Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

CCME - One more nail in the coffin

|Includes: China MediaExpress Holdings, Inc. (CCME)

Primary research by an ex-long further supports that CCME is a hollow shell

 

I used to be long CCME largely because I found the shorts’ arguments unconvincing:

·      That CCME paid too little for content? If the bus operators allowed CCME to run low-quality, low-cost content, too bad for the passengers, but good for CCME.

·      That some of the name brand advertisers hadn’t heard of CCME? Try calling major brand name advertisers in the U.S. and ask if they know that their ads are playing on low-brow video websites. They don’t know about it because their media buyers place ads on ad networks, who sometimes farm the ads out further to other networks – the brands have no clue.

·      That CCME only had 1/2 the buses that it claimed? If you ask anyone who knows the media business in China, you will hear that most media outlets exaggerate their reach (their ratings, their circulation, their visitors, their page-views, etc) and that most media buyers know this. If an advertiser paid CCME $50,000 to run ads on its network, CCME still earned that money whether they overstated the size of its network or not.

 

I was happily betting against the shorts on CCME until a friend (and experienced China investor) cryptically warned me, “proving a negative does not make a positive.”

 

So I set out to prove the positive - that CCME really did earn all the revenue it reported. My methodology would be simple:

1.  Send people to ride on CCME-equipped buses with camcorders to record all of the CCME content and advertisements

2.  Count up the number of advertisements and advertisers to determine how much ad inventory CCME was selling

3.  Multiply the amount of inventory by CCME’s rate card, and then making an adjustment for the average discount to the rate card prices

This exercise would be analogous to estimating the advertising revenue of a magazine publisher by buying the different magazines it puts out, counting the number of ad pages, and multiplying that number by how much the publisher charged per ad.

 

The results were not what I had hoped for. At the bottom of this article is the raw data of CCME programming (content and advertisements) for Guanzhou airport buses and Guandong inter-city buses (we collected much more data than that presented below, but it all looks similar, and these are among CCME’s largest networks). And here is CCME’s rate card that lays out how much it costs per month for an advertiser to place ads on each of CCME’s inter-city and airport bus networks - www.ccme.tv/eng/pns/ratecard_e20100701.pdf

 

Looking at the raw data of ads shown and at the rate card, one key question comes up: what does the advertiser get for paying the rate listed on the rate card? How many times does his ad get shown?  For example, looking at raw data for the Guandong inter-city bus, we see that the 15 second “French Red Wine Hua Bei” ads play 3 times over the 85-minute bus trip. When we look at the rate card, we see that 15 second ads for the Guandong inter-city bus network costs 270,000 RMB ($41,538) per month. Is Hua Bei paying CCME $41,538 for the month in exchange for this number of ad placements, or is it paying 3 times as much, or something else? This being a critical question, we called CCME ad sales, posing as a potential customer, and asked: “How many times will my ad be shown if I pay the rate listed on the rate card? Is it once per bus ride, once per hour, once per day, or once every 20 or 30 minutes whenever you show a large block of ads between the regular programs, or something else altogether?”

 

The answer supplied by the sales rep was clear and simple – the ad will get shown once every 20 to 30 minutes. This means that when we look at the raw data from a bus trip, and we see that there are – more or less – 16 ads shown, then regular programming, then 16 ads (mostly the exact same ads as seen before), then more programming, and then another block of 16 ads (again, mostly the same as before) – it means that CCME is selling its rate card rate to 16 advertisers. (It means that there are 16 ad pages in the magazine publisher analogy). It means that we can multiply the rate card rate by 16 to derive the revenue that CCME will earn for Guandong inter-city buses. The same can be done for all 14 of CCME’s inter-city province networks and all 4 of its airport networks.

 

Moreover, before we were able to get our question answered, we were informed by CCME’s sales rep that he could get us a 50% discount off the rate card, or if that was still too much, we could buy just a subset of buses in a province, or pay less and have our ad shown less frequently than every 20 to 30 minutes. For what it’s worth, this kind of discounting off published rate cards is common in all media markets, including the U.S. Furthermore, given that CCME sells the majority of its ads not directly but through agencies, it’s safe to assume that CCME keeps even less than 50% of its rate card rates on sales through agencies.

 

Given the above, here is a worksheet that derives CCME’s total potential annualized revenues by multiplying its ad inventory by its rate card, and then by 50% of its rate card. The most important assumption was that CCME sells its basic advertising package of 15-second ads to 16 advertisers in each market. Further, we assumed that “embedded ads” generated an additional 20% of revenue above that earned from the basic advertising. Looking at the raw data below, both of these assumptions appear to be conservative.

 

Province

Price (RMB/month)

Revenue/Year ($), at Rate Card Rates

Revenue/Year ($), at 50% Discount to Rate Card

Beijing

190,000

6,734,769

3,367,385

Shanghai

305,000

10,811,077

5,405,538

Jiangsu

290,000

10,279,385

5,139,692

Fujian

210,000

7,443,692

3,721,846

Guangdong

270,000

9,570,462

4,785,231

Hubei

104,000

3,686,400

1,843,200

Anhui

76,000

2,693,908

1,346,954

Tianjin

163,000

5,777,723

2,888,862

Hebei

57,000

2,020,431

1,010,215

Sichuan

119,000

4,218,092

2,109,046

Chongqi

91,000

3,225,600

1,612,800

Shandong

165,000

5,848,615

2,924,308

Shanxi

76,000

2,693,908

1,346,954

Inner Mongolia

70,000

2,481,231

1,240,615

Fuzhou airport

66,000

2,339,446

1,169,723

Guangzhou airport

250,000

8,861,538

4,430,769

Qingdao airport

68,000

2,410,338

1,205,169

Beijing airport

410,000

14,532,923

7,266,462

TOTAL

 

105,629,538

52,814,769

 

 

Bottom line, this analysis shows that if CCME sold all of its inventory at list price, it would only be earning a little more than $100M per year – roughly half of what it claims. If it sold its inventory at a more realistic 50% discount to list price, it would only be earning $52 million per year. CCME has been most likely exaggerating its revenue by a factor of 4.

 

So too bad about CCME, but what about the rest of the US-listed small cap Chinese companies? At this point in time, investors are well aware of the fraud risk in the sector and are discounting it accordingly, probably over-discounting it. Over the next several months my team will be researching another dozen names. The bad ones we’ll short. The good ones we’ll buy and expect to make 5-10 times our money. We’ll publish our findings as we get them.

 

Disclosure: net short CCME, but also short $20-$30 Sept puts (I had a straddle position in CCME at the time it was halted that would have been profitable with CCME under $8 or over $16)

 

 

Date:

23-Feb-11

Route:

16:30 Airport Express bus from Guangzhou Airport to Guangzhou Train Station East

duration:

approx. 1 hour

Bus Operator:

Guangzhou Anxun Baocheng Bus Company Limited

Website:

www.jckx.com.cn

Tel:

86-4008308688 or 86-20-86184176

Time:

Description:

 

Showing the name of the operator.

 

Showing advertisement before the bus departs.

15s

1. advertising French red wine, Hua Bei

15s

2. advertising detergent, international, Johnson

20s

3. advertising chicken soup and pepper, international, McCormick

15s

4. advertising potato chips, China, Qia Qia

15s

5. advertising credit card, China, Industrial Bank Co. Ltd.

15s

6. advertising snack, China, Pan Pan

15s

7. advertising snack, China, Pan Pan

15s

8. advertising paint, China, SK Shu

15s

9. advertising Phoenix Network, China, Phoenix TV

30s

10. advertising compact fluorescent lamp, China, Opple

15s

11. advertising online advertisement, China, Shui E Tao

15s

12. advertising makeup, international, L'OREAL

15s

13. advertising online job seeker website, China, 51job

18s

14. no smoking reminder with La Fang (shampoo, China) logo embedded in the bottom left corner in pink

15s

15. advertising bus advertisement, China, Media Express itself

3min 27s

1. China movie with embedded logo of Media Express on the top left corner

10s

2. advertising bus advertisement, China, Media Express itself

40s

3. advertising software developer, China, Shen Du He Zuo

15s

4. advertising white wine, China, Tai Shan

15s

5. advertising French red wine, Hua Bei

20s

6. advertising electronic cooker, China, Cuckoo

15s

7. advertising Phoenix Network, China, Phoenix TV

15s

8. advertising biscuit with calcium, China, Jia Gai

15s

9. advertising automobile, China, ZoeMo

30s

10. advertising sport shoes, China, Bage

15s

11. advertising paint, international, Dulux

15s

12. advertising juice, China, Master Kang

15s

13. advertising shampoo, China, La Fang

15s

14. advertising online advertisement, China, Shui E Tao

15s

15. advertising air conditioner, China, Gree

15s

16. advertising clothes, China, Hai Lan

20s

17. advertising bus advertisement, China, Media Express itself

 

18. China movie with embedded logo of Media Express on the top left corner

5min15s

missing parts of the movie

12s

1. advertising Phoenix Network, China, Phoenix TV

15s

2. advertising online job seeker website, China, 51job

40s

3. advertising software developer, China, Shen Du He Zuo

10s

4. advertising tea bag, China, TAETEA

30s

5. advertising sportswear, China, PEAK

15s

6. advertising online advertisement, China, Shui E Tao

18s

7. no smoking reminder with La Fang (Shampoo, China) logo embedded in the bottom left corner in pink

20s

8. advertising bus advertisement, China, Media Express itself

4min

9. China movie with embedded logo of Media Express on the top left corner

4s

10. advertising bus advertisement, China, Media Express itself

15s

11. advertising white wine, China, Tai Shan

15s

12. advertising French red wine, Hua Bei

15s

13. advertising lotion, international, Da Bao

15s

14. advertising Phoenix Network, China, Phoenix TV

40s

15. advertising software developer, China, Shen Du He Zuo

15s

16. advertising snack, international, OREO

30s

17. advertising hotel, China, DiPai Hot Spring Resort

15s

18. advertising make-up, international, NIVEA

15s

19. advertising cup noodle, China, Master Kang

15s

20. advertising sweets, international, Mentos

15s

21. advertising gum, international, DoubleMint

15s

22. unable to hear and understand

15s

23. advertising online advertisement, China, Shui E Tao

25s

24. advertising mobile service provider, China, China Unicom

5s

25. pickpocket reminder with Skyworth (TV producer, China) logo embedded in the bottom left corner in red

25s

26. advertising bus advertisement, China, Media Express itself

4min

27. China movie with embedded logo of Media Express on the top left corner

5s

28. advertising bus advertisement, China, Media Express itself

15s

29. advertising white wine, China, Tai Shan

40s

30. advertising software developer, China, Shen Du He Zuo

15s

31. advertising French red wine, Hua Bei

15s

32. advertising detergent, international, Johnson

15s

33. advertising chicken soup and pepper, international, McCormick

10s

34. advertising tea bag, China, TAETEA

15s

35. advertising potato chips, China, Qia Qia

15s

36. advertising credit card, China, Industrial Bank Co. Ltd.

15s

37. advertising snack, China, Pan Pan

15s

38. advertising snack, China, Pan Pan

15s

39. advertising paint, China, SK Shu

15s

40. advertising Phoenix Network, China, Phoenix TV

30s

41. advertising compact fluorescent lamp, China, Opple

15s

42. advertising online advertisement, China, Shui E Tao

15s

43. advertising make-up, international, L'OREAL

15s

44. advertising online job seeker website, China, 51job

18s

45. no smoking reminder with La Fang (Shampoo, China) logo embedded in the bottom left corner in pink

15s

46. advertising bus advertisement, China, Media Express itself

4min

47. China movie with embedded logo of Media Express on the top left corner

5s

48. advertising bus advertisement, China, Media Express itself

40s

49. advertising software developer, China, Shen Du He Zuo

 

 

 

 

     

 

 

 

Date:

23-Feb-11

Route:

16:15 Inter-city bus from ShenZhen to DongGuan

Route duration:

approx. 1.25 hour

Disc name:

Inter-city 1

Bus Operator:

Shenzhen Yun Fa Group

Website:

www.96511.com.cn

Tel:

86-755-96511

Time:

Description:

3min 38s

1. China movie with embedded logo of Media Express on the top left corner

20s

2. advertising mobile service provider, China, CHINA TELECOM

15s

3. advertising French red wine, China, Golden Butterfly Face

15s

4. advertising shampoo, international, Johnson

15s

5. advertising flu pill, international, Johnson

30s

6. advertising sportswear, China, PEAK

15s

7. advertising Phoenix Network, China, Phoenix TV

15s

8. advertising air conditioner, China, Gree

15s

9. advertising clothes for men, China, Hailan Hone

15s

10. advertising snack, China, Pan Pan

15s

11. advertising snack, China, Pan Pan

15s

12. advertising juice, China, Master Kang

15s

13. advertising detergent, international, Johnson

15s

14. advertising online advertisement, China, Shui E Tao

15s

15. advertising biscuit with calcium, China, Jia Gai

1min 34s

undetectable

1min 14s

1. China movie with embedded logo of Media Express on the top left corner

4s

undetectable

23s

1. China movie with embedded logo of Media Express on the top left corner

19min 54s

1. China movie with embedded logo of Media Express on the top left corner

25s

2. studio background entitlement - Media Express itself

5min 13s

3. Comedy with embedded logo of Media Express on the top left corner

17s

4. studio background entitlement - Media Express itself

5s

5. Opening entitlement - Aigo (camera producer), China

32s

6. advertising camera, China, Aigo

10s

7. studio background entitlement - Industrial bank Co. Ltd. (credit card, China)

10s

8. studio background entitlement - L'OREAL (make-up, international)

10s

9. studio background entitlement - GREE (Air Conditioner, China)

32s

10. studio background entitlement - Media Express itself

16s

11. special Joint entitlement - Sunrain (solar power, China)/ Dumex (milk powder, China)/ (Dabao (lotion)

55s

12. China movie with embedded logo of Media Express on the top left corner

20s

13. advertising mobile service provider, China, CHINA TELECOM

15s

14. advertising French red wine, China, Golden Butterfly Face

15s

15. advertising credit card, China, Industrial Bank Co. Ltd.

15s

16. advertising paint, international, Dulux

15s

17. advertising mineral water, China, Master Kang

15s

18. advertising lotion, China, Da Bao

15s

19. advertising juice, international, Kraft

15s

20. advertising detergent, international, Johnson

15s

21. advertising chicken soup and pepper, international, McCormick

15s

22. advertising Phoenix Network, China, Phoenix TV

15s

23. advertising health product, international, Johnson

18s

24. advertising potato chips, international, Lays

15s

25. advertising air conditioner, China, Gree

15s

26. advertising online advertisement, China, Shui E Tao

15s

27. advertising home appliances, China, BEST

15s

28. advertising cup noodle, China, Master Kang

15s

29. advertising online job seeker website, China, 51job

5s

30. pickpocket reminder with Skyworth (TV producer, China) logo embedded in the bottom left corner

17s

31. advertising bus advertisement, China, Media Express itself

12min 54s

32. China movie with embedded logo of Media Express on the top left corner

17min 30s

1. China movie with embedded logo of Media Express on the top left corner

20s

2. advertising mobile service provider, China, CHINA TELECOM

15s

3. advertising French red wine, China, Golden Butterfly Face

44s

4. advertising software developer, China, Shen Du He Zuo

15s

5. advertising white wine, China, Tai Shan

15s

6. advertising make-up, international, NIVEA

15s

7. advertising milk tea, Taiwan, Uni-President

15s

8. advertising spicy sauce, China, Dan Dan

13s

9. advertising lotion, international, Johnson

15s

10. advertising sweets, international, Mentos

15s

11. advertising Phoenix Network, China, Phoenix TV

15s

12. advertising juice, China, Master Kang

15s

13. advertising make-up, international, L'OREAL

15s

14. advertising online advertisement, China, Shui E Tao

15s

15. advertising biscuit with calcium, China, Jia Gai

35s

16. advertising sport shoes, China, Bage

15s

17. advertising credit card, China, Industrial Bank Co. Ltd.

18s

18. no smoking reminder with La Fang (shampoo, China) logo embedded in the bottom left corner in pink

Arrived at the terminal

Arriving and showing it is the same bus based on the license number.

 

 

 

 

Date:

23-Feb-11

Route:

17:45 Inter-city bus from DongGuan to ShenZhen

Route duration:

approx. 1.5 hour

CD name:

Inter-city 2 and 3

Bus Operator:

Shenzhen Yun Fa Group

Website:

www.96511.com.cn

Tel:

86-755-96511

Time (minute/ second):

Description:

4min 55s

1. MTV

4min 19s

1. MTV

25s

2. advertising bus advertisement, China, Media Express itself

35s

3. the program (MTV) is sponsored by Qia Qia (potato chips), China

6min 5s

4. MTV

20s

5. advertising mobile service provider, China, CHINA TELECOM

15s

6. advertising French red wine, China, Golden Butterfly Face

15s

7. advertising shampoo, international, Johnson

15s

8. advertising flu pill, international, Johnson

30s

9. advertising sportswear, China, PEAK

15s

10. advertising Phoenix Network, China, Phoenix TV

15s

11. advertising air conditioner, China, Gree

15s

12. advertising clothes for men, China, Hailan Hone

15s

13. advertising snack, China, Pan Pan

15s

14. advertising snack, China, Pan Pan

15s

15. advertising juice, China, Master Kang

15s

16. advertising detergent, international, Johnson

15s

17. advertising online advertisement, China, Shui E Tao

15s

18. advertising biscuit with calcium, China, Jia Gai

5s

19. pickpocket reminder with Skyworth (TV producer, China) logo embedded in the bottom

15s

20. advertising bus advertisement, China, Media Express itself

11min 50s

21. MTV

5s

22. advertising bus advertisement, China, Media Express itself

15s

23. advertising bus advertisement, China, Media Express itself

5s

24. opening entitlement - Aigo (camera producer), China

32s

25. advertising camera, China, Aigo

10s

26. studio background entitlement - Industrial bank Co. Ltd. (Credit card, China)

10s

27. studio background entitlement - L'OREAL (Makeup, international)

10s

28. studio background entitlement - GREE (Air Conditioner, China)

10s

29. studio background entitlement - Media Express itself

20s

30. special Joint entitlement - Sunrain (solar power, China)/ Dumex (milk powder, China)

16min 13s

31. China movie with embedded logo of Media Express on the top left corner

20s

32. advertising mobile service provider, China, CHINA TELECOM

15s

33. advertising red wine, China/ French, Golden Butterfly Face

15s

34. advertising credit card, China, Industrial Bank Co. Ltd.

15s

35. advertising paint, international, Dulux

15s

36. advertising mineral water, China, Master Kang

15s

37. advertising lotion, China, Da Bao

15s

38. advertising juice, international, Kraft

15s

39. advertising detergent, international, Johnson

15s

40. advertising chicken soup and pepper, international, McCormick

15s

41. advertising Phoenix Network, China, Phoenix TV

15s

42. advertising health product, international, Johnson

15s

43. advertising potato chip, international, Lays

15s

44. advertising air conditioner, China, Gree

15s

45. advertising online advertisement, China, Shui E Tao

15s

46. advertising home appliance, China, BEST

15s

47. advertising cup noodle, China, Master Kang

15s

48. advertising online job seeker website, China, 51job

5s

49. pickpocket reminder with Skyworth (TV producer, China) logo embedded in the bottom

15s

50. advertising bus advertisement, China, Media Express itself

5min 29s

51. China movie with embedded logo of Media Express on the top left corner

5min 36s

1. China movie with embedded logo of Media Express on the top left corner

12s

1. China movie with embedded logo of Media Express on the top left corner

46s

1. China movie with embedded logo of Media Express on the top left corner

17min 5s

1. China movie with embedded logo of Media Express on the top left corner

15s

2. advertising mobile service provider, China, CHINA TELECOM

15s

3. advertising French red wine, China, Golden Butterfly Face

40s

4. advertising software developer, China, Shen Du He Zuo

15s

5. advertising white wine, China, Tai Shan

15s

6. advertising makeup, international, NIVEA

15s

7. advertising milk tea, Taiwan, Uni-President

13s

8. advertising spicy sauce, China, Dan Dan

13s

9. advertising lotion, international, Johnson

14s

10. advertising sweets, international, Mentos

15s

11. advertising Phoenix Network, China, Phoenix TV

15s

12. advertising juice, China, Master Kang

15s

13. advertising make-up, international, L'OREAL

15s

14. advertising online advertisement, China, Shui E Tao

15s

15. advertising biscuit with calcium, China, Jia Gai

30s

16. advertising sport shoes, China, Bage

14s

17. advertising credit card, China, Industrial Bank Co. Ltd.

18s

18. no smoking reminder with La Fang (Shampoo, China) logo embedded in the bottom

15s

19. advertising bus advertisement, China, Media Express itself

42s

20. China movie with embedded logo of Media Express on the top left corner

Arrived at the terminal.