I recently had lunch with Jason Jiang, Founder and CEO of Focus Media (NASDAQ:FMCN). Normandy Madden from AdAgeChina had invited Jason and me to speak together on a panel for their upcoming digital marketing conference in Shanghai in December, http://mediakit.adage.com/events/adagechinaconference/.
Jason and I thought it would be worthwhile to meet up beforehand to go over what we were doing to discuss since I would be interviewing (in Mandarin!) him on his opinions towards trends and innovations in the mobile phone, internet and LCD ad space. I wanted to make sure more than anything that Jason could understand my Chinese.
Although I have owned shares in Focus Media for a while, this was the first time that I had met Jason. I was looking forward to it as I had heard that Jason has a very charismatic personality and had already met most of FM’s executive team at various social functions over the years. My colleague Natalie accompanied me to our lunch with Jason and FM’s head of marketing, Celia Tong.
We met up at a gorgeous old Shanghai villa that did not have a sign out front, at least as far as I could tell. The restaurant was wedged at the end of an alley between 2 construction areas and ended up having some marvelous Shanghai food. If I can find it again, I will go back. Entering the establishment, I felt that I was about to dine at a member’s social club in NY. Except that this one was open to the public and did not have such pretense.
After our panel in Shanghai, I will write more about some of Jason’s views along with my own analysis for FM’s future growth prospects. But here are a few key takeaways from the meeting:
- Focus Media has now become the second largest media company in China after CCTV in terms of advertising revenue with a predicted forecast of 4 billion RMB in revenue next year. I did not realize that FM had gotten so big so quickly, mostly through major moves/ acquisitions in the mobile phone and internet sphere of companies like Allyes. FM now controls over 50% of the mobile ad sphere in China, through targeted SMS and location- specific, multi-color ads. This to me is extremely important as mobile phone ads are the next big thing in China since there are over 500 million users, and because the mobile phone plays such an important role in the lives of many Chinese. However, no one has figure out how to do it well, especially with the risk that China Mobile (NYSE:CHL) will knock partners out of the way like it did with Linktone (NASDAQ:LTON) and other VAS companies if the business becomes too lucrative. I am interested in seeing what FM continues to do in this sector and see if they can come up with something sustainable.
- While analysts have felt that FM has traditionally focused only on luxury, affluent consumers, they are now positioning themselves more to target the important consumers for clients. What this means is that they will keep targeting affluent consumers, but not solely, because many companies like Motorola (MOT) or KFC (NYSE:YUM) are targeting a wider audience. This has always been important to me as a) China's emerging 250 million strong middle class is becoming a core target for most companies as these folks are aspiration buyers and gravitate towards buying premium products from companies like LG Electronics or Apple (NASDAQ:AAPL), and b) I have never bought into the idea that the LCD screens are necessarily effective at targeting affluent people.
- Similarly, I have always been wondering about the effectiveness of LCD advertising for all sectors. My firm has conducted research and found that ads for certain sectors, like auto, lend itself better to the LCD medium. Jason and I discussed potentially the need for companies to develop LCD specific ads which I think is going to have to happen as companies are now allocating still small but fairly significant portion of their marketing budgets into LCD screen advertising.
Jason was very excited about large electronic screens that are now dotting the roadways as he can generate more revenue per inch/ real estate cost than a traditional board because he can put more ads on. He is signing long-term contracts with the real estate owners to lock in prices. What will happen when the contracts are up? With real estate prices booming and becoming a major impetus for inflation, companies like Carrefour are starting to get hit by landlords wanting more money or wanting to move them out so that they can build ever taller skyscrapers. But in the short-term, FM has locked up rates. I don’t like the ads personally on the street because when I drive they distract the heck out of me and I do not need more distractions when trying to navigate the cacophony of vehicles that buzz around Shanghai. But these ads seem to make money.
- Jason himself is extremely charismatic and is, what many of his colleagues call him, a visionary. Having a great and strong-willed leader is key for a new company moving ahead. And while FM has continued to acquire companies, they have kept the management teams of the companies they bought out even after the lock-up period. What FM needs to make sure of, though is that they continue to add professional talent to their senior ranks as Google (NASDAQ:GOOG) has done because the business will become too complex for a small, founding team to deal with. Generally, executives at FM have bought into Jason’s vision and really seem to respect him. I always check to see if people say good things about the boss in a company – if they do not or do not know who he is, then that is a bad sign, like with Motorola. But they cannot have too strong a founder/ leader who follows misguided policies like Dell (NASDAQ:DELL). But when they do like the boss like in FM or in Apple, that signals something is going well. In a country short on talent, having that loyalty is key.
A year ago in a commentary, I mentioned that Focus Media would not be able to grow if it relied on its LCD screen business to drive most of its growth. I said that FM had to move into other sectors such as internet and mobile if they wanted to continue to do well be cause while I like the elevator posters, I did not think that would be a major contributor to growth.
After my lunch with Jason, it became obvious that Focus Media is now a very different company that it was a year ago and that it is on the right track. I like a lot how mobile ads are beginning to become a major growth engine for Focus, and I am very happy that FM’s employees really like him.
I would like to see how they execute and innovate going forward. I do not think that they control the market yet or have come upon the 100% right method to take advantage of mobile marketing, but they are on their way. And I want to make sure that they keep adding to their team of talented folks. They cannot afford to lose any and they cannot afford not to add more.
I will write more after the panel takes place. But in the meantime, even with the bumps it has taken in the past few weeks and some risks that they may not be able to grow and reach Wall Street’s expectations, I have added to my holdings of Focus Media.
Disclosure: I own shares in Focus Media, Google, China Mobile