Focus Media found itself the subject of unwanted attention on March 15, world consumer rights day, when CCTV aired a program on consumer protection that claimed the company’s wireless division, Focus Wireless, was responsible for more than 80% of China’s mobile phone spam.
But the news also underscored a shift by NASDAQ-listed Focus Media, which calls itself China’s largest digital media group, away from its traditional advertising businesses.
Focus still derives a majority of its revenues from what it calls “digital out-of-home” advertising, in which ads are run on flat-panel displays mounted in highly visible areas. However, the proportion is falling. In 2007, 65.8% of Focus’s revenues came from digital out-of-home advertising, down from 90% in 2005, according to a recent US Securities and Exchange Commission (SEC) filing.
At the same time, mobile advertising, which was not included in Focus’s portfolio in 2005, provided 9.3% of revenues in 2007. Meanwhile, the company’s online ad business contributed 24.7% of revenues in 2007, the first year it was included in SEC filings.
Although digital out-of-home revenue is growing, Focus doesn’t expect the growth to continue. The company noted in its filing that it already occupied many of the most desirable outdoor advertising locations and “may continue to enter into new advertising media platforms.”
“I certainly don’t see huge growth for [digital out-of-home advertising],” said Lucy Fu, an analyst with technology research firm JLM Pacific Epoch. Instead, she expects growth from the online and wireless spheres. Focus declined to comment for this story when contacted.
However, as the SMS-spam incident showed, Focus’s road to growth could be bumpy. The immediate fallout from the spam allegations caused Focus Wireless to close three subsidiaries. The news got worse in April when the company revealed that it would trim US$40 million in 2008 revenue because of rules it implemented to prevent future spam.
But Fu says the claims of massive spamming were unsubstantiated – she calculates that Focus was only responsible for 2% of SMS spam, a figure Focus also arrived at independently.
There’s a chance that, given the embryonic state of mobile advertising in China, Focus could dodge further controversy.
“I don’t think [the spam incident] will affect the market much,” said Chris Reitermann, president of marketing agency OgilvyOne China. “[Because] the reality of mobile advertising is close to zero, actually. There’s not a lot happening.”
Online advertising, by contrast, is much more active. According to data from IDC and iResearch, annual online ad spending in China more than tripled between 2005 and 2007, and is expected to reach US$2.2 billion by 2011.
As such, Focus is aggressively expanding its online business. Most recently, it entered into a joint venture with Japanese ad agency Dentsu aimed at solidifying its lead. JLM Pacific Epoch’s Fu estimates that the combined agency now controls 80% of China’s online ad market.
“On the media agency side, there’s not much left … [Focus Media] pretty much consolidated everything there is,” said Reitermann.
The sheer size of the Focus-Dentsu venture is forcing other online agencies beyond price competition. Byron Constable, chairman of online ad agency Wanmo, said that his company’s strategy is to create ads that target audiences effectively, rather than trying to reach as many people as possible – the opposite of what he thinks Focus does.
Focus’s recent moves have won admirers. JLM Pacific Epoch’s Fu said the Dentsu joint venture and Focus’s emphasis on online and mobile advertising would add to profitability as the digital out-of-home market stagnates.
Even Constable, a competitor, praised Focus’s joint venture: “It’s what I would call sheer business brilliance.”