Winter may have passed but it is hot outdoors in China

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Outdoor at the Forefront The attractiveness of the China outdoor media market is reaching new heights. Winter may have passed but it is hot outdoors in China these days. The mainland out-of-home advertising market continues to outperform traditional media, driven by growing audiences and greater cost efficiencies. At the same time, strategic global media investors such as Clear Channel Outdoor, JCDecaux (JCD), Viacom and Singapore Press Holdings (SPH), have begun to capitalize, benefiting from new regulation allowing international investors to own 1% of Chinese advertising companies. There are plenty of prospects to go after. According to industry estimates, China s outdoor advertising market has grown at an average annual rate of more than 2 since 2, versus 17% for the overall ad market, 14% for TV and 1 for newspapers. In 25, outdoor advertising in China grew 19% year-on-year to reach RMB13.5 bil. (US$1.67 bil.), more than a 15% share of the total mainland ad market. This represents one of the highest shares globally, according to Zenith Optimedia, ahead of 12% in Korea and Japan, an 8% average for the Asia Pacific, in the U.K., in the U.S and a global average of. Going forward, the outdoor advertising market is expected to grow by about 15% annually up to the Beijing Olympics in 28, as dominant platforms offer advertisers an alternative media that hits the elusive mobile and affluent mainland consumers. SPENDING POWER. According to Quinn Taw, chief strategy officer for WPP-owned GroupM, brands are increasingly drawn to outdoor because high-value consumers with significant spending power are watching less TV. With so many opportunities in China these days, people are hyper-social... traditional media is not so effective, says Mr Taw. Very few TV stations or newspapers have a nationwide footprint and if they do (i.e. CCTV), their ad rates are very high and prime time capacity is limited. Outdoor s widening reach at effective prices is increasingly attractive. Louis Cheng, managing director of WPP-owned Portland Outdoor in China, says that outdoor advertising will continue to grow significantly with MNC brands, in particular, allocating greater budget to the medium. It is a very hot item on our clients agenda, he says. In 25, Portland billed more than US$6 million in outdoor advertising on the mainland, a year-on-year growth of almost 6%. This year, Mr Cheng expects Portland to register a growth of at least 4%, though early indications suggest that the company might easily beat this target. In 25, Portland spent about half of its clients budget with JCD, 15% with Clear Media, 5% with Focus Media and about with single site operators. According to Mr Cheng, the majority of Portland s clients spend about 1% - 15% of their budgets on outdoor, though some brands, most notably Motorola and Nike, are more aggressive and occasionally spend up to 5% on out-of-home campaigns. Leading outdoor advertisers in the market during 25 included China Mobile, China Telecom, Samsung, Motorola and Nokia. Telecoms and IT remain dominant categories in terms of spend, though clothing and beverage categories have also begun to contribute heavily. As the sector gets more organized and consolidated, GroupM s Mr Taw expects to see more money shifting towards outdoor. Outdoor in China is really effective so we want to use it more. We really want the networks to grow, he says. 26 The Asia Media Journal Q2 26

China Outdoor Ad Market Growth (RMB bil.) (%) 15 5 12 9 6 3 4.75 5.4 12% 12% 41% 7.1 9.4 27% 14% 14% 11.35 2 13.46 19% 15% 15% 2 21 22 23 24 25 Outdoor Advertising % Y/Y Chg. % Share of Total Ad Mkt Source: SAIC; Clear Media; Zenith Optimedia Billboards and unipoles account for almost half of outdoor advertising revenue while the remainder is largely derived via bus shelters and subways (24% in aggregate). Out-of-home (OOH) TV is also emerging rapidly, representing of total spend in 25. The market remains fragmented, though two consolidators have emerged 4 3 2 1 in the form of global pure-play outdoor specialist JCD, which had a 9% share of the market in 25 and Clear Media, which had a 5% share. Other players include TOM Outdoor Media Group (OMG), in which SPH recently acquired a 35% stake. OMG operates in the billboard and unipole segment and has a share of the overall market. Meanwhile, major players in the fastgrowing OOH TV space such as Focus Media (4% share of the outdoor market in 25), have also begun to generate significant interest amongst investors and potential strategic acquirers. For instance, Viacom, which acquired 7% of Magic Media in Beijing last year, could move on a stake in Focus this year, according to local press reports. ONE STOP SHOP. Outdoor is great for nationwide, one-stop advertisers in China. It provides a credible alternative to CCTV. It is the only other real nationwide alternative, says Simon Dewhurst, head of media and entertainment investment banking at CLSA Asia-Pacific, which advised JCD on several outdoor M&A transactions in China last year. And, relative to other media (i.e. TV), outdoor is also an attractive investment for strategic global media investors because it is a highly deregulated industry. As of December 15, 25, a foreign entity can own up to 1% of an advertising company (under which outdoor classifies) in the mainland, provided that the foreign entity has at least 3 years of advertising operating experience elsewhere. There is no editorial content in outdoor so you get away from the ideological responsibilities and controls that the Party places on other media owners (i.e. TV/print), says Mr Dewhurst. This helps guarantee access to risk capital which will ensure growth in the market. High industry standards are another driving force. With world-class outdoor players attracted to China, professional industry standards will inevitably surpass the traditional media, says Mr Dewhurst. It is a reality that Chinese television is not on a par with Europe and the US, for instance, and that newspaper, magazine and radio markets are also relatively poor, but outdoor in China can be world-class, he says. JCD, the second largest outdoor advertising company in the world, has made swift forays into the Chinese market by making 3 acquisitions and signing 2 partnerships in 25. The company now dominates subway, side-of-bus and airport advertising in China along with bus shelter and airport advertising in Hong Kong. [Acquiring] Media Partners and MediaNation s overlapping outdoor assets in China will allow JCDecaux to increase pricing for subway and side-of-bus advertising in the PRC, says Kit Low, an analyst with Goldman Sachs. However, we believe the impact of better pricing will not be felt for probably another 12 months as JCDecaux consolidates its new operations. According to JCD, its current portfolio of assets generates around US$15 million - US$2 million in revenue per annum in China and Hong Kong. In April 25, the company acquired 8% of MediaNation, a Hong Konglisted provider of subway and side-of-bus advertising displays, and billboards, in Hong Kong and China, at an implied total equity value of US$65 million plus US$12 million in debt. In September 25, the company paid US$2 million for 1% of Texon, which operates bus shelters in Hong Kong. Soon after, the company acquired 7 of Media Partners International at an implied total equity value of US$92 million plus US$11 million debt. In November last year, JCD also signed a 3-year joint venture agreement (5% JCDecaux; 5% Beijing Gehua) to form Gehua JCDecaux to develop outdoor advertising in Beijing. The new JV entity has already signed a 12-year exclusive sales and marketing contract with Beijing Gehua Sunshine Advertising Company to operate 5 double-faced large format newspaper stands in Beijing. The JV also plans to manage other outdoor businesses for Beijing Gehua Sunshine, including billboards. Q2 26 The Asia Media Journal 27

Stephen Wong, CEO, JCDecaux (China) JCD capped a China-led 25 with the signing of an exclusive 15-year contract for Tianjin subway Line 1, which has 2, advertising panels in 22 stations. JCDecaux also has right of first refusal for the next four lines to be built by 21. Stephen Wong, JCD s chief executive officer for China and Hong Kong, says the company sees huge growth potential in the China JCDecaux outdoor market, due to a combination of factors, such as a rising consumer society, where quality and brands Clear Media 5% are becoming increasingly important in consumer choice, and rapid urbanization, Focus Media 4% which leads to a higher concentration of population, which in turn increases the reach of Tom outdoor Outdoor advertising. The further opening up of major industries will also be a boon for the outdoor market, says Mr Wong, as it will prompt fierce competition in several key industries that will result in increased spend. He also expects the market to consolidate rapidly in the future. China Outdoor Market Share (by company) At the moment the outdoor market is very fragmented. There are 6,-1, companies operating. Many are very small, but we see a trend where a few big players will emerge, says Mr Wong. JCD is a catalyst and will continue to play a leading role in this process. We see an increasing trend of local authorities wishing to bring in new standards to their operations or city streetscape, and hence there will be an increasing desire to partner with international media companies. Mr Wong added that JCD expects to see a gradual cleaning up of the streetscape in some major cities, which will benefit transport advertising and street furniture that carries a public function with it. JCD s key strategy is currently based on strong organic growth derived from realizing the profit potential in the businesses we acquired last year in China and Hong Kong, 9% says Mr Wong, and also from new projects that we have signed up in the last 18 months. Moreover, while it is focused on consolidation via M&A, JCD is also cautious enough not to chase over priced and relatively low-growth assets such as TOM s OMG unit, for instance. SPH s March 26 acquisition of a 35% stake in OMG has been seen by many as an 15 illogical move for the Singaporean-based, publishing-focused media major. It is a notable business venture for SPH in mainland China. In the outdoor 12 segment, we have chosen a huge and 2 4 6 8 1 (%) accessible market that has the potential to provide healthy returns, states Alan Chan, chief executive officer at SPH. It s one of our key growth areas. With this partnership with TOM, we get access to 6 mainland Chinese cities, and we can tap into their knowledge and understanding of local market conditions. The acquisition will cost SPH HK$23 million (US$26 million) and implies a value of approximately HK$82 million for OMG. This includes an existing shareholder loan to OMG of HK$24 million from TOM Group. The price equates to 19 times OMG earnings before China Outdoor Ad Market Growth (RMB bil.) (%) 13.46 5 41% 4 11.35 Alan Chan, CEO, Singapore Press Holdings China Outdoor Market Share (by business segment) Other Out-of-home TV Airport Railways 2% Subway 11% Billboards/Unipoles 48% Side-of-bus 12% Bus shelters 12% 9 China Outdoor Market Share (by company) 27% 2 7.1 6 2 19% JCDecaux 5.4 9% 4.75 15% 15% 14% 14% 12% 12% Clear Media 5% 3 1 Focus Media 4% Tom Outdoor 2 21 22 23 24 25 Outdoor Advertising 2 % 4Y/Y Chg. 6 % Share of Total 8 Ad Mkt 1 (%) 9.4 3 Source: China Outdoor Data Corp. Source: Company Data 28 The Asia Media Journal Q2 26

income, depreciation, amortization and tax during the FYE December 25 period, a significant premium to more cash generative outdoor media owners in China, such as Clear Media (trading in the market at 14x), and higher than private market acquisitions undertaken by JCD in China last year (Media Partners International at 13x; Media Nation at 7x). As Mr Chan implies, the acquisition may be seen as another attempt by SPH to gain exposure to a fast-growing ad market and reduce dependence on its slow-growth publishing franchise in Singapore. OMG owns and operates billboards and unipoles across 6 mainland cities with 3, square meters of advertising space (8% via billboards, 2% via unipoles). However, the billboard space is less regulated compared to bus shelters, airport, subway and OOH advertising. Therefore, it remains difficult to establish a business based on long-term agreements as competition pressures ASPs downward and forces incumbents to participate in pricey auctions. Moreover, SPH will only be able to bring cash to fund OMG s future growth; unlike JCD and Clear, it will be unable to leverage relevant industry expertise and experience. OMG s fundamentals are also fairly weak, especially relative to its peer group. In 25, the company grew turnover by 12% year-on-year (versus 19% market growth and 25% growth for Clear Media) to HK$412 million while EBITDA contracted by 4 to HK$44 million (11% margin versus 22% in 25) due to increasing media asset costs attributable to growing competition. FOCUS INNOVATION. Unlike OMG, Focus Media (Focus), which has developed an innovative OOH TV network, continues to enjoy a significant improvement in its ASPs. The NASDAQ-listed company reported net income of US$23.5 million for its FYE Dec. 25 period (versus US$.4 million in 24) with revenue at US$68.2 million (versus US$29.2 million in 24). Its Q4 FY 5 earnings were particularly strong: sales were up 2 quarter-on-quarter to US$25 million and net income grew 32% Q/Q to US$9.4 million. Utilization and ASP rates for the company s OOH TV network were robust with ASPs growing 1% quarter-on-quarter in tier-2 cities versus a decline of 14% in Q3, while in tier-1 cities, ASPs rose 1% on a quarterly basis versus 5% in Q3. Utilization rates in tier-2 cities improved from 42.4% in Q3 to 43.9% in Q4 while tier-1 cities saw rates reach 98.9% versus 98.5% in Q3. More significantly, the company s scale in the market has grown exponentially through M&A. In February 26, Focus closed its US$325 million merger with main competitor Target Media, giving it a nationwide advertising network of over 9, displays in about 7 cities in China, reaching up to 5 million consumers on a daily basis. In October 25, the company also closed its US$18 mil. acquisition of Framedia, a leading provider of poster frame advertising with a 9% share of the market in tier-1 cities clients include Microsoft, Motorola, Sony, Audi and Samsung. Investors can t stop appreciating the company: its NASDAQ stock soared 62% in 25 and was up 9% YTD in 26 (April 25 close). While growth in the number of display units will slow down this year, Focus chief executive officer Jason Jiang (a 21% stakeholder in the company) says that he expects growth to come from improved pricing power and segmentation. We will certainly see price increases being introduced this year, probably to the extent of 3-4%, says Mr Jiang. Our rapid growth is sustainable as we Jason Jiang, CEO, Focus Media will increase capacity to offer customers improved segmentation to target niche markets, so the profits will be higher. The company also intends to expand its network of giant LCD digital billboards, and increase its presence in hypermarkets by 5%, says Mr Jiang. Focus has screens in around 65 hypermarkets, where it competes head-to-head with Cgen, partowned by JCD, which runs TV networks in about 35 hypermarkets. Focus is also branching out into mobile phone advertising, recently acquiring 1% of Dotad Media, the largest WAP-based (Wireless Access Protocol) advertising delivery platform in China. The deal cost US$3 million (US$15 million in cash; US$15 million in Focus stock). Dotad generates approximately US$7 million per annum in sales with net income at about US$2 million. More significantly, it has access to 7 million mobile users, providing a valuable database for Focus to leverage for mobile advertising. We view mobile advertising services as an indispensable part of our lifestyle media strategy. Our aim is to establish highly-segmented advertising channels tailored to individual consumers, says Mr Jiang. In the future, we believe mobile advertising will account for a significant part of our clients ad budgets, especially when 3G mobile penetration expands in China. Q2 26 The Asia Media Journal 29

Steven Yung, Chairman, Clear Media Mr Jiang denies rumours that he was considering selling Focus to Viacom Outdoor or any other major player, but suggested that small shares might be made available to the right bidders. We have no intention of selling the company as a whole, but our door is always open to the experienced international players, he says. We might welcome them to invest in our company, to the level of about 1 per cent or so, but we have no intention of selling the whole company. Clear Channel Outdoor, the largest outdoor company in the world, is also active in the mainland market with a 5% stake in Clear Media. In 25, Clear Media net income grew 19% year-on-year to HK$15 million while turnover grew 25% to reach HK$675 million, boosted by a 5% increase in ASP and an occupancy rate of 65%. Sales in tier-1 and tier-2 cities were up 27% and 22% year-on-year, respectively. Going forward, the company plans to launch a Beijing Olympics package in June 26; increase panel capacity from 2, to 3,; and complete conversion of bus shelter panels in Shanghai from scrolling to static. Most of Clear Media s business comes from the 25, bus shelters it operates in China s top 3 cities, according to company chairman Steven Yung. About 9% of our business is from clients buying multiple cities. The network effect is very powerful, says Mr Yung, adding that he expected the company to be able to raise rates by between 5-8% this year. In terms of growth potential, Mr Yung says that Clear Media is looking at ways to add more sizzle to its outdoor campaigns, by introducing more innovative concepts like LCD displays on shelters and 3D graphics. The company also expects to focus largely on its core competency of bus shelters for the foreseeable future as it considers the market to be far from saturated in the major cities. Shanghai, for instance, has 2, bus shelters while London has 1,. Shanghai is double London s size so there is clearly a lot of room to grow, says Mr Yung. Moreover, like JCD, Mr Yung is reluctant to invest too heavily in developing billboard/unipole networks at this stage, even though the segment accounts for about 5% of the outdoor market in China. It s like the Wild West, he says. There is no legal framework so it s unregulated which means unlimited competition. According to Mr Yung, many billboards in China have been erected without permission, and the vast majority, are owned by farmers or local officials who only run one or two sites, or local media companies who operate a handful in their area, making it extremely difficult to launch a nationwide billboard campaign. Illegal billboards are often erected in front of or next to legal ones. In occasional crackdowns on visible pollution, some illegal billboards are taken down, but they often quickly reappear. It is an uncertain, disconnected landscape that concerns media investors and media buyers alike. GroupM s Mr. Taw says that his agency would like to spend more money on outdoor but is somewhat turned off by the chaotic state of the billboard market. It is extremely fragmented and unregulated. There is no standardized pricing or sizes. There are multiple people representing the same sites, often offering different rates. If I want to run a campaign across 9 cities, for example, it takes huge administrative manpower. HIGH GROWTH. From a profit perspective, Goldman Sachs Mr Low expects to see all the market leaders enjoying high growth levels in the run-up to the Beijing Olympics, partly as a result of multinationals shifting greater levels of ad spend to the Chinese market. Focus is not close to saturation point, he believes, but the company will gradually rely less and less on its original business of office locations for increased revenue. Growth drivers for outdoor companies include, price increases or lower discounts for first and mid-tier cities; utilization rate increases for second-tier cities; breaking-out sub-commercial networks to increase capacity in first-tier cities (such as airport and golf-course networks); and acquisition of franchisees, says Mr Low. Meanwhile, the competition between global outdoor giants is intensifying. Given JCD s aggressive expansion in the PRC, and the importance of China for the future growth of Clear Channel Outdoor (CCO), the pressure is on CCO to expand its presence, says Mr Low. As a result, we believe CCO will continue to expand its mainland China footprint via Clear, leveraging Clear s existing sales network. Mr Dewhurst from CLSA believes market consolidation is inevitable. If you take the top 3 or 4 players in the market and aggregate their revenue share it would account for less than 25% of the total market. But we see this shifting to a stage where the top few companies will ultimately hold 75%. As companies build wider networks, there will be huge opportunities for advertising agencies and media buyers, concludes Mr Dewhurst. Until now, domestic companies have kept marketing in-house because they are operating largely in a local market. These will only move out of house when interprovincial networks are on offer, and one of the big winners will be the advertising agencies. The other winners will be the media companies who can offer interprovincial platforms so it makes sense to make those platforms bigger through consolidation. AMJ 3 The Asia Media Journal Q2 26