Global Economics

Megastudy's Academic Star Power


Song Ji Won is happy that she doesn't have to cut short her art classes and rush to cram school when dusk falls. That's what the 18-year-old South Korean did last year. This year, she chose an online school for cramming so she could spend more time improving her drawing. "By using the Internet, you can choose from tons of lectures by star teachers," says Song. "You don't have to sit in traffic and you can repeatedly watch certain portions to better understand difficult issues."

Song is one of hundreds of thousands of Korean students buying video-on-demand lectures offered by cramming schools. One online site, Megastudy.net, run by a celebrity cramming-school instructor, has become so popular that it has evolved into one of the most popular companies on Korea's tech-rich bourse, Kosdaq. Listed in December, 2004, Megastudy's share price has soared to $74, almost quadruple the initial public offering price of $19.

SCHOOL TIES. Company execs think the party is just beginning. Profits jumped 41%, to $21.6 million, in 2005, on sales of $73 million, up also 41% from 2004. "Just like they did in e-shopping and online entertainment, consumers have seen benefits from e-learning," exalts Megastudy Chief Executive Son Joo Eun, 45. "Now that we have firmly established our brand name, blue oceans of opportunities are ahead of us." He predicts sales to soar to $206 million by 2008.

Indeed, in a country where life revolves around education, there's no doubt parents will spend like crazy if they're convinced it will help their offspring get straights A's. Graduating from a top university is all but required for a good job, marriage, and most important of all yonjul -- connections -- which are vital to getting deals done.

The Korean Educational Development Institute, a state-backed think tank, figures Korean families are spending $14 billion a year for education outside of the official schooling system. A big chunk of that is spent on cramming, which is seen as essential if kids are to have any chance of keeping up with their peers.

START STREAMING. The craze for endless hours of rote learning, and an advanced telecom infrastructure, have provided a fertile environment for e-learning in Korea. Three quarters of all Korean households and virtually all families in Seoul and other big cities are hooked into the Net through broadband connections. When it came to education, though, what was missing was the right content. The first wave of online educational services in the late 1990s was offered by IT specialists, rather than educational experts.

A big change occurred when Son, the best-known history instructor in the cramming industry, opened the Megastudy site in September, 2000. His lectures, as well as ones from star teachers of English, literature, math, and science, were streamed online. Some 50,000 subscribers signed up in less than a year.

The beauty of the online service was not only the flexibility it offered students who have rigid schedules but also the removal of geographic barriers. "All the best cramming schools are located in ritzy residential areas in Seoul, but Megastudy gave me access to the same lectures," says Choi Seok Won, who's from the provincial city of Jeonju. Choi won admission to Seoul's Chung-Ang University in January, and he credits Megastudy.

TEACHER INCENTIVES. The government has taken note of online education's appeal. To give students from poorer families a better shot at entering top schools, the government has provided a free cramming service through a state-run cable-TV channel for more than a decade. But since 2004, the service has also been made available on the Net. The number of its users almost match that of Megastudy, but since it lacks star instructors, students who can afford it clearly prefer the fee-based service.

Unlike many Internet companies, Megastudy charged for its service right from the beginning. The average cost for a two-month course with an unlimited number of viewings of lectures is about $50. To ensure that star teachers stick with the company, it promises 23% of sales as incentive payments.

The main target of Megastudy is high school students preparing for university admission exams. The company expects 250,000 of some 1.2 million high school students in South Korea to buy cramming VODs this year from Megastudy, which offers some 1,400 courses ranging from English grammar and math to history and geography.

STAR POWER. Scores of other cramming companies have also set up online sites, but Megastudy's revenues exceed those of all others combined, according to education analyst Han Kook Hee at Mirae Asset Securities. "Given the company's brand power, Megastudy appears set for smooth sailing at least for a couple of years," Han predicts. Foreign investors, including Grantham, Mayo, Van Otterloo & Co. and Fidelity, have snapped up shares in the past year to own a combined stake of 36.2%.

The biggest reason Megastudy attracts so many users is its big pool of star instructors. But the constant flow of new services also helps. Especially popular is a free scoring service -- available even to non-paid subscribers -- offered immediately after nationwide aptitude tests. Students give the same answers as they did in the tests, and their scores are automatically given along with the ranking among participants. It's such a hit that it has become a main gauge of students' aptitude in the run-up to university exams.

The latest addition to the site: the capability to download lectures onto registered portable personal media players. Subscribers can download lectures they bought as many as three times, and view them up to 18 times. The video files erase after the contract period expires. "Our business is very similar to the movie industry," says Son Eun Jin, a Megastudy director. "You need star teachers, production operations, and know-how in digital rights management."

Its online success is allowing Megastudy to expand offline. It has opened seven offline cramming schools in Seoul. The next step is moving overseas, by forming joint ventures with local partners within a few years. If things pan out as CEO Son envisages, Megastudy will log annual sales of $1 billion within a decade -- and perhaps offer a new global educational model.


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