Focus On A Stellar 2008

Macro prospects for the media industry remain even stronger his year, with the advertising market expected to grow by 25% to approach US$20 bil. in net terms, boosted by the Beijing Olympics and a robust economy. Real GDP grew by 11.5% Y/Y during Q3 2007, though economic activity is moderating and authorities have begun tighten credit conditions in order to rein in inflation. In spite of a weak US economy, most economists do not expect a downturn in China with the consensus expecting 10.5% economic growth this year.

MPA forecasts indicate that advertising will continue to converge around TV, out-of-home (OOH) media and online. Our estimates suggest that TV will finish the year with 43% market share, followed by outdoor at 17% while online advertising, which is growing by 40-50% a year, is expected to have close to 10% market share. Going forward, we continue to highlight growth in the digital value chain, including online, out-of-home and digital broadcast-related media, with a number of key players available in the public market: Focus Media, Tencent, Sina, Baidu, Shanda and Beijing Gehua.

Focus Media, in particular, has emerged as the poster child for the growth of digital and new media industries with acquisitions in the OOH TV, online and mobile advertising sectors. Focus will have 4% of China’s large TV ad pie by the end of 2008, still signifi cantly below state-owned broadcaster CCTV’s 10%-plus share but Focus’ growth is more rapid and it enjoys superior pricing power and profitability.

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