Charm Communications' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Aug.21.12 | About: Charm Communications (CHRM)

Charm Communications Inc. (NASDAQ:CHRM)

Q2 2012 Results Earnings Call

August 21, 2012 8:00 AM ET


Nicholas Manganaro - Ogilvy Financial, IR

He Dang - Founder, Chairman and CEO

Wei Zhou - Chief Financial Officer,


James Marsh - Piper Jaffray

Wallace Cheung - Credit Suisse


Hello. And thank you for standing by for Charm Communications Earnings Conference Call. At this time, all participants are in a 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 call 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 second quarter ended June 30, 2012. The company’s earnings results were released yesterday and are available on the company’s IR website at, as well as on newswire services.

Today, you will hear opening remarks from Charm’s Founder, Chairman and CEO, Mr. Dang, followed by the company’s Chief Financial Officer, Wei Zhou, who will provide a financial overview and guidance for the third quarter of 2012. 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 expectations. 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 to 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 Please note that 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, for whom I will be the translation.

He Dang

[Foreign Language]

Hello, everyone. And welcome to our second quarter earnings conference call.

[Foreign Language]

During the second quarter of 2012, we continue to invest in our overall business, while generating strong growth in our core advertising agency business. The segments performed particularly well, in spite of a challenging advertising market and continue to gain market share with total advertising turnover or billings up 20.6% year-over-year outpacing industry market growth.

This increase speaks to the strategic investments we have made to provide more integrated advertising and digital solutions for our clients. Our digital billings driven especially by our search business under Charm Click grew 80% year-over-year and digital revenues increased to 30% of total agency revenues.

[Foreign Language]

China’s macro economics slowdown over the first half of 2012 had a substantial impact on the advertising industry. According to CTR market research, traditional media advertising increased just 3.9% in the first half of 2012, the lowest rate in the past five years. This slowdown in advertising demand was worst than we had anticipated and we now expect these challenging conditions to continue through the remainder of 2012.

[Foreign Language]

This softness in advertising demand combined with the previously imposed satellite TV regulations negatively impacted our Principal Media business. Although, we have partially mitigated the principal risk by taking on less media inventory at the beginning of the year, the performances of the inventory under contracts are below where they were last year and we expect this trend to continue in the second half of this year.

Nonetheless, we saw margin improvements in the second quarter, especially as sales our newly acquired assets ramped up and we will continue to push our sales efforts to minimize the inventory risk for the rest of this year. Looking longer term, we continue to search for attractive assets and looks to develop a more sustainable business model with our media partners.

[Foreign Language]

I would like to highlight the senior hires we have added to our executive management team over the past few quarters. With Mr. Tony Yu, joining as CTO in the fourth quarter of 2011 and Mr. Bao Li, joining as President of our Shangxing Media business in the first quarter of this year.

And continue to strengthen our agency business we brought in Ms. Cathy Chen to serve as President of our Agency Business Units, including Charm Advertising, Charm Interactive, and Charm Click.

Cathy has extensive management and marketing experience, excuse me, experience with Fortune 100 companies, and in her new role, she will lead our overall agency business. We welcome her to our team and our confidence that our continued investments in talent and infrastructure will help us to build the advertising platform to sustain our growth.

[Foreign Language]

Moving on now to our operating highlights for the second quarter.

[Foreign Language]

Our advertising agency revenues grew a robust 58.8% year-over-year, substantially outpacing the upper mentions 20.6% in billings growth. This is due to an increase revenue extraction rate of 5.7% in the second quarter of 2012, compared to 4.4% in the second quarter of 2011, which reflects our ability to deliver integrated advertising solutions to our clients.

[Foreign Language]

For Charm Advertising, we added Chengdu Gold to our CCTV advertising business, showing our strength and attracting new clients from new industries, thanks in large part to our core strength on the CCTV platform.

[Foreign Language]

Our Digital business continued to grow at a rapid pace in the second quarter, highlighted by a number of wins from Charm Click and Charm Interactive. In the second quarter Charm Click won a search business for international brand Michelin, as well as for domestic brands Guangdong Development Bank, (inaudible) and [Nivea]. The total number of live SCM clients grew to 55 in the second quarter up from 45 in the first quarter and from 30 in the year ago period.

Additionally, Charm Click launched two search marketing applications on Taobao's open platform, Taokuaiche and Taokuaici, which help Taobao merchants to manage their search optimization on (inaudible) platform.

[Foreign Language]

During the second quarter, Charm Interactive won two new accounts, Longrich and Bosideng's Snow Flying brand. We also hired a new general manager of Eastern China for Charm Interactive, Mr. Leon Liu, the former National Media Planning Director at Tudou, to help lead our business in that region.

Going forward, we will continue to invest in Charm Interactive to enhance our online video services and integrate online video into the media planning schedules of television advertisers.

[Foreign Language]

For Shangxing Media, as noted last quarter, 2012 has been a challenging year. But we are maintaining less inventory in orders to reduce our exposure regarding satellite TV regulations and weak macro conditions. Our margins trends for the business are improving, due in large part to the gradual build-up of sales efforts on the new media assets.

As we discussed last quarter, our new BTV-Sports channel impacted our margins in the second quarter as June was the first month of operation. As discussed previously, we expect the soft television advertising demand to continue and as a result, the outlook for the media business remains uncertain for the rest of this year.

[Foreign Language]

Lastly, although, we expect the rest of this year to be challenging, we remain confident in the long-term growth of China’s advertising industry. We will continue to execute on our longer-term strategy of providing a full service integrated advertising platform by building on our traditional TV business and strengthening our digital business in investments and talent and infrastructure. With this in mind, we are confident that we can deliver value to our shareholders and achieve long-term growth.

[Foreign Language]

I will now turn the call over to our CFO, Wei Zhou who will discuss our financial results.

Wei Zhou

Thank you, Chairman, Dang, and hello to everyone on the call today. Before I go through the financials, I would like to take you through our three core business segments to give you some updates on our progress to date.

Please note that in the first section I’ll be referencing some of our second quarter results using non-GAAP numbers in order to better convey our performance. We define non-GAAP turnover as a total customer advertising spending placed through which Charm in order reflect the scale of our business.

In the second quarter of 2012, turnover declined 2.9% year-on-year and declined 7.1% quarter-over-quarter to approximately US$195.4 million. The year-over-year decrease in turnover was mainly due to the decrease in the media investment business, as a result of dropping several media assets at the beginning of 2012.

This was in order to modify our media inventory mix and reduce risks associated with uncertainties in the satellite market following regulatory changes that took affect at the start of 2012.

The quarter-over-quarter decrease in turnover was largely due to seasonal factors. I will break the turnover down by business. The non-GAAP turnover for the Advertising Agency business or Agency business grew 20.6% year-over-year and decreased 19.2% quarter-over-quarter to US$170.9 million in the second quarter of 2012.

The year-over-year increase in the Agency business turnover was mainly due to the increase in the number of new agency clients and the increase in our spend -- advertising spending from existing clients. The quarter-over-quarter decrease was mainly attributed to slightly weak demand in the second quarter due to seasonal factors and particularly for the CCTV business.

In the second quarter of 2012, we provided Advertising Agency services to 165 advertising clients, five which were acquired in the second quarter of 2012, compared to 160 accounts in the first quarter and -- of 2012 and 143 accounts in the second quarter of 2011.

The revenue extraction rate, which is defined as revenue divided by turnover for the Agency business was 5.7%, compared to 4.4% in the second quarter of 2011 and 5.5% in the first quarter of 2012.

The increase in the revenue extraction rate is mainly due to the increase of advertising spending on non-CCTV media platforms, in particular internet, which have a higher extraction rate relative to CCTV.

We expect the revenue extraction rate to increase as we expand our full service offerings across all digital platforms under Charm Advertising and ramp up digital media offering under Charm Interactive and Charm Click.

Our turnover for our Media Investment Management business or Principal Media business, which operates under the Shangxing Media brand, declined 58.9% year-over-year and increased 10.3% quarter-over-quarter to $24.5 million.

The year-over-year decrease was mainly due to the dropping of several medial assets in order to modify our inventory to reduce the risks associated with uncertainties in the satellite market. The quarter-over-quarter increase is mainly due to addition of Beijing Television’s sports channel, BTV-Sports in the June of this year.

In the second quarter of 2012, we had 207 advertisers for our Principal Media business, compared to 290 in the first -- 290 advertisers in the second quarter of 2011 and 150 advertisers in the first quarter of 2012.

Now going back to the GAAP figures, total U.S. GAAP revenues was $36 million in the second quarter of 2012, a decrease of 46.5%, compared to $67.3 million in the second quarter of 2011 and an increase of 7.3%, compared to $33.5 million in the first quarter of 2012.

Revenues for our Advertising Agency business were $9.8 million in the second quarter of 2012, an increase of 58.8%, compared to $6.2 million in the second quarter of 2011, a decrease of 4.8%, compared to $10.3 million in the first quarter of 2012. The changes in Agency revenues are consistent with the changes in turnover.

Principal Media business revenue were $25 -- $24.5 million in the second quarter of 2012, a decrease of 58.9%, compared to $59.6 million in the second quarter of 2011, and an increase of 10.3%, compared to $22.2 million in the first quarter of 2012. The changes in the principal media business revenues are consistent with the changes in turnover.

Branding and Identity Services revenues were $1.7 million in the second quarter of 2012, an increase of 10.3%, compared to $1.6 million in the second quarter of 2011, an increase of 60.8%, compared to $1.1 million in the first quarter of 2012. The increase in this service was primarily due to increased client demand in creative service in the second quarter of 2012.

Cost of revenues in the second quarter of 2012 was $24.9 million, a decrease of 49% compared to $48.7 million in the second quarter of 2011 and an increase of 4.9%, compared to $23.7 million in the first quarter of 2012.

We attribute the year-over-year decrease and the decrease of our media assets in order to modify our inventory mix. Cost of revenues for the Media Investment Management business increased quarter-over-quarter, mainly as a result of addition of BTV-Sports.

Gross profit in the second quarter of 2012 was $11.1 million, a decrease of 40% from $18.6 million in the second quarter of 2011, and an increase of 13.1% from $9.8 million in the first quarter of 2012.

Gross margin in the second quarter of 2012 was 30.9%, compared to 27.6% in the second quarter of 2011 and 29.3% in the first quarter of 2012. The year-over-year gross profit decrease was mainly due to lower contribution from the principal media business. The quarter-over-quarter increase was mainly due to a partially ramp-up in the media -- in the partial ramp up of new media assets but it was also partially offset by BTV-Sports.

Selling and marketing expenses were $7.9 million in the second quarter of 2012, an increase of 36.9% from $5.8 million in the second quarter of 2011 and an increase of 6.6% from $7.4 million in the first quarter of 2012.

The year-over-year increase was primarily due to continued investment in the company’s digital business, including increased headcount at Charm Interactive and Charm Click. The quarter-over-quarter increase was primarily due to more marketing events and increased business travel in the second quarter of 2012.

Selling and marketing expenses represents 21.9% of our total revenues in the second quarter, compared to 8.6% in the second quarter of 2011 and 22% in the first quarter of 2012.

The increase -- the year-over-year increase in selling and marketing expenses as a percentage of total revenue was mainly due to a shift in business from our Principal Media business to our Agency business, which tends to higher selling and marketing expense as a percentage of revenue.

General and administrative expenses in the second quarter of 2012 grew 43.6% year-over-year and increased 32.7% quarter-over-quarter to $2.8 million. The year-over-year increase was mainly attributed to investments in infrastructure, including expansion of our headquarter office in Beijing to support our long-term growth.

Operating profit was $200,000 in the second quarter of 2012, compared to $10.9 million in the second quarter of 2011 and $200,000 in the first quarter of 2012.

The GAAP net income was $800,000 for the second quarter of 2012, representing a decrease of 92.8% from $11 million in the second quarter of 2011 and a decrease of 3.3% from $800,000 in the first quarter of 2012.

Fully diluted net income per ADS in the second quarter of 2012 was $0.01, compared to $0.26 in the second quarter of 2011 and $0.01 in the first quarter of 2012, each ADS represents two common shares.

Our second quarter non-GAAP net income, which excludes share-based compensation expenses, amortization of intangible assets was $1.5 million, a decrease of 86.8%, compared to $11.7 million in the second quarter of 2011 and a decrease of 16.7%, compared to $1.9 million in the first quarter of 2012.

Net cash flow from operations in the second quarter and first half of 2012 was positive. In the second quarter of 2012, we paid a dividend of approximately US$12.6 million. And as of June 30, 2012, we had cash and cash equivalents of $124.3 million, compared to $132.5 million at the end of the first quarter of 2012.

We had 809 employees as of June 30, 2012, compared to 764 employees as of May 31, 2012.

Now turning to our business outlook, we estimate our total revenues in the third quarter of 2012 will range from US$45 million to US$47.5 million.

Third quarter non -- 2012 non-GAAP net income, which excludes share-based compensation and amortization of intangible assets is expected to be between US$1.5 million to US$2 million. We base these estimates on a foreign exchange rate of RMB6.3 per U.S. dollar. 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 for questions. Operator?

Question-and-Answer Session


(Operator Instructions) And your first question comes from the line of James Marsh of Piper Jaffray.

James Marsh - Piper Jaffray

Great. Thanks very much. Good evening. I think, you could give us a little bit more color on how that macro slowdown might impact, be it the broader ad industry and your business in particular. Specifically, if you could comment on how TV is position on a relative basis and maybe if you could compare that to previous cycles with the emergence of digital and how you think the company is positioned from that perspective?

Wei Zhou

James, let me translate that question for Mr. Dang real quick.

He Dang

[Foreign Language]

Wei Zhou

James, I think -- I just helped Mr. Dang translate some of the highlights and then gave sort of our perspective on how we’re positioned in the marketplace. What he said is basically compared to where we were, I think three months ago and then six months ago, he basically says that the macro conditions I think remained uncertain and as a result the visibility for the overall market, I think right now remained -- remains quite well.

I think as you recall at the beginning of the year, we had actually originally expected or projected a low-double digit growth for the overall ad market for the full year. But looking at sort of data from CTR right now, the overall ad market grew at only around 4% in the first half of the year.

Looking forward towards the second half of the year, a strong degree of this uncertainty now plays into the equation for this year. Especially, I think if the macro environment or operating environment worsens as we have seen in 2008.

I think that being said, what we, sort of, seeing from the advertisers is that back in 2008 and 2009, I think a lot of the advertisers I think or even just company, I think cuts staff and cuts spending much more aggressively. But when the market bounce back, I think a lot of -- had just sort of take a lot more time to recover. I think this time around, our companies have been much more cautious in terms of cutting staff or cutting spending.

But that being said, I think from -- and just the perspective, I think we have seen sort of clients in certain industries especially those that are more linked to real estate space starting to basically cut back on the spending in order to maintain the sort of overall corporate bottom line.

So I think that sort of the macro overlay, in terms of where TV sets versus the internet, I think TV for the national TV or CCTV, I think remain relatively more stable versus the more regional channels. I think for the regional channels, I think, they have been impacted probably a lot more.

I think as you can see from our own media business, one of the major reasons why our margins have suffered and we expected to sort of not meet that sort of target margin requirements for this year has to do with the utilization rates for the media channel, for our, sort of -- for our satellite channels and that is true I think for the TV industries as a whole.

I think for digital business I think its performing much better especially in new areas like search and like online video. And then for certain TV budget especially more of the local TV, we’re seeing basically some leakage into the online video on the space.

I think now going back to sort of where we see ourselves and how we position ourselves, I think for agency business, I think we’re actually positioned ourselves quite -- I think quite well in terms of trying to capture that growth on the digital side as well as basically offering solutions to our advertisers that can help them to maintain their advertising goals, at the same time spending -- when they spending less money or when they’re being more cautious for their budget.

But I think the adjustments comes I think for our media business because as you remember, we’re still carrying a lot of inventory at costs that we negotiated end of 2011 when I think the overall feeling for the ad market for the upcoming years actually relative more upbeat.

So, I think coming to the end of this year, we’re starting our negotiation season again. So I think we should be able to reset some of the prices especially for newer acquired assets to be -- to better -- to basically along the lines of where we can basically hit our three-year return targets.

I think for the assets we acquired for example BTV and Southern Satellite, I think we are still relatively on track. I think to hit our three-year target but just that the ramp up has been slower than what we experienced previously. So as a result I think the margins have suffered.

James Marsh - Piper Jaffray

Okay. That’s very helpful. Just one quick follow-up, Wei, are you seeing any difference in behavior from multinational versus local advertisers, I think basically acting in similar manners or do you see different trends between the two categories?

Wei Zhou

I think on this time around versus say 2008, I think the multinationals has been much more cautious in terms of not cutting back on their budget. I think they are the ones that sort of back in 2008, 2009 probably the more aggressive and cutting back their budget here in China.

But whereas this time around I think what we are seeing is that some of the local advertisers are probably been much more affected especially I would say some of the regional manufactures that -- as well as I think some of the more of those companies that have expended more aggressively over the last few years. So I think this is especially true in terms of television advertising.

And think second of all and one think that both sort of multinationals as well as local advertisers had in common, I think have been I would say more exploratory. Multinational probably had about two to three year ahead of the curve in terms of spending on digital, especially in terms of search and online video.

For example, some of the campaigns that we are doing at Charm Click for the domestic advertisers or some of the things that Charm Click did for the global advertisers like a Gap or PayPal say two, three years ago.

So I think there are some commonalities but I would say the multinationals are probably a more -- holding on to their budget more so versus some of the private enterprises. I think for the local advertisers you can split them up into sort of I would say large SOEs versus sort of private enterprises. I mean SOEs especially those of the financial industry have -- they have been one of the better performing spaces for us , where sort of the more private enterprises have probably been affected much more especially in terms of the…

James Marsh - Piper Jaffray

Okay. Excellent. Thank you very much.


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

Wallace Cheung - Credit Suisse

[Foreign Language]


Wei Zhou

Hi, Wallace. We can hear you clearly?

Wallace Cheung - Credit Suisse

Can you hear me clearly? Yeah. Thank you.

Wei Zhou

Yeah. We can.

Wallace Cheung - Credit Suisse


[Foreign Language]

Wei Zhou

Thanks, Wallace. Let me translate the question for Mr. Dang real quick in Chinese. I will translate that for everybody. I think do you want to ask that question in English again so we get it on the call?

Wallace Cheung - Credit Suisse

Yeah. That’s good. Sorry. I forget you’re actually English. So two quick questions so just want to understand its best performing industry or the underperforming industry I know weak economies in advertising cycle?

And the second question is under the current situation I do believe like Charm should perform better than any peers. Is there any chance for Charm to consolidate the market further either organically or through any kind of M&A? Thank you.

Wei Zhou

That’s a nice set of question, yeah. To answer I think the first question in terms of better performing space, I think one of the areas that we have invested and I think one is I think from industry perspective has been the travel and tourism industry. I think we’re seeing that space growing basically from less than a 1% of our spending to probably 3% to 4% maybe even close to 5% this year. And I think that something that’s growing quite well.

In another space, I think that holding up as compared to other areas is that definitely been our FMCG. And I think the third space there has somewhat have bounce back compared to especially look at second quarter last year has been auto. Especially remember second quarter last year, there had been earthquake in Japan. So I think that space for us has gone back up to around 10% of spending vis-à-vis sort of single digit last year.

So I think that some thing that we’re seeing. And then one space that has continued to be strong for us is our financial services. And these are coming from banks as well as insurance companies who are coming out with more personal lending, personal credit and personal insurance products versus sort of corporate lending, corporate services products. So as a result based in sort of on a circular trend basically spending more in terms of macro advertising. I think those four sectors are either holding up or I think still growing in this market environment.

And then in terms of how can we capture more growth on coming out of this downturn. I think we are demonstrating that in our agency business. I think that something that we want to focus on. Because of that something that is much more stable and then allows us to establish long-term customer relationships on the best. And then in terms of sort of for the media business, I think this environment what we are seeing is actually a lot of sort of these single media agencies be it for CCTV or be it for satellite channel, local channels or other types of media are suffering a lot worse.

So we’re basically are going to see some more media assets consolidated in this -- coming out of this. So I think for both our media business as well as our agency business on an organic basis, I think we’re actually well positioned to capture the growth when this thing turns.

From an M&A perspective, I think we -- as we’ve mentioned before, we remained focused on our two areas. One is digital and the second one is geographic -- geography in terms of expanding our presence in the southern markets and the eastern markets. I think right now our focus over the last six months per se has been to buffer up our senior management strength.

As you can see with the hires for the head of our media business in Mr. Li Bao as well as the head of our agency business in Ms. Cathy Chen as well as Tony Yu, CTO, strengthen IT infrastructure as we built out our digital platforms. I think once these things are in place, I think we still have time. I think valuation here in the local market is still, I would say relatively more expensive versus where things are in the public market.

So I think we still have some time in terms of looking at potential M&As going forward. But I think if we do anything, it will be more focused on the digital side as well as areas that help us to expand geographically.

Wallace Cheung - Credit Suisse

Thank you. Just one quick follow-up, regarding the industry performance, is it possible to just talk about worst performing industry so far [that you have seen]? Thank you.

Wei Zhou

I think some of the performance of the industry, I think, for us, I think, it would probably be, I think, as a Home Appliance. I think we had a couple of key accounts that were pretty big advertisers for us for about couple of years. And in this year, they had scheduled some spending but then pretty much a cut back on that across the board on sort of helping themselves to maintain bottom line pressure as well. As I think, we had a couple of, what you call, home furnishing or home decoration, that’s kind of painting brands or flooring brands. I think those are big advertisers a few years back.

I think across the board on anything that’s sort of related to, sort of, new apartment, I think has been sort of probably suffered a lot worse than, sort of, those that are directly related to, say, consumption. So I think that’s something that we’re seeing.

Wallace Cheung - Credit Suisse

About your traditional key advertising group like pharmaceutical inventory kind of like consumer group ….

Wei Zhou

Yeah. I think for FMCG that includes food, beverages, alcoholic drinks. I think alcoholic drinks has performed quite well as well. I think that has -- some of the beer brands like Snowbeer. We’ve also picked up several sort of Chinese Baidu brand as well like Tsingtao.

So I think for that FMCG has remained around 30%. Definitely, you have certain brands like, some food manufacturers that have suffered more margin pressure from the continued inflation that they saw in their raw material market. So they have -- as a result, have to cutback on ad spend but then that’s been replaced by some of the newer brands.

So I think for FMCG as a whole, it has remained okay.

Wallace Cheung - Credit Suisse

Thank you.


(Operator Instructions) And you have a follow-up from the line of Wallace Cheung of Credit Suisse.

Wallace Cheung - Credit Suisse

[Foreign Language]

Now, I have two follow-up question, one is how do we see the CCTV 2012 auction growth inflation is better or worse than last year (inaudible). And second is, we want to see further new media policy coming out affecting TV and online video market? Thank you.

He Dang

[Foreign Language]

We should not basically think -- I think we’ve just -- we've just started the planning for CCTV auction process on Provincial TV. They will kick off. They’re sort of pre-marketing season in early September and we’ve pretty much have compared for the VIP client meeting in Beijing to introduce this year.

Secondly, for CCTV, it remains almost monopolistic position in terms of national coverage and national media. Secondly, it has -- because it’s a news of reporting organization that reports nationally if there is basically a must communication or must have for a lot of the major companies, especially those large national companies and media brand.

For example, over the past few years, we’ve seen alcoholic brands per se as well as financial companies as well as large FMCGs coming onto CCTV.

[Foreign Language]

In terms of the growth on the CCTV on ad sales this year. I think this year ultimately it is something that is decided by the market earlier. And I think for this year, there is a true sort of metrics that we’ve -- there are two metrics that people tend to look at -- when we look at CCTV. One is their total revenue or their total ad sales and then secondly is basically, price per unit or the average selling price in terms of per ad slot on CCTV.

For each of those two metrics, we don’t expect the total ad sales for CCTV to decrease this year. We expect, I think, for CCTV, their goal for this year coming in is basically to increase their spending per advertiser or get more spending from advertiser to advertise with them historically.

But from a average selling price perspective, we’re not expecting a significant increase either as we have seen historically. And hopefully, we can potentially maintain the growth and the total revenue or total ad sales we believe that they can potentially make more advertising resources available to advertisers in order to attract more spending from them. Because as CCTV has over 15 channels. So they have a lot of advertising resources that can leverage on increased overall ad sales.

And to answer on your second question regarding do we seen any additional regulations from soft on to the TV space onto online video space. I think it’s as -- at this moment, we haven’t seen any new -- we've not seen any new ones. But that’s not to say any certain changes that may -- that may put through later in the year.

Wallace Cheung - Credit Suisse

Thank you.


We are now approaching the end of the conference call. I will now turn the call over to Nicholas Manganaro.

Nicholas Manganaro

Thank you again for joining us. This concludes the company’s earnings call.


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

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