Out-of-home Advertising

Foreign players slowly crack China's outdoor industry

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The 13 story-high Motorola poster currently wrapped around the U.S. cell phone company’s Chinese headquarters in Beijing is the latest record-breaker in China’s outdoor advertising industry.

Last summer, Pepsi earned a Guinness world record for installing the largest trivision outdoor billboard to date in Chongqing for a Gatorade ad that measured 108 x 295 feet.

The same Chinese city once hosted the world’s largest outdoor ad site, an astonishing 148 x 984 feet billboard overlooking the Yangtze River. Constantly surrounded by heavy fog, that particular site was never hired and eventually was torn down in 2002, but its failure is not an indicator of China’s booming out-of-home advertising industry.

The skylines of major Chinese cities have been transformed by neon lights, billboards line the national highway network and flat screen televisions have sprung up in the lobbies and elevators of thousands of office and residential buildings around the country.

“Outdoor is significant in China and enjoys almost three times the market share of most other markets in the world,” said Philip Beck, Shanghai-based CEO of China Media Exchange, the umbrella group for Publicis Groupe’s media brands in China including ZenithOptimedia and Starcom Mediavest Group.

Outdoor ads provide flexible alternatives to the rigidity of China’s state-run television market as well as the lack of trusted, audited choices in the print industry, prompting marketers to spend about $2.5 billion, roughly 10% of total adspend, in out-of-home advertising last year, according to CSM, a joint venture between CTR Market Research and U.K.-based TNS Group.

“Unfortunately,” he added, “it's also one of the most fragmented markets in the world in terms of media ownership. Established [global companies] do not hold the equivalent market share they enjoy in other markets.”

Louis Cheng, managing director, China of WPP Group’s Portland Outdoor division in Shanghai, agreed that “outdoor is a very diverse trading ground. No single company could claim significance on a national basis.”

China has more than 60,000 outdoor media companies, according to China’s State Administration of Industry and Commerce, and the handful of truly national players--local companies such as flat screen TV giant Focus Media and Dahe Media Co. as well as foreign companies JC Decaux, Clear Media and Viacom--control a fraction of the domestic market.

Despite the numerous acquisitions and mergers that have taken place in China over the past year, the market remains very fragmented. “The combined market share of the top five players is still below 30%,” said Shanghai-based Brian Kam, executive chairman, China for JC Decaux, which embarked on a spending spree when it entered China in January 2005, snapping up stakes in three major Hong Kong-based outdoor media companies active in the mainland over the past year.

In September, JC Decaux invested $103 million for a 73% equity stake in Media Partner International, which operates subway advertising contracts in Shanghai, Guangzhou and Nanjing, light rail services in Beijing and the Airport Express line in Hong Kong. Also in September, the company took over Texon International, a Chinese bus shelter specialist, for $19.1 million. Earlier last year, it bought a controlling stake in MediaNation, the main supplier of subway advertising contracts in Beijing.

And just four months ago, JC Decaux signed a 30-year joint venture with Gehua Cultural Development Group, an enterprise owned by Beijing’s city government, to develop new outdoor advertising opportunities in the Chinese capital.

“Gehua has very unique street furniture products like newspaper reading stands, which enable citizens to read newspapers along the street on panels which also carry advertising. It’s a unique product developed in China but we’re upgrading these products through our joint venture,” said Mr. Kam.

The combined deals give Paris-based JC Decaux a national network of 95,000 advertising panels in 17 cities in China, Hong Kong and Macau, as well as advertising contracts for over 33,000 buses, making China the third-largest market for JC Decaux in revenue terms, after France and the U.K.

Clear Media, meanwhile, a division of Clear Channel Communications in the U.S., has created a national bus shelter network covering 30 Chinese cities in the eight years since Eller Media (the former name of Clear Channel Outdoor, the wholly-owned subsidiary of Clear Channel Worldwide) formed a joint venture with Outdoor Media China, a local company established by Han Zi Jing, founder of a successful Guangzhou-based agency called White Horse Advertising.

“Because China is the country with the largest consumer population in the world, it makes good business sense to focus 100% of our attention on China. The pace of China's economic growth is outstripping all other nations and we believe this is just the beginning,” said Steven Yung, Clear Media’s Hong Kong-based chairman.

“The multi-billion dollar advertising industry in China has experienced strong double-digit growth for many years. Coupled with the fact that outdoor advertising is the only segment in which foreign ownership is allowed in China, the industry is clearly in an excellent position to grow alongside today's market-focused businesses.”

Last month, Clear Media unveiled plans to spend $8.5 million converting all of its bus shelters in Shanghai into scrolling panels by the end of this year. Each panel will initially have three posters.

Focus Media, founded by CEO Jason Jiang just three years ago (see Player Profie), has used its NASDAQ listing last July, which raised $172 million, to help fund its own investment drive. Last month, Focus bought its largest rival, Target Media, in a cash ($94 million) and stock ($231 million) deal. In October 2005, it bought another competitor, Shanghai Framedia Advertising for $183 million in cash and stock, allowing Focus to combine its core network of flat screen monitors with Framedia's network of print ads mounted in frames in the lobbies and elevators of office and residential buildings.

The mergers give Focus Media a nationwide advertising network of over 60,000 displays in more than 30,000 commercial locations in about 75 cities in China. The network reaches “about 100 million mid-to-high income earners,” said Mr. Jiang, largely through 94% coverage of high-end office buildings.

Viacom entered China’s outdoor ad market last September by acquiring a 70% stake in Magic Media, which sells advertising on Beijing’s bus system, with an option to buy the remaining 30% in five years.

Another newcomer to China is Tom Group’s outdoor division, whose network covers 60 cities. Last June, it merged 14 outdoor agencies, mostly joint ventures with domestic companies like Chongqing Jinzhao Advertising and Wuhan Lilan Advertising, into one group.

Out-of-home advertising has a “long history” in China, said Rita Chan, China Director for Nielsen Media Research in Shanghai. “The country’s Communist party used to paint propaganda messages on the walls of buildings, a method still employed for commercial advertising in some rural areas today.”

At the other end of the spectrum, technology is driving growth of outdoor advertising in urban areas. For example, Focus Media is expanding its flat screen panels from elevators into retail spaces, allowing marketers like Procter & Gamble to run TV commercials for, say, Tide in the detergent aisle of supermarkets. TV screens have even popped up inside hotels, shopping malls, restaurants, bars, karaoke parlors, golf clubs and gyms. When passengers hop into a taxi in Shanghai, they will likely hear a recorded ad at the beginning and end of their ride, and can watch commercials on a small video screen installed at eye level in the back seat.

“Advertising is exploding here in all forms, but the proliferation of outdoor ads is particularly visible. The market has grown so much, comparing the situation today to what it was like five years ago when I moved here is like comparing night and day. The timing of local companies like Focus Media was excellent, the market has really embraced what they’ve offered,” said media and entertainment lawyer Richard Wageman, a partner with the Chinese law firm Lehman, Lee & Xu in Beijing.

“You can put up outdoor ads in China pretty well where you choose and as the country continues to grow, advertisers want to utilize every possible space they can these days,” he added.

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