China's advertising market is set to explode next year as the Beijing Olympic Games will unleash advertisers' enthusiasm, purposely restrained in the first half of this year, to spend more to boost their branding and sales.
It's good news for companies that sell ad space in newspapers, on TV, billboards and Websites to raise their revenues and earnings at a faster-than-ever pace.
Many are already increasing their fees, or joining forces to scale back the discounts they used to give, for a fatter margin.
But it has also intensified competition among players to grab a bigger slice of the cake, either between new and old media, or within their territories, to create more ads.
Total advertising spending in China rose by 11 percent in the first three quarters this year, hitting 230 billion yuan (US$31 billion), according to CTR Market Research-Media Intelligence. The figure, covering all types of media, was based on published rate cards and didn't account for discounts.
The year-on-year growth rate was 12 percent in the first half, a slowdown compared with the 18-percent growth in the same period of 2006, as 42.4 percent of the companies are saving their budget to wait until one year or six months before the Olympics, according to a survey by CTR.
TV network
The heat has already been felt in the annual auction of next year's prime time ad space on CCTV, the country's largest broadcaster, in November.
CCTV, the exclusive broadcaster of the Beijing Olympics in China, netted eight billion yuan from the auction, an increase of 18 percent from last year. Its five Olympic programs alone brought in 826 million yuan.
The robust sales will benefit its listed unit, China Television Media Ltd, which also produces film and TV series and deals in travel businesses. It shares part of the revenue of the prime time ads on CCTV-1 and CCTV-8, and all of the educational channel CCTV-10.
China Television Media already posted a 70-percent growth in ads sales in the first half at 166 million yuan, 51 percent of total revenues, with 42 million yuan gross profit from ads that accounted for 59 percent of its total.
Its ads revenue next year is likely to grow at least 40 percent, according to Jin Yu, an analyst with China International Capital Corp.
Newspapers
The newspapers are also gearing up. Although they lost two percentage points' share in China's ads market in the first half to TV networks, the newspaper leaders should sustain strong momentum amid consolidation.
Shanghai Xinhua Media Co, controlled by one of China's largest newspaper groups, said last week that it will pay 50 million yuan for 50-percent stake in Shanghai Xinmin Media Advertising Co, the advertising agent for Shanghai's largest circulated newspaper, the Xinmin Evening News. Shanghai Xinmin has revenues of about 500 million yuan a year.
"After the acquisition, Shanghai Xinhua will be able to integrate the newspaper ads resources," said Mao Zhengrong, an analyst with Essence Securities. "It increases its bargaining power and places it at an advantage if it wants to increase the price during the Beijing Olympics."
The consolidation in the newspapers came as the industry faces increasing competition from outdoor networks and the Internet, among others, which are becoming popular with advertisers.
"Newspapers still have a larger customer base, as Internet penetration in China is low-teens (less than 15 percent) versus high-fifties (between 55 and 60 percent) newspaper penetration," said Morgan Stanley in a research note in October.
Internet
China's online ads market is the fastest growing sector among all sectors in the advertising industry as Internet penetration grows.
In the third quarter, it generated sales of nearly two billion yuan, an increase of 61 percent over the same period last year, according to Analysys International.
Key word ads, the blood line of search engines, accounted for 42 percent. The ratio was 34.4 percent a year ago.
Baidu.com, the No.1 search engine in China, has the lion's share of 26 percent in the third quarter, enlarging the gap with closest rivals Sina.com and Sohu.com, whose branding ads sales grew at a slower pace than Baidu.
Earnings in the third quarter more than doubled from last year to 181.7 million yuan, on sales of 496.5 million yuan. The growth has pushed Nasdaq-listed Baidu's shares to rise by nearly four times this year.
Meanwhile, Sina, the nation's largest portal, is tackling Sohu, the only official Website partner of Beijing Olympic, in content construction. Both are adding Olympic related videos and will send staff to cover the matches to attract audiences.
Both portals have also increased their ad rate greatly. For Sohu, it was by an average of 37 percent in the second and third quarters this year, against a usual annual rise of 15 percent, on strong demand for online ads.
Out-of-home ads
Focus Media is undoubtedly the dominant player, which is expanding rapidly through acquisitions. Its latest buy was rival CGEN Digital Media Co Ltd, the nation's largest in-store ads TV network operator. The merger will help both scale back discounts they used to give due to previous competition.
(Shanghai Daily December 28, 2007)
