Focus Media Shakes-up Outdoor Ad Market
BEIJING - On October 17, Focus Media Holdings1 announced the acquisition of 100% of Shanghai Framedia Advertising Development Limited, an in-elevator high end residential building frame advertising company in China with 90% market share. The US$183 million deal has created a new giant in China's outdoor advertising market and confirmed outdoor media as a major force in the country's fast developing ad market.
Beijing-based Framedia installs and deploys advertising display units inside elevators and common areas of high-end residential complexes and sells space to advertising clients. Focus Media's main business is the sale of advertising space on liquid-crystal display (LCD) screens in residential, retail and commercial buildings.
The deal is expected to add between US$8 million and US$16 million in net profit next year for Focus. Prior to the acquisition brokerage Piper Jaffray forecast that Focus would earn a 2006 net profit of US$29 million. Goldman Sachs had forecast a profit, excluding one-time items, of US$39.2 million.
Under its agreement with Framedia parent Infoachieve, Focus will acquire a 100 percent equity stake in Framedia for US$39.6 million in cash and US$55.4 million in common stock. Focus will make an additional payment of up to US$88 million depending on Framedia's performance next year.
As if to confirm its huge potential, less than 3 weeks after the acquisition was announced, Focus Media was able to announce a massive increase in its profits for the third quarter of 2005.
The company issued its financial report for the third quarter on Nov 3, showing Q3 revenue of US$ 19.5 million, a 146 % increase over the previous quarter, with net profit reaching US$7.10 million, a 64% increase over Q2.
According to the report, the company's revenue for the first three quarters stood at: US$ 9.57 million, US$ 14.58 million and US$ 19.5 million respectively. Revenue for Q4 is estimated at US$ 22 - 23 million.
The company's top rival, Target Media, which hopes to make a US$150 million overseas listing late this year or in early 2006, previously said it expected to post 2005 revenue of about US$40 million.
Outdoor advertising is China's third largest advertising medium. The sector has been enjoying rapid growth over the past two years with a 20% increase recorded in 2004 bringing revenue for the sector to approximately RMB14billion. With print and broadcasting heavily regulated and prices for advertising on traditional media increasing dramatically in recent years, CMM predicts the outdoor market will continue to enjoy strong growth over the coming 24 months.
A clear indication of the attractiveness of the outdoor market is the unprecedented level of corporate activity in the sector in 2005, including massive levels of investment in infrastructure and several major acquisitions.
For example, in the first six months of 2005 Focus Media built up a network of 12,000 LCD display units in 23 cities throughout China and company leaders insist the pace of development will not slow through 2005 and 2006.
In March 2005 Clear Media, the mainland operation of the world's largest outdoor media firm Clear Channel, announced it will invest HK$400 million to HK$500 million to expand its bus shelter advertising network ahead of the 2008 Beijing Olympics.
Goldman Sachs forecast Clear Media's revenues would rise 23 per cent in 2005 to HK$662.27 million.
Meanwhile, Viacom Outdoor announced that it had entered into an agreement to acquire 70 percent control of Magic Media -- the Beijing-based company that has the primary rights for advertising on the city's bus system, at the end of September
The deal, which was expected to close before the end of 2005, comes with an option to acquire the remaining 30 percent in five years, and represents the Division's first purchase in the People's Republic of China.
Although the medium of television, and in particular the CCTV network, is still recognized as the prime advertising platform in China, recent developments in the advertising market are now forcing advertisers to seek out other media through which to promote their products and services. Outdoor media is poised to reap the benefits.
1Focus Media listed on the Nasdaq in July 2005. The IPO raised USD172 million and shares in China's biggest listed advertising firm have gone up 46% since the lsiting.