Fox, this chart is going to experience a huge vertical shift.

PARKS AND RESORTS

Parks and resorts are the second biggest revenue stream of the Mickey Mouse company.

Walt Disney World Resort (Flick: Atiq Nazri)

This is a chart with the number (in millions) of yearly by visitors by each park. Around 150 million people go to a venue managed by Disney somewhere on the planet. This can only be achieved by a great hospitality experience and the best content:

Source: https://www.statista.com/statistics/194247/worldwide-attendance-at-theme-and-amusement-parks-since-2010/

STUDIO

This is the revenue that comes from the distribution of movies and music.

The chart below displays the Box Office market share evolution. Disney has managed to multiply by 2,5 in ten years, and now with the inclusion of Fox, the market share could get just shy of 50%, which is ridiculous. This is a major spillover effect from the massive content acquisition.

Source: https://www.cnbc.com/2019/06/14/disney-on-pace-to-earn-9-billion-at-the-global-box-office-in-2019.html

DIRECT TO CONSUMER

This is where the new platform Disney + will come into play. Disney + is a SVOD (Subscription Video on Demand) as far as we know. Other alternatives are AVOD (Advertising Video on Demand) where the users access for free but get adds (Youtube) and TVOD (Transactional Video on Demand) which is what Google is doing among others.

One of the first screenshots Disney shared for Disney +

So far they have had Hulu in this category, but with the introduction of Disney +, this will become of the main revenue streams for Disney. Eventually, the main one if you ask me. My guess is that in one year, Disney + can produce revenues of about 20B$ and grow from there. This is what Netflix is doing right now.

The advantage of Disney + is that they already have the content and they would only need to produce specific content for the platform such as The Mandalorian or the Marvel spinoff series with Black Widow and more. That would imply big operating profits since most content has already been amortized. The downside, however, will be the loss of the licensing revenue they get from streaming onto other platforms included in the Studio section. I’m betting this will be a money-printing machine.

CONCLUSION

Disney is a company that has endured through decades and over the last years has taken on a path of content acquisition and generation that pays off very well. This is why I am “hodling” on its stock.

Disney’s stock price evolution over the years