Readers Express Caution on Focus Media Holding (FMCN)

A number of China Stock Blog readers have expressed concerns about Chinese out-of-home advertising network operator Focus Media (ticker: FMCN):

David:

Focus Media have been successful at filling a niche, however like many Chinese companies their future growth prospects will be determined by how quickly they come up against the state owned companies. In their case if CCTV and other state owned TV stations feel that Focus Media are taking too many advertising dollars away from them then they will find a way to hit back, most likely through regulatory means.

Focus Media is a very low tech company - the content shown on each screen has to be changed manually using a DVD and/ or memory stick. It would be more logical to have all of their screens connected to a network so that content could be managed remotely but I have been told that if they did this then they would be classified as a TV network and they don’t have a licence.

This type of advertising will continue to grow but it will be in places like supermarkets and big chains like Carrefour and WalMart will do it themselves. Carrefour just announced that they will use another service provider to set up in-store networks in China and WalMart already have the expertise from operating their own service in the U.S.

Personally I find their LCDs intrusive and annoying so maybe there will also be a backlash from consumers at some point.

China Market Research Group:

Focus Media will have a tough time sustaining its high valuation. Right now MNCs are dying to get eye balls from Chinese consumers. With the lack of efficient channels to advertise in China, Focus Media has taken advantage of this and has provided a way for MNCs to get information out. However, the efficacy of the commericals are in doubt which questions the long-term viability of the business model.

Here are a few concerns/ thoughts:

1) the content constantly goes on a short-track. Thus, even if consumers actually look at the commercials, they get tired of seeing the same images over and over for one week. They soon forget to look at updated images and stop looking at the screens altogether.

Focus Media needs to come up with a way to update the tracks on a more regular basis or else consumers and thus advertisers will stop paying attention to Focus Media completely.

2) People’s eyes are more drawn to the Focus Media logo than they are to the actual commercials. We have run eye checking tests on this to see what consumers absorb. We have found that would be consumers see the Focus Media name and remember that more than the actual content of commercials.

3) there is not good tracking to assess the actual efficiency of the commericals. Our own sample size has been too small to assess accurately retention levels. Mobile phone ads that will emerge soon will have a much better barometer to determine retention #s.

Focus Media has done very well in marketing the company to advertisers and investors. If they can use their cash pile to enter more sustainable businesses, then Focus Media has a good chance to grow. It should look at making acquisitions or growing organically in the print and mobile phone ad sectors.

Comment: Let us know what you think.

FMCN 1-Yr Price Performance:

Comments

[User 1:]

Dehydrator:
Instead of simply criticizing the others it would be great to hear what you think about Focus Media.
Thank you.
-Ezra

2006 Mar 27 05:11 PM