There’s Still Hope for Focus Media After Sina Acquisition

Posted by Joel

The following is an article I recently published on Seeking Alpha. To read the original article click here. Over the past few years Focus Media built a name for itself as a leader in China’s outdoor advertising market through use of strategically placed framed advertising and LCD screens. This past week Sina, a major Chinese web portal, acquired Focus Mediaâ€™s cornerstone outdoor advertising operations. While there is a chance that Focus Mediaâ€™s CEO, 35 year old Jason Jiang, is just looking to make a buck on his investment, IF Focus Media successfully develops itself into a player in the online advertising market in China, I believe there is still hope for the company to reinvent itselfâ€¦

Like many others I couldnâ€™t resist having high expectations for Focus Media Holding Limited (FMCN.NASDAQ). For the first two and half years after its IPO I watched its stock price soar, but over the past year I also witnessed its value decline 81%. Is there hope for the ailing Chinese media giant? As of this week Sina Corporation (SINA.NASDAQ) assumed control over Focus Mediaâ€™s cornerstone outdoor advertising services, which are comprised primarily of strategically placed posters and LCD screens. This leaves Focus Media with just its online advertising, movie theater and traditional billboard advertising services. However, I am still optimistic that there is hope for Focus Media. This is whyâ€¦

Time To Refocus

Over the course of 18 months Focus Media went through four mergers with all four mergers in a different area of advertising. The companyâ€™s rush to grow into a media giant had it expanding in all different directions. It was getting bigger, but it was growing without any real focus. By getting rid of its outdoor advertising services and receiving over one billion dollars in shares from Sina, Focus Media has an opportunity to develop its digital advertising where I see more long-term growth as opposed to the outdoor advertising services that have their drawbacks.

According to a February 2008 CR Nielsen report, Chinese consumers make 60% of their purchase decisions in store. Theoretically this would imply that Focus Mediaâ€™s in store screens should be highly effective; however McKinseyâ€™s recent study on the Chinese consumer suggests that point of purchase salespeople are the true beneficiaries of this trend.

Word of mouth is king here in China. A stranger who is paid to sell specific products is more influential over consumersâ€™ purchasing decisions than small video screens scattered throughout the store. Moreover, any popular shopping destination that has these screens is typically so overflowing with patrons that people are more concerned with dealing with the chaos instead of watching the advertisements. However, the point of sale representative is successful because he or she can physically draw customersâ€™ attention away from the chaos and give their personal endorsement to the product.

I do admit, the framed advertising and video screen advertising is a great fit for Chinaâ€™s urban office buildings and apartment complexes where people often wait upwards of ten minutes at a time for elevators. Over the long-term though there are only so many buildings that can accommodate this form of advertising and limited types of content that can be produced.

If Focus Media successfully reinvents itself into an online advertising powerhouse, then it will not be limited by the amount of urban real estate and instead will be able to tap into the market of now 290 million Chinese netizens (up 40 million since June 2008). Despite the economic crisis, online advertising in China continues to push on. With the number of Internet users still at relatively low levels of penetration and the infinite ways for advertisers to creatively leverage ever-changing online advertising tools to engage potential customers, there is more room for long-term growth in the online space for Focus Media than in the real world. For these reasons I am not giving up on Focus Media just yet.

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