There are about ten thousand outdoor media companies in China market. This industry will inevitably encounter a conformity process. Media stars like Focus Media, Air Media, Cgen Media, Tulip Mega Media and China Health Media said in concert that they will expand market shares via M&As. It is believed that operaters with large scale and sound business models will laugh last.   

Three Issues Need Addressing

The domestic outdoor media operators should take into account the following three issues when garnering VC investments.

1. The management execution and capital force should be seriously considered

Video network launch is coherent with low technology barriers. So, China's outdoor media entered a "warring states" period. Through the process of outdoor media expansion, the first movers with backing from VCs will generally be the last winners because VCs offer them enough capital to expand their Ad network in shortest time.

Since the industry does not have any technology barrier, the management execution becomes critical in order to catch VC investment. An investor of Focus Media disclosed that many copyists appear shortly after Jason Jiang established Focus Media. If the business model is easily copied by other competitors, the company will not develop smoothly; then an excellent management team with a strong execution will stand out.

2. Sector conformity and entry of strong foreign competitors

Focus Media is undoubtedly the leading operator in outdoor media sector in China. Focus Media adopted serial M&As to expand operation field after its debuts. VCs will watch market trends of Focus Media and other listed media businesses before they decide to invest an emerging outdoor media company. Over time, those VC-backed businesses can be developed as acquisition target of Focus Media. After all, M&A is also a sound exit option besides IPO.

 

In October 2005, Focus Media entered community plane media sector by acquiring Frame Media occupying 90% of national elevator plane media. In January 2006, Focus Media merged with Target Media, China's second largest building video media operator. After the deal, Focus Media further consolidated its market leader with approximately 98% market share. In December 2007, Focus Media acquired Cgen Media, China's advanced shopping video advertisement operator, uplifting its market share of shopping terminal video to over 95%. Focus Media invested US$5M in China Health Media in January 2008 for a 20% stake. These M&A deals expanded Focus Media's operation range and market share.

However, many small-size media enterprises have businesses similar to that of Focus Media. If their businesses are not complementary with Focus Media, then Focus Media will not merge with those enterprises. 

In addition, much pressure comes from international media which are capturing China outdoor advertisement market. The world's largest two outdoor media operators Clear Channel and JCDecaux, and Viacom Outdoor Media already aggressively launched several M&As towards Chinese peers. With the approaching of Beijing Olympic Games, the competition of outdoor advertisement will be dramatically furious.

3. Stronger government regulation force

In recent years, the increase of outdoor media companies, expansion of coverage channels and increasingly furious competition brought in disorder billboards and mixed advertisement content in cities. Even worse, some outdoor billboards keep out sunlight, causing inconvenience for citizens. Others pose hidden danger to passerbys. In this context, local governments set out to strengthen regulation with a view to tackling these issues. Governments in the first-tier cities like Beijing, Shanghai, Nanchang, Nanjing, Shenyang, Hefei, Nanning and Chengdu have adopted various measures to clear away rule-breaking outdoor advertisements. 

The measures local governments have taken exert considerable side effects to small-size outdoor advertisement operators, some of which will disappear. Harnessing outdoor advertisement will be a long term task. It is foreseeable that outdoor Ads will be affected much with the promulgation of local Ad regulations.