Shanghai's Outdoor Ad Industry Faces Pre-World Expo Shake-up

The outdoor advertising industry in Shanghai is poised for a difficult year. In a bid to beautify the city before the 2010 World Expo, the Shanghai Municipal Government has launched a major initiative to rid the city of unsightly outdoor advertising.

The clean-up campaign will target a wide range of out-of-home advertising platforms, including up to 16,000 LED screens and printed displays by road sides, on lamps and in bridges and tunnels. The city has ordered advertising agencies to remove all advertising panels from bus stop shelters and telephone booths by the end of July.

Zhu An, an advertising executive from a Shanghai-based advertising company, told National Business Daily the policy would have a devastating impact on some local businesses. To comply with the policy, his company started removing some of its advertising displays - small flags placed near pedestrian sidewalks - in June.

“This is unanticipated risk from the government policy,” said Zhu An. "It will have a negative impact on more than 90% of all the advertising companies in Shanghai and it may even force some of the smaller companies into bankruptcy."

Xu Ge, Vice President of Finance at Focus Media, said the policy had already had a limited impact on his company. Focus Media has stopped operating a number of LED advertising panels in Shanghai, including the ship bearing LED ad displays on the Huangpu River. The company will sustain less than RMB6.83 million (US$1 million) in losses per quarter as a result, an impact Xu Ge considers relatively low.

The renewed move against outdoor advertising panels is just the latest step in Shanghai's bid to rid itself of ugly out-of-home advertising. Earlier this year, the government announced plans to phase out all the video screen ads in taxis in the near future (see China Media Monitor Vol 13, Issue 8, May 25, 2009). Advertising operators were ordered to remove video displays from taxis as soon as their contracts with advertisers and equipment vendors expire. In the interim, they were ordered to adjust the displays to allow customers to adjust the volume and brightness, or turn them off altogether.

Gan Jianping is the managing director of Qiming Venture Partners, one of Touch Media's investors. He said the policy change was unanticipated and irresistible, but Focus Media is lucky because it will be able to finish executing the terms of its advertising contracts before it has removed all in-taxi ad displays at the end of the year.

The Shanghai Government's decision will strike a major blow to an industry already suffering from the downturn in adspend triggered by the global financial crisis. An unnamed industry analyst told National Business Daily he expects to see widespread reshuffling over the next 2 to 3 years as stronger companies acquire or merge with their weaker competitors.

All media owners in China have to live with the reality that the government will, from time to time, institute draconian decrees that directly affect their ability to trade commercially. This is not too much of a problem for newspapers, TV and radio stations, because they are government-owned anyway. In fact, not only are they aware of all the upcoming political events that require special attention, their very existence is predicated on the need to drench their audiences with such Party messages.

With the Shanghai Expo, like the Beijing Olympics, the state media is laughing at the outdoor sector for, while it is a far more liberal "no-editorial" market which has achieved a certain level of commercial sophistication, when the government decrees a tidy-up, the only alternative to empty space is to run public service announcements glorifying the new Shanghai. If they haven’t, they should have seen this one coming and offered the space voluntarily. They only had to ask their friends at SMG which has been working for years on how to pro-actively over-fulfill its political responsibilities to the political success of the Expo and so guarantee plenty of space for highly profitable client campaigns.

See the New Media section for an example of how Shanghai Subway TV is taking advantage of the political imperative for more state-owned news output (and less entertainment) in the lead up to Expo.