Focus Media Holding Limited (FMCN) has just released more details on their theater network. In their latest 20-F filing, theater revenue is more precisely defined and is now distinguished from the traditional billboard revenue, as far back as 2007. There is also a theater and screen count for 2011.
Rather than resolve the issues, however, the new information raises more red flags. Specifically, the Focus Media screen count per theater exceeds the Chinese average by a difficult-to-believe margin.
For those readers new to the scandal, perhaps a brief recap is in order. Before Muddy Waters Research published their report in November 2011, Focus Media's filings claimed a network of 27,164 theaters for 2008. The problem with this was that there were only 1,545 such theaters in all of China at the time. This was proven conclusively by referencing Chinese government statistics and widely published articles. (If you have any doubts at all, please see the slide show: A Critical Failure in the Focus Media Story).
After the January 2012 Amended 20-F, Focus Media changed their story and claimed they had used an old methodology which has been recently updated. This was simply untrue, and their responses, which were submitted to the SEC, provide the final evidence that fraudulent statements had been made. (here.)
That brings us to the present. In their latest filing, Focus Media claims ...
For our movie theater network, we leased screen time in approximately 316 movie theaters (consisting 2,190 screens) in cities across China as of December 31, 2011.
Using the final (lots of amended filings here) 20-F documents from 2009 to 2011, we can construct the theater count and revenue. From 2010 to 2011, the theater count grows 22% while revenue outpaces them, growing from $18 million to over $50 million ... a 180% increase.
Note that the theater count is more or less flat relative to the growth in revenue. How do we account for the disproportionate leap? ... through the exponential growth in the screen count?
2011 Yr-to-Yr Increase FMCN Theaters 316 56 FMCN Screens 2190 637 China Theaters 2800 803 China Screens 9200 3030
As you can see below, Focus Media has more movie screens per theater in its network than average. A lot more.
For example, Focus Media's total theater and screen counts for 2011 are disproportionate to the average, with Focus Media at 6.9 screens per theater; China, 3.3.
In 2011, Focus Media increased its theater count by 56; it's screen count by 637. This comes out to a ratio of over 11.4 screens per theater.
Compare this to China's growth over the same period, showing a ratio of 3.8 screens per theater.
Of course this is a red flag for Focus Media; not a smoking gun. Claiming 27,000 theaters in a country that had less than 1,600 ... that is a smoking gun. This is just a red flag, but it's bright red and big.
For the theater and screen counts, see the 2008, 2009, 2010, and 2011 SEC 20-F Filings.
Focus Media's revenue from 2007 to 2011 is found in the 2011 20-F.
Professional translation: "In 2011, 803 new cinemas were built and 3030 movie screens were added in new extensions, an average of 8.3 new movie screens per day. By the end of the year, the number of urban cinemas across the entire country was more than 2800, with the total number of movie screens reaching more than 9200."
Original Chinese: "2011年，新建影院803家，新增银幕3030块，平均每天增长8.3块银幕。截至年终统计，全国城市影院数量突破2800家，银幕总数达到9200多块。"
These statistics were widely published in China: Google (copy and paste into the Google or Microsft translator.)
Disclosure: I am short FMCN.