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Executives

He Dang – Founder, Chairman, and Chief Executive Officer

Wei Zhou – Chief Financial Officer

Nicholas Manganaro – Ogilvy Financial

Analysts

Wallace Cheung – Credit Suisse

Eddie Leung – Merrill Lynch

Dick Wei – JPMorgan

Charm Communications Inc. (CHRM) Q3 2011 Earnings Conference Call October 27, 2011 8:00 AM ET

Operator

Hello and thank you for standing by for Charm Communications’ Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference, Mr. Nicholas Manganaro from Ogilvy Financial.

Nicholas Manganaro

Hello everyone and welcome to Charm Communications earnings conference call for the third fiscal quarter, which ended September 30, 2011. The company’s earnings results were released yesterday and are available on the company’s IR website at ir.charmgroup.cn as well as on newswire services.

Today, you will hear opening remarks from Charm’s Founder and Chairman, Mr. Dang followed by the company’s Chief Financial Officer, Mr. Wei Zhou, who will provide a financial overview and guidance for the fourth quarter. After their prepared remarks, they will be available to answer your questions.

Before we continue, please note that the discussion today will contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectation.

Charm does not assume any obligation to update any forward-looking statements except as required under applicable law. Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The most directly comparable U.S. GAAP financial measures and information reconciling these non-GAAP financial measures, the Charm’s financial results prepared in accordance with U.S. GAAP are included in Charm’s earnings release, which has been posted on the company’s IR website at ir.charmgroup.cn. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Charm’s Investor Relations website.

I will now turn the call over to Charm Communications Founder, Chairman and CEO, Mr. Dang.

He Dang

(Foreign Language)

Hello and welcome to our third quarter 2011 earnings conference call.

(Foreign Language)

First, I am very happy to announce that we continued to execute on our strategies and delivered strong top and bottom line results despite the somewhat turbulent macro environment in the third quarter. We were able to rely on our enhanced integrated communication capabilities as well as our strong client base to sustain our growth momentum and achieve 45% growth in total revenue year-over-year.

(Foreign Language)

While our advertising agency businesses for traditional media continues to deliver stable growth. Our internet advertising agency business delivered an impressive fivefold increase in agency revenues compared to the third quarter last year and currently makes up over 20% of our total advertising agency revenues compared to 13% in the second quarter of 2011 and 5% in full year 2010.

(Foreign Language)

Looking at the overall advertising market, we continue to see strong demand from advertisers, which is part of a larger consumer spending trend in China in which Chinese consumers are improving their lifestyles and their earning power increases. Advertisers are placing greatest strategic emphasis on developing brand equity in order to compete for customers. At the same time, advertisers are becoming more sophisticated with their media placements and more diligent with their budget while focusing on the return on investment.

(Foreign Language)

However, continued media fragmentation particularly with the development of the Internet in China is beginning to impact advertisers brand development and overall communication strategy all of which are driving advertisers to seek agencies with the most integrated communication capability. We see advertisers actively seeking in fact demanding the agencies not only fully comprehend the nuances of traditional and new media, but also combined them in innovative ways, thus optimizing their communication strategy. We see this increasing demand as a tremendous long-term growth opportunity for Charm, especially as we broaden our integrated TV and Internet communication solution.

(Foreign Language)

We have already entered the busiest time of the year. The CCTV primetime auction, which is a key parameter for business and advertiser confidence to the upcoming year will take place on November 8. And other key satellite channels will hold their 2012 pre-sales and auctions around the same time. Almost all Chinese companies will be deciding their 2012 marketing strategies and budgets around this time. At Charm, we have been and will remain active in helping our advertisers to plan for 2012 applying our understanding of the dynamic media landscape and leveraging our proprietary planning and auction tools and database. We hope to develop targeted and effective integrated communication plans for advertisers and to help them achieve successful auction results.

(Foreign Language)

Therefore in spite of the macro challenges we see unfolding globally and within China, we still see distinct growth opportunities in our industry and will remain positive as we head into 2012.

(Foreign Language)

As for operating highlights in the third quarter, we continued to improve our service capabilities and are beginning to see the reward for past investments and winning new clients and securing foothold in new businesses.

(Foreign Language)

For Charm’s overall advertising agency business, we saw an extremely strong 53.8% year-over-year growth in gross billing with non-CCTV television and the Internet as the key growth drivers. This speaks to our ability to leverage our strong client base and offer integrated advertising solutions on top of an already attractive CCTV product. It also highlights our ability to combine the services of Charm Advertising, Charm Interactive, and Charm Click to deliver a single integrated product to our advertisers.

(Foreign Language)

This past quarter, we were able to add two new clients to Charm Advertising, Kito Ceramics for its overall television media business and Tailong Pharmaceuticals for its overall television media and digital marketing businesses. From a strategic development perspective, we continue to strengthen our position in the pharmaceuticals and travel and tourism spaces with key hires and client development.

(Foreign Language)

Under Charm Interactive and Charm Click, we are able to successfully close the ClickPro acquisition and to consolidate Charm Interactive’s existing search team with the ClickPro team. Currently, all of Charm’s search and performance marketing related businesses sits under our fourth brand and business unit, Charm Click, which has a staff of 70 professionals and is already a top 10 agency for Baidu providing search engine marketing services to many of Baidu’s key accounts.

Charm Click combines ClickPro’s portfolio of 33 active search clients on Baidu, including such well-known international brands as L’Oreal, Sony, Jaguar, and Bacardi with Charm’s 16 existing active search clients on Baidu.

(Foreign Language)

Meanwhile, Charm Interactive will continue to focus on developing integrated digital marketing solution. While it will rely on Charm Click for the search portion, it is developing its own expertise in the online video space, which is the fastest growing segment of Internet advertising. We currently have 10 clients actively advertising through online video and expect that number to grow in 2012, especially as we begin to integrate those online video portals at Youku, Tudou, Sohu, Qiyi, LeTV, and IFeng into the immediate planning schedules of some of our television advertisers for 2012.

(Foreign Language)

For Shangxing Media, we saw continued improvement in sales at Hubei Economic TV which led to continued gross margin improvement in our overall media investments and management business. As we enter the fourth quarter, we are starting negotiations for the renewal of existing resources as well as for investment into new resources. We have received positive feedback from all of our existing media partners and look forward to reporting progress on this front as we wrap up negotiation through the end of November and early December.

(Foreign Language)

As we look forward to 2012, we will continue to execute on our longer term strategies and invest in key strategic areas, especially talent and infrastructure which will help us maintain our solid foundation and provide us with key building blocks for future growth.

(Foreign Language)

Finally, I would like to underscore the trend among Chinese advertisers of placing key strategic emphasis on brand development to compete for consumers. And our belief that as a full service integrated agency, Charm is uniquely positioned to benefit from this trend. Over the past year, we have seen particularly strong growth in our business from industries that are tied to personal consumption such as travel and tourism. We expect this trend to continue and remain confident in the long-term development of consumer spending in China as well as in the growth prospect of the advertising industry in China.

(Foreign Language)

I would now turn the call over to Wei Zhou, our CFO to discuss our operational and financial progress.

Wei Zhou

Thank you, Chairman Dang and hello. Before I go through the financials, I’d like to take you through our three core business segments to give you some updates on our progress. Please note that in the first section I will be referencing some of our third quarter results using non-GAAP numbers in order to better convey our performance. We defined non-GAAP turnover as the total customer advertising spending placed through or with Charm to reflect the scale of our business.

In the past quarter, we continue to outgrow the market from a billings perspective and gained additional market share. In the third quarter of 2011, turnover grew 51.4% year-over-year and 9.4% quarter-over-quarter to approximately US$220 million. The year-over-year increase was mainly due to the increase in the number of advertising clients and increase in advertisement spending from existing clients. The quarter-over-quarter increase in turnover was largely attributed to the increase in agency advertising spending on non-CCTV media platforms, especially the Internet in the third quarter of 2011.

I will break down by business units. The extraction rate, which is defined as revenue divided by turnover for our advertising agency business was 5.8% compared to 6.1% in third quarter of 2010 and 4.4% in the second quarter of 2011. The quarter-over-quarter increase in the revenue extraction rate is mainly due to the increased advertising spending on non-CCTV media platforms, especially the Internet, which generally have higher extraction rate.

Internet agency revenue in the third quarter of 2011 accounted for approximately 20% of our total agency revenues, compared to 13% in the second quarter of 2011 and 6% in the third quarter of 2010. We expect the revenue extraction rate to increase as we expand our full service offerings across all media platforms under Charm Advertising and ramp up digital offerings under Charm Interactive and Charm Click. In the third quarter of 2011, we provided advertising agency services to 148 advertising clients, five of which were acquired in the third quarter.

Our turnover for our media investment management business, our principle media business which operates under the Shangxing Media brand grew 45.4% year-over-year and 0.1% quarter-over-quarter to $59.6 million. Compared with the third quarter of 2010, the increase was mainly due to the addition of Hubei Economic TV. Compared to the second quarter of 2011, the slight increase was mainly attributed to the strong demand from clients on Tianjin satellite channel due to the seasonality and was partly offset by decreasing programming available for soft advertising on Shanghai Dragon channel in the third quarter. For the third quarter of 2011, we had 303 advertisers for our principal media business compared to 282 advertisers in the third quarter of 2010.

Now, going back to the GAAP figures, total GAAP revenue was $70.2 million for the third quarter of 2011 representing an increase of 45% compared to $48.4 million in the third quarter of 2010 and an increase of 4.4% compared to $67.3 million in the second quarter of 2011.

Revenues for our advertising agency business were at $9.3 million in the third quarter of 2011, representing a 46.2% increase compared to $6.3 million in the third quarter of 2010, an increase of 50.2% compared to $6.2 million in the second quarter of 2011. Principal media business revenues were $59.6 million in the third quarter of 2011 representing an increase of 45.4% compared to $41 million in the third quarter of 2010 and a slight increase of 0.1% compared to $59.6 million in the second quarter of 2011. The increase in agency and principal media revenues are consistent with the increase in turnover. Branding and identity services revenues were $1.4 million in the third quarter of 2011 representing a 25% increase compared to $1.1 million in the third quarter of 2010 and a decrease of around 12% compared to $1.6 million in the second quarter of 2011.The sequential decrease in branding and identity services was primarily due to less client demand for branding and creative services as well as online public relation services in the third quarter of 2011.

Cost of revenues for the third quarter of 2011 was $47.7 million compared to $29.6 million and $48.7 million in the third quarter of 2010 and second quarter of 2011 respectively. We mainly attribute the year-over-year increase in cost of revenues to the addition of Hubei Provincial Economic TV and increasing TV media cost for the two satellite channels and four CCTV programs.

Gross profit in the third quarter of 2011 was $22.5 million representing an increase of 19.7% from $18.8 million in the third quarter of 2010 and an increase of 21.3% from $18.6 million for the second quarter of 2011. Gross margin for the third quarter of 2011 was 32.1% compared to 38.9% in the third quarter of 2010 and 27.6% in the second quarter of 2011. The year-over-year gross margin decrease is mainly due to the addition of Hubei Provincial Economic TV and Beijing Gehua Cable TV which commenced operation in 2011 and operates at a lower margin during its initial ramp up phase.

Selling and marketing expenses were $6.7 million in the third quarter of 2011, representing a year-over-year and a sequential increase of 15.9% from $5.8 million in the third quarter of 2010 and the second quarter of 2011. The increase in selling and marketing expenses compared to the third quarter of 2010 was primarily due to increase in headcount at Charm Interactive and Charm Click. Selling and marketing expenses represent 9.5% in the company’s total revenues for third quarter of 2011 compared to 11.9% in the third quarter of 2010 and 8.6% in the second quarter of 2011.

General and administrative expenses in the third quarter of 2011 grew 59.3% year-over-year and 33% quarter-over-quarter $2.6 million. The year-over-year growth is consistent with our continuous investment in infrastructure to support our long-term growth.

As a result of the above, operating profit was $13.2 million in the third quarter of 2011 compared to $11.4 million in the third quarter of 2010 and $10.9 million in the second quarter of 2011, representing a 15.6% year-over-year growth and a 21.3% sequential growth respectively. For the third quarter of 2011, we had a tax expenses of $685,000. GAAP net income was $13.2 million for the third quarter of 2011 representing an increase of 18.5% from $11.1 million in the third quarter of 2010 and an increase of 20% from $11 million in the second quarter of 2011.

Fully diluted net income per ADS for the third quarter was $0.31 compared to $0.27 and $0.26 for the third quarter of 2010 and second quarter of 2011 respectively. Each ADS represents two common shares. We returned solid growth in net income, reaching the high end of our previous guidance. Our third quarter non-GAAP net income, which excludes share-based compensation expenses and impairments on investment was $14.2 million compared to $11.7 million for the third quarter of 2010 and $11.7 million for the second quarter of 2011.

Cash flow from operations for the third quarter of 2011 was positive. And as of September 30, 2011, we have cash and cash equivalents of $136.2 million compared to $132.4 million at the end of the second quarter of 2011. As of September 30, 2011, we have 687 employees compared to 580 employees as of June 30, 2011.

Turning to our business outlook, we estimate total revenues for the fourth quarter of 2011 will range from $80 million to $81.5 million. Fourth quarter 2011 non-GAAP net income which excludes share-based compensation expenses, impairment on investments, and intangible assets is expected to be between $17 million to $17.5 million. We base these estimates on foreign exchange rate of 6.5 renminbi per US$1. This forecast reflects our current and preliminary view which is subject to change.

Thank you for your attention. I will now hand the call over to operator who will open the line to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Wallace Cheung of Credit Suisse.

Wallace Cheung – Credit Suisse

Hi, good evening.

Wei Zhou

Hi Wallace.

Wallace Cheung – Credit Suisse

Hi. Thank you for taking my questions. And two quick questions, one is as we are moving towards the CCTV goes in auction next month, how should we expect the growth of CCTV instead of sort of bidding amount and grow as a substantial revenue growth in 2012 and also will be great as the second question will be as we have seen lately, there are some regulation from staff and the central government in terms of some of the entertainment related programs and what will be the impact of the CCTV transform make sure how would be translate into like Charm business performance make sure as well. Thank you.

Wei Zhou

Thank you, Wallace. Let me translate the question for Mr. Dang and I will then translate the answers back, okay.

He Dang

Thank you for the question Wallace. On looking at the upcoming CCTV trans-Atlantic auction in preparing for the 2012 season. Our work as well as the progress at CCTV has been progressing very slowly and we expect the increase in terms of volume and price be inline with our historical trend. And then in terms of the potential revenue growth, I think for us I think it also will be inline with sort of what we’re seeing in the past as well. And then the answer to your second question.

I think if you look at the recent Dang regulations that came out last week or so. It create a certain degree of uncertainty within the industry, in particular for some of the leading satellite channels in terms of programming and advertising (indiscernible) as well. And on when facing some of these uncertainty lot of the advertisers behave, speak to their, both have or behave more conservatively. And then we see this as a positive factor for our additional CCTV business. We also see this as an opportunity for Charm as we look to expand our market share amongst these satellite channels as on they will seek more help, more assistance and helping them market their products to the advertisers market.

Wallace Cheung – Credit Suisse

Hi, thank you Dang and Zhou. Just quick follow-up on the two question say, when Dang, Zhou mentioned about CCTV growth during the auction (indiscernible) previous performance, so should we expect something like 13% to 15% growth in terms of revenue dollars amount and this year. And the other question regarding this Charm policy in particular from the satellite and things like, there are some latest restrictions factor CCTV cannot except any kind of like from this advertising and more after (indiscernible). What’s the sort of potential impact the CCTV and also to Charm given the basic policy? Thank you.

He Dang

(Foreign Language)

Well, the answer your first question in terms of the looking at the 13% to 15% number, I think for the strategic option, I think all of the each of the individual assets are quite different in sort of demand comes from advisor. So for individual assets, I think we made those kind of prices, but for a sort of overall, I think we don’t want to put a number out there as yet. And answer the second question is in terms of the impact of the restriction of pharmaceutical as well as go back to early question from the restriction on the sort of on some of the entertainment programming for some of the satellite channels. I think overall the way we look at that is that if you look at CCTV as well as sort of with the 15 channel. They have well over couple of 1000 advertiser, but basically advertiser is coming from various different category industries. So, a restriction like this any single category should not have any sort of significant impact on CCTV’s overall advertising business and I think the impact on Charm should be minimal as well.

Wallace Cheung – Credit Suisse

Thank you very much for answer. I’ll line up for more questions. Thank you.

He Dang

Thank you very much.

Operator

Your next question comes from the line of Eddie Leung of Merrill Lynch.

Eddie Leung – Merrill Lynch

Hi, good evening guys. I have a two questions, the first one is above the margin trend. Could you give us more color on the margin trend? If you understand the new initiatives of near-term impact on the margins that would like to give sense of the longer term trend perhaps let’s say next year. And then my second question is about the advertising mix. Have you guys seen any advertiser industry that shows that’s the momentum than the others? We heard about like the charter related advertisers and then in addition to that you say on the advertiser industry that is weaker than average. Thank you.

Wei Zhou

Thank you, Eddie. In terms of the margin trend if you look at the gross margin of our business for this year, we’ve been gradually improving from a quarter to from sort of ongoing quarterly perspective and that has result basically from improved operation from Hubei Economic TV. I think as we on the new resources and then add resources next year, I think depending by the resource mix on that margin. We’ll have some frustration from a year-to-year perspective. But basically for most of the mature operating assets for example Tianjin, Shanghai as well as the (indiscernible) operated this year, we’re seeing basically for the same margin as last year.

So, going forward I think for new aspects we probably will like – probably the sort of as slightly lower margin in the first sort of quarter or too and the normalized when it comes to third and fourth quarter. And then as a result, I think go and looking into next year I think while the much more clarity on that as the sort of finalized for our inventory mix for (indiscernible) business. Regardless, I think overall we invest in any assets, we’re looking at basically three year cash of at least 25% so, looking at sort of long-term run rate about 25% on the gross margin for all we get those thing.

And to answer your second question regarding the sort of industry that is being from a trending perspective, I think I’m looking into the sort of this year, I think problems for them are definitely been one of the sort of the feed gross area for us as well as we continue to see financial services and that’s basically banks and insurance companies remain strong as they spend on consumer products. Especially from the bank as sort of, spend a lot of it in products. And then in terms of sectors, I was wondering Don, I think one sector that’s sort of which is definitely slow down versus second quarter has been sort of fine. I think we had a couple of advertisers from that segment in the second quarter.

And then also compared to 2010, I think there is some slow down within auto sector, especially for some of the brand, but for some of the Japanese brand, this too sort of advertising in the second because of earthquake we saw a very strong come back from that category as well, especially within our business operation.

Eddie Leung – Merrill Lynch

Thank you very much. I am going to go back to the queue. Thanks.

Operator

Your next question comes from the line of Dick Wei of JPMorgan

Dick Wei – JPMorgan

Hi good evening. Thank you very much taking my question. My question is on this (indiscernible) entertainment content on some of the satellite and through TV. I wonder how should we think about the sudden coincident, is it going to beat, or going to stay with those, such as TV station and pricing to go up to the or show exact data more of the dollars going to move to the end of the local TV station or through the BDO companies. If you can help me to understand how the industry probably makes the difference and how that impacted mix for Charm, if you were get 2012, that will be great. Thank you.

Wei Zhou

Perfect. Let me handle that.

Dick Wei – JPMorgan

Thank you.

Wei Zhou

Hi Dick, I was trying to have flip chart with Dang. On the overall impact of the restrictions on in this programming, with significant regulation on the type of reality shows that can be produced, and the amount of reality shows that can be shown, during a certain time hour, I think what that causing that we’re seeing is that on this we have uncertainty in terms of the type of programming that will be shown on some of these satellite channel. As a result, I think most of the satellite channels at least have more primitive approach in terms of finding of advertisers. What that means is that we are not going to see or probably we’re going to see less of the critical best high price that we should pass. So basically, I am already basically reduce a lot of advertisers into these time spot that kind of currently, kind of doesn’t really have the programming.

I think the different factor overall industry I think given this kind of uncertainty as Mr. Dang mentioned earlier is that it’s been basically not force, but the advertisers tend to behave more cautiously or more permeability and they tend to, Dick maybe some of the media that basically has rather than trying to solve, trying our (indiscernible). With that basically we think that it will be a positive factor for distribution. And then second of all, I think it also presents opportunities for some of the new media platform, for example online video in most creative with their content and as a result brought more eyeballs into that platform. And then in turn, I think gradually, that will be shipped sort of advertised base as well. But in terms of where we stood at next year, I think we will continue to spend in our tradition. But it also gives us opportunity, to spend our market satellite channel as they will probably want to work with Charm a little bit to firm up, their indication as well as their sales channel with a lot of the advertisers right now.

Dick Wei – JPMorgan

Okay, got it. Maybe can I just follow-up that for those contents that be restrictive a lot now has uncertainty, how much time or revenue does it account as a presentation of the primetime inventory that is (indiscernible)?

Wei Zhou

I think if you look at the new regulation that came about, I think they restricted basically in terms of reality show, it will be no more than 90 minutes per night. And then also in terms of the type of programming no more than sort of 20 of these kind of shows per year. I think each of the top 10 satellite channels have different profiles in terms of their reliance on this kind of programming. But I think definitely we will see a decrease in terms of the revenue mix as well as in terms of the content mix from these reality shows. But I think one of the things that we see is that they will need to turn into the other types of programming to fill up that gap and then one of that area from a content perspective that they return to will be popular TV volume. But I think that will basically drive the growth in sort of the drama industry. But from an advertising perspective, as long as the rating of the time spots remain consistent versus 2011, I think the advertisers will stick around through these channels.

Dick Wei – JPMorgan

Got it, great. Thank you very much for the help.

Operator

Your next question comes from the line of (indiscernible) of Macquarie Securities.

Unidentified Analyst

Thanks for taking my questions. I just wanted to ask whether you can provide some general color on China’s backlog advertising market here, especially given the recent China macro environment (indiscernible) in China’s advertising (indiscernible). And then I follow up with my second question. Thank you.

Wei Zhou

Sure. I think I turn that question to Mr. Dang. I need to translate for him real quick, okay.

Unidentified Analyst

Okay sir.

He Dang

(Foreign Language)

Yeah, I think I just kind of translate. I think from our discussion with our advertisers so far, I think we remain on fairly comparative remains positive in terms of overall outlook for 2012. And I think although I think a lot of our advertisers are more rational and cautious about their outlook for next year, we think that there are several external factors and is that such as the Olympics coming up in August as well as the People’s Congress coming up in March and April. I think all of this will drive both media consumption and media attention at the same time and also be basically factors that can drive on advertising segment as well. I think so overall I think we were pretty – we have a very positive outlook for 2012, but we are carefully monitoring global and the Chinese sort of economic condition and staying very alert on any sort of stocks that is directed for advertising.

Unidentified Analyst

Okay, thank you. So, my second question starts your online as we see online advertisers expanding that with 20% of your agency business, what was the growth for your online video and search respectively and in line with the general trend in (indiscernible)? And among your clients have you seen the trend of budget location from TV to online video ad (indiscernible)?

Wei Zhou

Yeah, I think for online video, I think I state the each one separately for online video and search. For online video for full year 2010, I think it made up around 5% of our Internet sort of business for a coming into sort of this year so far that percentage stand at around 20% of our sort of our overall Internet business. So even with Internet business itself, video has basically grown almost three times. And if you look at search I think that last year is sort of our growth in search has been a combination of organic growth as well as acquisition-based growth.

I think we basically tripled up our sort of search business in terms of from a client perspective with the acquisition and integration of ClickPro. And then so we start these two sectors continued basically grow faster than sort of other segment within the digital space.

And then returning to sort of your last question in terms of where is that much as coming from. I think a lot of the budget that we seeing are coming from hence that of reallocation of budget from other areas, basically clients actually increasing budget into these areas and to try them out may be especially if it starts. For online video, I think what we are doing this year is we’re actually have a strategy plan in place with basically some of the leading video players that we’ve talked about in our conference call basically start planning some of their products into our traditional television advertisers in the planning schedule.

But I think from that perspective, we expect a number of advertisers for Charm that’s currently active on video we spend 10 right now, the increase for higher number adding the profitability in first quarter was definitely as we added in 2012.

Unidentified Analyst

That’s okay.

Operator

Your next question comes from the line of Wallace Cheung of Credit Suisse.

Wallace Cheung – Credit Suisse

Hi, just quick follow-up like can you repeat again on the tough side industry in Europe, agency exercise, I think can you also elaborate like this trained online in terms of digital TV business in terms of profile (indiscernible). And the second question would be regarding like leading investment business actually seeing that could be a more changes on the sort of the distance across (indiscernible) TV and even I may be a CCTV because of length of staff regulation. Would that be potential changes on some of these the strategies in terms of providing exclusive content to some of the big agents like (indiscernible). So, would contract be third review and then also in constant trail. Thank you.

Wei Zhou

Hi, Wallace, thank you very much for the question, I think from an industry perspective I think our number one sort of industry is still (indiscernible) about 30% and then with home appliances, financial services, and pharmaceuticals as well as transportation I’ll say at around 10% each. And then covenants for than currently make from 5% of our sort of advertisers effect and sort of Internet business from this currently around 3% to 4%, both of those sectors are basically scenario for us.

And then I didn’t catch the second part of that question in terms of the online or offline. We don’t breakdown sort of the online, offline basically today now, I thought I didn’t really understand the question and in terms of what we be in terms of trends for the new investment business. I think we currently have a basically a very good premium asset in our sort of inventory with television programs on CCTV, three of them as well as that two satellite channels in Tianjin and Shanghai Dragon, and one of the leading local broadcast channels to the Economic TV.

I think currently right now from a sort of continuing in your discussion perspective are in actively causing the all of these assets and both basically the both the progress especially coming into the end of November and early December. But I think what’s even more interesting we’re seeing the sort of trend is that we see a lot of opportunity to work on more closer I’d say with some of the tier 2 satellite channel. So, I think from a business financial perspective for (MIN) business, I think as we feel right represents as I think a very new opportunity for us. And I think it will give us an opportunity to add inventory by (indiscernible).

He Dang

(Foreign Language)

Yeah thank. I think regarding my first question, I just want to say, so we can talk about profile in this, some of the payments talk about top five of overall agency (indiscernible). Yeah, if you just maybe focus on say into that online agency business without the changes on the top line. Thank you.

Wei Zhou

I understand your question. Yeah, sort of the number I gave on most sort of the traditional business which is basically to system products, pharmaceutical, home appliances and financial services and transportation. If you look at sort of surely our digital advertisers, or advertised it on a digital platform. I think the top five there is some overlap because a lot of advertisers, advertise on the digital space itself. On the top five on sort of the number one is actually number three, top three consumer products, pharmaceutical and home appliances. And then we also have sort of financial services and Internet service providers as sort of the next year.

Wallace Cheung – Credit Suisse

Thank you (indiscernible).

Operator

(Operator Instructions) You have a follow up question from the line Wallace Cheung of Credit Suisse.

Wallace Cheung – Credit Suisse

I am sorry, I want some news. Two more follow ups, one is on the online business it seems like Charm has done a few quite successful acquisitions in this year, so far. From a agency, sort of online agency business expected this huge order and each for more M&A for tenant or technology and as you are pretty much running like a few I mean currently if have always since you’re running two different type of business, one is the Charm Click and other one is Charm Interactive. So is then possibly disorder integrated to a theater or in long term you’ve seen this assume that this institute should be running independently for just same resources.

And then second question will be regarding to particular Olympics I know you said, 7, 8 months, 9 months I have asked this question, that was great. You can device from color like how those CCTV to generate better mid-term from these Olympics program from both like online as well as China Central TV business, I think online are they competing to licenses online video, right good, many of these online video sites installed. Thank you.

Wei Zhou

Thank you for the question. Yeah, I think if you look at the way we have our digital business I think when we started investing in the first quarter of 2010 last year. We first developed a team organically and build up a sort of core expertise and streaming areas in term of displays, search and online video. And then we sort of looked at on the search base as an area where we need to add sort of more technical technology as well as more know how on the platform. So we ended on complying good growth and integrated that on platform with our existing (indiscernible) performed a transclick. And I think ongoing forward we will few transport in Charm Interactive separately mainly because of the prior to sort of Charm Click business model requires additional and technical know-how and additional investment technology day after days in terms of modeling a lot of (indiscernible) other than next place for advertisers (indiscernible) base. And if you look at sort of US market in definitely with on there is a lot of four independent on sort of church or performance marketing company on rather than sort of video and Charm Interactive I think they will basically few more focus on working with fifth in Charm Advertisers and particular on the video side.

But I think overall on Charm Advertising, Charm Click and Charm Interactive also business unit were share on the decline resources at available with Charm platform. And I think the way we grow that business I think we definitely a lot of cross sale and a lot of integration I think on a particular some of our large advertise. And answer to the second question in terms of on the insight of Olympic I think CCTV just like a world class prior to the Olympic event they are actually for the separate auction that sells off sort of advertising sponsorships on CCTV when Olympic takes place August, in early August. From what we’ve heard in the market is that CCTV were actually useful device the Olympic broadcast in the online to their own sort of media company CNTV. Both CNTV around the Olympics time there will be the full broadcast or live broadcast of the Olympic event. So, I think we see CCTV ultimately one of the biggest beneficiary of the Olympic event for 2012.

Wallace Cheung – Credit Suisse

Okay, great. Thanks very much.

Wei Zhou

Wallace, Mr. Dang has one more thing to add.

He Dang

(Foreign Language)

Yeah, also sort of from a TV rating perspective I think (indiscernible) CCTV as we saw in 2008 they actually will broadcast the Olympic events on one channel but actually on three channels at the same time. So sort of CCTV overall platform will be a beneficiary of that and especially in terms of rating and as a result dollars as well. And those are media platform that do not have broadcasting rights of the Olympic event well basically public, not as well.

Wallace Cheung – Credit Suisse

Thank you.

Operator

Thank you for participating in today’s Charm Communications earnings conference call. I will now turn the call back to management for closing.

Nicholas Manganaro

Thanks very much there are no further questions, we’ll wrap it up. This concludes the earnings call. Thanks again for your participation. Good bye.

Operator

Thank you for participating in today’s conference. You may now disconnect.

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