In television shows, having a famous star in the leading role helps to pull in large audiences. Johnson Ko Chun-shun, chairman of digital television equipment manufacturer DVN Holdings, hopes to achieve a similar effect after signing US technology giant Motorola as DVN's largest shareholder with the intention of building up China's digital television audience. The central government wants all television broadcasts to be digitised by 2015, with the promise of higher quality pictures, interactive services and a more efficient use of radio spectrum than traditional analogue services. DVN has emerged as a one-stop shop for mainland television stations on the path to converting to digital broadcasting. The firm developed set-top boxes for the China market to facilitate digital reception by viewers. It also makes head-ends - the equipment required by digital television broadcasters. DVN also supplies television content to mainland broadcasters through alliances with the likes of movie producer China Star Entertainment and Star TV. In addition, it offers digital TV applications such as interactive games. 'When we first started five years ago, we were in every sector of the whole value chain - from content aggregation to design and distribution of the set-top box - because at that time China's cable industry was fragmented,' said Mr Ko. In some parts of China, such as Shanghai, DVN has sold its digital platform to cable stations. Other areas such as Shandong and Hebei provinces have a 10 to 15 year lease on the platform and DVN receives about half of the viewer subscription fees. DVN expects to sell 500,000 set-top boxes this year compared with 150,000 last year. Its current focus is on increasing set-top box sales but the company does not see this as an end in itself. These sales will create a larger market in the next few years for DVN's digital TV applications. 'The application of our software cannot grow without the growth of subscriber numbers. So we are trying to sell the box but making money from [it] is not the end-game; it is only a target,' he said. As China's digital television market develops, DVN plans to move away from the one-stop shop and specialise. 'We have to choose where we want to be [and go] where our core competence is,' Mr Ko said. 'We can always contract others to do [the manufacturing]. We are strong in software, the conditional access and the application services.' Conditional access is the system which determines who can receive the service and provides online transaction security. In these areas, Motorola's investment should be a big help by allowing DVN to tap into the US giant's technological know-how. 'Motorola is also in the manufacturing of set-top boxes and ... is very strong in other areas like internet, telecoms, broadband and wireless. So it is the ideal strategic partner for DVN,' said Mr Ko. Extra capital will also help. Motorola has conditionally agreed to acquire a controlling stake in DVN for up to US$33 million. Motorola has already acquired the first of four tranches of new stock for HK$58.5 million, giving it an 11.34 per cent stake. 'We provide them with a strong presence in China [which] will give them a faster time to market.' However, Mr Ko - who will remain as chairman - said he found it a little difficult to relinquish his controlling stake but believes the deal is in everyone's interests. 'Motorola is either a competitor or a partner - of course, we chose the latter. It is good for everyone,' said Mr Ko. Despite strong growth prospects DVN's latest results have not been good, with a loss attributable to shareholders of HK$140 million on turnover of only $73.2 million for the year ending December. The company attributed much of the loss to large write-offs in investments in film distribution rights which had expired. But the future is looking up as 'we don't expect any huge write-offs' in the coming years, Mr Ko said. His ability to cut multi-million dollar deals with the likes of Motorola is a far cry from his early days. Born in Fujian in 1949, Mr Ko's early memories in China are of having only sweet potatoes to eat year round. Mr Ko slipped into Hong Kong with his elder brother in a fishing boat in 1961. The fact that their father was based in the Philippines earned them permission to leave China but it did not give them any right to land in Hong Kong. In 1963, Mr Ko's parents died. He stayed with relatives in the territory and, after finishing secondary school at Queen's College, worked his way through a number of jobs. He first became a tour guide, before opening a tailor shop in Tsim Sha Tsui and setting up a sourcing company for a Saudi buyer. When the mainland opened up to the outside world in the 1970s, Mr Ko sold Hong Kong-made watches in Yunnan. With his fingers in many pies, Mr Ko's wealth grew but disaster struck with the stock market crash of 1987. His investments were grossly overstretched with plenty of stock acquired on margin. 'I was very active in the stock market. I was young and didn't know much and I thought: 'This is so easy - it keeps going up and up'.' To cover his losses, he sold off a number of his businesses and property holdings in the Philippines. Fortunately, Mr Ko was able to hold on to a company which provided currency exchange services at Kai Tak airport. This generated much-needed cash flow to pay off remaining debts. However, it was not all plain sailing for him after his crash recovery. One of his subsequent investments was in electronics firm Leaptek Holdings as a large non-management shareholder. Leaptek's finances deteriorated to the extent that it could not repay a firm controlled by Mr Ko when 24.13 million preference shares came due for redemption at $1 each. Leaptek also repeatedly delayed the release of a key set of results which showed it was haemorrhaging red ink and it even reached the point of having a negative net asset value. Mr Ko decided to lead a shareholder revolt and in June 2002 managed to get all the executive directors voted off the board - a rare achievement in Hong Kong where management are usually the largest shareholders. He then succeeded in bringing in a new investor to restructure and run Leaptek. Losses have been dramatically reduced and in May the company changed its name to Huabao International Holdings. The process of replacing Leaptek's board took about a year - a task Mr Ko found a little daunting but believes was worth it, as the move helped recover much of his investment. 'It was very difficult as there were so many unknown factors. You have to spend money for it but you don't know if you're going to get it back or not.'
