Digital advertising executives find business opportunities anywhere there are bored, captive audiences – in elevators, on subway cars, even in fitness centers. Herman Guo was no different; he used his experience and connections as a former media executive and an aviation employee to found AirMedia, which owns ad space in airports and on airplanes. Founded in 2005, the company now has digital TV screens in 37 Chinese airports and digital frames in 34 airports. More than 80% of China’s air travelers passed through these airports in 2010.
The company’s financial record has been somewhat rocky; it has not been profitable on an annual basis since 2008. This is because its revenues fluctuate, but its costs, mainly concession fees to airports and airlines, are solidly fixed. Concession fees paid to airports and airlines accounted for a hefty 38%, 74% and 58% of AirMedia’s net revenues in 2008, 2009 and 2010, respectively. Meanwhile, the global financial crisis hurt the company; revenue from its digital TV screens, its higher-cost ad format, fell continuously between 2008 and 2010. Revenue from its cheaper ad medium, digital frames, fared far better, growing 71% year-on-year in 2010 to US$113.20 million, or about 48% of total yearly revenues.
Neither these figures nor the company’s stock price, which was down about 66% year-to-date as this issue went to press, seem terribly promising. However, there are signs its finances will improve. AirMedia’s revenue is growing faster than concession fees, and its rapid expansion into Chinese airports is mostly complete. And all estimates indicate China’s air travel and ad markets should keep growing quickly; CTR Market Research estimates China’s ad market will expand 15% y-o-y in 2011, outpacing GDP growth.
Furthermore, AirMedia signed an agreement in late 2010 to broadcast CCTV programs on its airport network and exclusively operate the ad business of CCTV’s Air TV Channel. This powerful partnership should help AirMedia save on content costs, negotiate lower fees with airports, and win TV ad budgets, which are much larger than those for digital out-of-home advertising.