Public Place LCD Television Advertising in China

Even though this may seem to be a niche topic, it does carry some importance in China.  While broadcast television may garner the major share of all advertising expenditure, they are not inefficient for up-scale products.  By contrast, Liquid Crystal Display (LCD) screens can be selectively deployed in special locations, such as luxury apartments, shopping malls, gymnasiums, office buildings, hotels, banks, golf clubs, hospitals, clinics, convenience stores, commercial residences, etc.  The audiences are therefore highly selective and desirable to advertisers.

There are two major players in the public place LCD television advertising markets: Focus Media (分众) and Target Media (聚众).  Focus Media is listed on the NASDAQ market, whereas Target Media is seeking to do the same (and it has received an injection of capital from the Carlyle Group).

So what are their respective market share?  This is where the controversy rose, as covered by this DoNews article by Fu Liang (付亮).

In May 2005, Focus Media asked the research firm CTR to conduct a study, which found Focus Media with a 70% share and Target Media with a 28% share.

On October 31, 2005, a certain media organization reported that a study of AC Nielsen on behalf of Target Media showed that Focus Media has a 49.8% share compared to Target Media's 46.7% (see, Xinhua).

Both CTR and AC Nielsen are repeatable research companies, and are unlikely to be cheating on behalf of their clients.  There is far too much at stake in terms of their brand names compared to what financial benefits could derive from these two custom studies.

It is true that one study was conducted in May and the other was conducted in August, but the real market should not have shifted that much in a mere number of months.

So here is a list of other methodological issues that might led to some real differences:

1. The choice of the cities

AC Nielsen researched 12 cities and CTR researched 13 cities.  Eleven cities are present on both list.

AC Nielsen has Dalian exclusively, in which Target Media was ahead by 55%:45%.

CTR has Qingdao and Xian exclusively.  Focus Media led by 76%:24% in Qingdao and 94%:2% in Xian.  Those were the two best cities for Focus Media in the entire study.

2. The coverage of the research

AC Nielsen: offices, hotels, malls, commercial residences, hospitals (note: Target Media keys in on commercial residences)

CTR: offices, hotels, banks, malls, hospitals (note: Focus Media has total dominance in offices and banks)

3. Sampling Method

AC Nielsen began by dividing each city into blocks of 1 square kilometer as the sampling unit, and then drawing a random sample of blocks for study.

CTR used the city center as the core and then used the streets to build the master sample and then draw a sample of streets in order to study the buildings.

Using the block approach, there will be more residences and convenience stores, which represent the strength of Target Media.

Using the street approach, the buildings by the busier streets are more likely to be drawn, and this plays to the strength of Focus Media.

There are major differences, but it is not known whether they may account for the difference in the estimates.

When a media organization commissions a study by a research company, the researcher is supposed to comprehend the needs of the client and design the appropriate study.  For example, if the client does not have a presence in airports, the study may exclude airports to cut down on costs.  In the study report to the client, there is usually a section on the limitations of the study, and such exclusions would be mentioned explicitly and exhaustively.  Unfortunately, the client usually takes the report and selectively releases favorable sections to the public while omitting to mention any limitations.  This is how it is.  And the research companies do not always feel right about correcting their clients in public (but some big research companies may insist on pre-viewing and amending all public statements related to their studies in order to protect their brand names).

These proprietary studies are used by the media organizations to appeal to advertisers and advertising agents.  Mostly, the media buyers listen to these kinds of presentations with a great deal of skepticism.  At some point, when the medium achieves sufficient expenditure and maturity, the advertisers and advertising agents will no longer accept widely divergent claims from the media companies themselves.  This would then lead to the creation of a syndicated study in which the methodology is arrived at by a consensus among all users (media companies, advertisers and advertising agencies).

(Business Week)  The Elevator Pitch, China-Style.  By Frederik Balfour.  January 12, 2006.

Shanghai's Focus Media seems to get more ambitious all the time. Founded a bit more than two years ago by 32-year-old Shanghai ad veteran Jason Jiang, Focus operates liquid-crystal-display screens that shows ads in elevator lobbies of office towers and upscale apartment blocks. Today, it has grown to some 35,000 screens in 52 Chinese cities -- and has spawned a host of rivals that have blanketed China with video ads aimed at bored eyeballs.

Now, Focus is buying up its biggest competitor. On Jan. 7, it said it would acquire Target, a crosstown rival that operates 25,000 displays. With a combined 60,000 screens and a presence in about 75 Chinese cities, Focus will now be far and away the largest player in this fast-growing market.

Investors cheered the deal. On Jan. 9, the first trading day after Focus announced it was paying $325 million in cash and stock for Target, trading volume of its Nasdaq-listed shares was 7.5 times higher than usual. By Wednesday, they had jumped by 23%, to $45.50, and now trade 165% above Focus' July initial public offering.

LCD advertising displays have become ubiquitous in China's big cities. They light up subways, buses, mini marts, and even taxis. Western consumers might be turned off by this type of bombardment. But in China, where advertising has been around for only a couple of decades, the screens have considerable novelty value. Indeed, Focus says it has been able to install some for free in buildings because landlords say it gives their properties additional cachet.

For advertisers, a big part of the panels' appeal is that they provide an alternative to stodgy, state-owned media. A 30-second slot on nationwide CCTV, reaching 500 million households, may appeal to companies selling soaps and toothpaste, but others would rather pitch their message to wealthier city residents cornered waiting for an elevator or a supermarket checkout clerk. "I think it's a really big deal," says Tom Doctoroff, CEO for Greater China at ad agency JWT. "It's really the only truly targeted television medium out there."

Competition in the segment has intensified quickly. Like Focus and Target, many of these startups have attracted big-name backers. Shanghai-based Digital Media Group, which operates screens on subway trains and platforms, counts Japan's NTT DoCoMo among its investors. And CGEN, which operates screens in 255 hypermarkets including those owned by French retail giant Carrefour, has raised money from Sumitomo Equity Partners.

Once the Target acquisition is completed in February, Focus will wield increasing clout with both advertising clients and landlords. Before, the two companies had been locked in a tough battle to expand in Shanghai, Guangzhou, and Beijing. "They can consolidate and work together instead of competing," says Wayne Tsou, head of Carlyle Asia Venture & Growth Capital, which had invested $19.5 million in Target.

Tsou notes that instead of cashing out, Carlyle took full payment for its portion in Focus stock. "This isn't an exit for Carlyle, it's a continuation of our investment first in Target and now in this bigger platform."

Not everyone is so bullish. "By any measure, Focus is grossly overvalued," says one Shanghai-based entrepreneur who's also in the LCD screen media industry. "But the market loves this story. It has all the elements: China, a young aggressive entrepreneur, and a company that was rated the No.1 venture-capital investment in 2004."

The question is, can Jiang keep delivering? Focus reported 146% growth in third-quarter revenues year-over-year, to $19.5 million. Profits for the quarter hit $7.1 million, compared with a loss of $1 million for the same period in 2004. Fourth-quarter results won't be out until the end of February. 

Despite its high-tech look, in some ways Focus remains very old world. Each week, for instance, employees pedal their bikes out to buildings to manually change the flash memory cards containing ad videos. While linking the screens via a network would be more efficient, doing so would be tantamount to Internet broadcasting -- a no-no in China. Chief Financial Officer Daniel Wu says Focus has experimented with uploading information such as weather reports as cell-phone text messages.

At the same time, Focus continues to expand aggressively. Supermarkets are one growth area -- Focus screens are now in more than 1,000 stores. And it's also moving into venues such as karaoke bars and airports. It might just be time for Jiang to invest in some more bikes.