Contents. [Case Study] Return of the Value of TV as a Form of Media in a New Communication Environment...2

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1 Contents [Case Study] Return of the Value of TV as a Form of Media in a New Communication Environment....2 [Industry News] TV Advertising Draws More Attention from Audience Than Internet Advertising 4 [Industry News] Video Websites Use Various Tricks to Compete for Young Visitors During Summer Vacation. 5 [Ranking] Extensive Coverage with Both National and Local Markets Considered, Apparel Industry Adopts a Flexible Ad Strategy. 7 [Ranking] Remarkable Increase of Ad Placement from Maternity & Baby Products and Retailing Services [Media Glossary] Ad Budget, Ad Expenditure Taxation Policy, Target Audience Selection and Media Target Establishment Page 1

2 [Case Study] Return of the Value of TV as a Form of Media in a New Communication Environment At a time of market fragmentation when the industry pays more and more attention to the internet and other emerging forms of media, we still can't neglect TV--the largest traditional media in China. With the policy-driven readjustment of the industry in 2010, the value transformation of TV is lot faster than other traditional media, and of course also faster than internet media, most of which are at a stage of resource development. For the past over one year, advertisers' interest in scarce TV media and program resources has been on the increase. So, it is appropriate to say that in a new communication environment, TV is still a form of media with unique value. TV Media, Hard to Be Replaced According to continuous ad research data from CTR Media Intelligence, TV media has been receiving a considerable part of enterprises budgets for media ad placement. Although under a fierce impact of internet media, TV remains to be an irreplaceable link in the media strategy. A survey of advertisers conducted by CTR Media Intelligence indicates that in 2011, 84% of all advertisers would continue to choose TV media, which is almost at the same level as From where Chinese enterprises are in terms of their development, the communication effect and significance of TV media are also irreplaceable. At present, there are still a lot of enterprises at primary stages of branding, with their marketing philosophies just burgeoning. Although enterprises have come to a common understanding of precision marketing, TV media is still the most important platform for enterprises in their branding and marketing activities. Properly used, it can be a very important push for enterprise branding and marketing strategies. More importantly, TV has the widest reach of all forms of media in present-day China. According to CTR CNRS, the daily reach of TV media for the past 10 years has been stable, and the 90.8% reach in 2010, again, gives TV a safe lead ahead of other forms of media. Therefore, in terms of coverage, TV has incomparable advantages over other media. Page 2

3 No matter what kind of media time we are in, content is the most important, and TV media will continue to lead the media industry on its core advantages in resources In the current complicated media environment, not only target audience but also the forms of media are getting fragmented, with the computer, mobile phone, outdoor video already part of the game and, in the future, even home appliances to be included as well. Some experts predict that an era will come when terminals determine the outcome of the game. Although the development of terminals are changing how target audience comes into contact with media, the core status of content behind the competition for supporting terminals is still unshakable. In China, TV is the most important institution for content production, broadcasting and transaction. No other form of media can replace its status. In this sense, TV media possesses a core resource value in the industry chain. For a mature enterprise, its sense of brand will not fade with the change of environment. TV is still the No. 1 driver of branding Scarcity makes things more valuable. The price increase policies of some TV stations have not stopped advertisers from approaching them. The ultimate reason for this is the attraction of scarce resources. The high premiums of TV time slots for competitive bidding are a perfect example. In an environment of media diversification with the rapid development of new forms of media, the scarcity of value media is not reflected in quantity---actually, there are not too many but not enough media resources in China for the time being. In an era of mass communication, the scarcity value of media lies in the branding, trustworthiness and innovation capabilities of media. The scarcity value of TV media is just the result of the above 3 factors: media with brand values are good media, and trustworthy media are good media. While media with scarcity value not only possesses high popularity, high trustworthiness and a great influence on target audiences, they also have the courage to make innovations continuously, learn from the advanced experience of international colleagues to lead the whole TV industry to higher levels in combination with the characteristics of local ratings and by firmly holding to the core elements in TV media operation. Page 3

4 To sum up in a word: media with scarcity value is associated with a seller s market, while resource-type media is associated with a buyer s market. Value-type media exchanges brand value for advertising value, while resource-type media exchanges advertising prices for market attention. With value-type media, it is the media which determines the advertising talks, while with resource-type media, it is advertisers which determine the survival and development of media. In a new communication environment, the survival of TV media will rely more on their brand influence. [Industry News] TV Advertising Draws More Attention from Audience Than Internet Advertising Big advertisers, such as WPP and Publicis Group, are paying more and more attention to internet advertising and mobile phone advertising business. However, it was pointed out in a latest research report released by Microsoft that nowadays, TV advertising can attract consumers better. The advertising department of Microsoft and BBDO Worldwide under Omnicom jointly published this research report, which surveyed 1,500 consumers from the US, China, Russia, Britain and Saudi Arabia. The survey indicates that TV is still a powerful form of media, and advertisers should continue to make excellent TV advertisements. This report by Microsoft is intended for the advertising industry conference to be held this week in Cannes, France. At present, marketing personnel are seeking a balance between traditional print and TV commercials and new platforms of advertising such as the computer, tablet computer and mobile phone. Page 4

5 Zenith Optimedia under Publicis Group indicates that although digital advertising is increasing more rapidly, TV is still very important because of the current development of such technologies as digital video cameras and ambiophonic systems, and there are more and more TV viewers in developing markets. Up to now, TV is still the largest advertising media. The status of TV is being strengthened and is to be maintained, Says Jonathan Barnard, industry forecast director of Zenith Optimedia. He predicts that by 2013, TV commercials will account for 42% of the total ad market valued at US$216 billion, higher than the 37% share in Marc Bresseel, vice president of global marketing of Microsoft indicated that TV adverting is especially strong in countries with less-developed internet technologies such as Spain and Italy. (Source: Sina.com technology; Time: June 20, 2011) Video Websites Use Various Tricks to Compete for Young Visitors During Summer Vacation With the coming of the summer vacation, cinemas are fiercely competing with each other. Video websites are also looking at the summer vacation and there is a hot competition. Letv.com, ku6.com, youku.com, toudu.com, qiyi.com and Xunlei s kankan.com use various tricks and introduced special topics such as self-produced internet plays, red theater, idol theater and blockbuster movies. Statistics show that video sites, with integrated advantages of large screen and hot plays, are trying their best to attract young views, mainly students. This year marks the 90 th anniversary of the founding of Communist Party of China; hence there have also been a wave of red theaters on some video sites. Letv.com has obtained the exclusive copyright of the internet broadcasting of Revolutionaries Are Young Forever, which is currently played at CCTV1 as a key opera of the Read Theater newly opened at the homepage of letv.com. The click rates of such popular TV plays as the Beginning of a New Era, Bullet Hole and My Youth in Yan an included in the Red Theater have all exceeded 10 million. The classic revolutionary works influenced a whole generation, said Gao Fei, vice president of Letv.com, to the reporter in a Page 5

6 phone interview, Whether the red TV plays can draw attention from young people? According to the statistics up to now, the answer is affirmative. Apart from popular TV play series, some video sites also introduced self-produced internet video series based on their respective conditions, giving more choices to net surfers. According to Ku6, it will introduce self-made video series and new-media movies such as All About College Boys (II), Adolescence and the Zodiac during the summer vacation (July and August). An executive from Ku6 indicates that all these works represent current attitudes of the young towards life, love and study. They target college students. In addition, some video sites will provide idol video series, European and US video series, animated series and entertainment and variety shows as the main dishes of the feasts of the eyes to lure young viewers. While for some other video sites, movies are also a focus in this fight for viewers during the summer vacation. Apart from a number of box-office blockbusters including Guan Yunchang, Detective B+ and A Chinese Fairy Tale, Thai movie First Love became the first foreign movie broadcasted on the internet before being put on at cinemas in China. Xunlei Kankan has even announced the revenue of over 300 million yuan from viewers of movies on the internet, leading the summer vacation market. Industry insiders indicate that these video websites are in a differentiated competition in various ways, as can be seen from their schedules for the summer vacation. Zhang Lv, a teacher from the Dept. of Advertising of Nanjing Forestry University, told the reporter in an interview, In the past, many video websites were homogenous in content due to their pursuit of user bases and numbers of videos; while now, their main contents with focuses and differentiation as well have won not only regular viewer groups but also very good marketing value for them. (Reporter: Xing Hong; Source: Nanjing Daily; Date: July 11, 2011) Page 6

7 [Ranking] Extensive Coverage with Both National and Local Markets Considered, Apparel Industry Adopts a Flexible Ad Strategy According to CTR Media Intelligence, for the first 4 months of 2011, the ad placement by the apparel industry increased by 32% on a year-on-year basis, far higher than that of China's advertising industry as a whole. Ad placement from clothes manufacturers accounts for 62% of the total ad placement of the apparel industry, while accessories have become the segment with the most rapid growth, i.e., 110%. The long-tail effect of peripheral products is about to show. The apparel industry adopted flexible media publicity strategies, with TV accounting for 85% of the market and magazine and outdoor for 20% and 11% respectively. For TV commercials, the industry adopts a strategy of extensive coverage with Both national and local markets considered. CCTV and satellite TVs with nationwide coverage account for 50% of total ad placement, both with a rate of growth around 77%, indicating a tendency of concentration of ad placement towards media with advantages. Besides, provincial-level TV media accounts for 31% of the total TV advertising market and has become important communication platforms for local markets. Page 7

8 Private apparel enterprises compete fiercely with each other. Of the Top 20 brands in ad placement, only 2 are from overseas, namely Edenbo and Louis Vuitton (LV). For the first 4 months of 2011, Bestn led the apparel industry in ad placement, with a year-on-year increase of 86%, far higher than other brands. Domestic private brands grew rapidly, with the ad placement by 10 out of the Top 20 enterprises increasing by over 100% respectively. Vancl set a new record in online sales with an increase of over 11 times, and Moonbasa, which deals in women s clothes, also started its ad campaign, hyping its online retail outlet on various media, especially through outdoor and subway advertising, promising to provide door-to-door try-on service before payment by the satisfied buyer. It is becoming more and more attractive to young consumers and has posed a great challenge to traditional outlets. Page 8

9 Remarkable Increase of Ad Placement from Maternity & Baby Products and Retailing Services CTR Media Intelligence finds that for January May of 2011, the ad placement from the retail service industry increased 19% on a year-on-year basis, with household goods and building materials retail service, home appliances retail service and general merchandise retail service being top 3 segments, accounting for 26%, 21% and 19% of total ad placement respectively; ad placement from household goods and building materials retail service as a segment increased by 28%, 9 percentage points higher than the industry average. What is noteworthy is that ad placement from maternity & baby products retail service increased by a remarkable 537%. Ad placement from this segment is boosted by the rapid expansion of the maternity & baby products market as those born in the 1980s, who make up a large trunk of the whole population, are setting up families and having their own babies. Page 9

10 From the perspective of media strategies, the advertisements from the retail service industry are mainly concentrated in newspapers and TV media, accounting for 47% and 38% of the total ad placement respectively; however, ad placement in newspapers grew only 13%, lower than the industry average. The value of radio started to be recognized, and the ad placement on radio grew by 36%, with general merchandise, household goods and building materials greatly increasing their radio ad placement. The home appliances segment started to expand high-end customer groups, increasing its ad placement on magazines by 183% on a year-on-year basis. The Maternity & baby products segment, with the fastest growth in ad placement, changed its marketing strategy to attract more ordinary customers by greatly increasing its exposure in TV media. Ad placement in TV media from this segment increased by 801%. Suning and Gome have remained to be top players in the retail service industry for many years and their ad placements both increased by 10%, showing an expansion momentum. The prolonged strife between Wong Kwong Yu, founder of Gome, and Chen Xiao, a professional manager, has delivered a heavy blow to the Gome brand; as a result, Gome s market share continued to be eroded and its leading position has been replaced by Suning, but in advertising and marketing, the growth momentum of Gome still led Suning by a weak margin of 2%. While in a time of brands, it still remains to be seen whether Gome can regain the trust of consumers with its intensive advertising strategy. Page 10

11 Of the Top 20 retail service brands, only Carrefour s ad placement decreased by 1%, and the ad placements of 14 brands grew faster than the industry average, with those of Suguo (supermarket), Wanda (Group) and household goods) up 159%, 226% and 107% over the same period of the previous year. Suguo Supermarket, which used to focus its business in east China, started to address the national market. Suguo, rooted in the countryside market, differentiates itself from Carrefour and Wal-Mart, which focus their business in central cities, and leads the industry today, when the connection between the countryside and supermarkets and a healthy green life are advocated. [Media Glossary] Ad Budget It is the estimate of the expenses of enterprises for advertising activities according to its advertising plan. It is a plan for the use of funds for advertising activities. It defines the total amount, scope and methods of usage of expenses for advertising activities during a planned period for advertisement as a guarantee for an enterprise to carry out its advertising activities smoothly. Policies for the Taxation of Ad Expenses According to the Law of the People s Republic of China on Enterprise Income Tax, the ad expenses and promotion fees of a taxpayer for each tax year shall not exceed 15% of its sales (business) income and can be deducted according to actual expenditure, with the part exceeding the budget carried forward to future tax years indefinitely. Ad expenses for tobacco, foodstuff and alcohols shall not be deducted before tax. In case the taxpayer really needs to increase the proportion to be deducted for ad expenses for special reasons such as industry characteristics, it shall report to the State Administration of Taxation for approval. Target Audience Selection A precise definition of target audience according to the target consumers in the marketing strategy and the target audience of advertising in advertising message strategies. Media Target Establishment A process in line with the realization of advertising targets and presented with precise data, such as reach, frequency and costs, etc., as the basis for subsequent decision-making in media combination, carrier selection and media scheduling. Page 11

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