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The purpose of this blog is for my personal use. It serves as my personal diary as I investigate Chinese internet/gaming companies for investment purpose. If you have any comments or disagreement, please give me feedbacks.

Monday, August 18, 2008

Online ads outlook from FMCN

My last advertising related article can be found here:

Last night, 8/17/2008, FMCN reported its 2nd quarter earning conference call. It derived most of its revenue from LCD screens, etc. But it also has a big slice of internet online advertising business.

Because it serves as the middle man between the portals and the advertisers, FMCN usually has information about the state of online advertising before the portals.

I will provide some quotes from the FMCN 2Q conference below. Then I will conclude with my own comments.

The transcript of FMCN's 2Q earning conference call can be found here:

I will provide some important quote below:
「While we continue to see strong advertising demand from consumer goods advertisers in China, in particular, non-Olympic-sponsor advertisers are increasing their advertising spending in the later half of the year after the Olympic Games. ….. Our outlook for the remainder of 2008 and 2009 is getting stronger.」


Jason Brueschke – Citigroup
」…………there's been growing concern about the demand outlook in advertising in China after the Olympics as the Chinese economy is showing some signs of strain. I know that Tencent and Sina, for example, both gave a relatively cautious outlook after the Olympics for the Internet, and qualitatively in the prepared remarks you had indicated that you thought the demand outlook was going to be strong in the second half of 』08 as well as 2009. Could you maybe give us some more color……..」

Dr. Tan Zhi
「We see that even the Olympic Games are happening right now, we see many, many of our advertisers are not spending money during the Olympics because for those non-Olympic sponsors, they are waiting for doing that to catch up their advertising budget. So we see some big strong demand for those advertisers doing advertising business with us after the Olympics. That's why we feel that we have received some answers from our sales team, so we do believe that we will have a strong growth post-Olympics for our business.」

David Zhu
「You mentioned the demand after the Olympics -- yes, I totally agree with Dr. Tan's comments on that. Most of the advertisers now during the Olympic Games are the sponsors of the Olympics. But these advertisers are a small percentage among all the advertisers, so we've got the information that those unsponsored advertisers do not want to spend money now, just noisy enough among this lot of sponsors. So after the Olympics, those non-sponsors will spend money after that. So we see that will be the growth for the next, the second half of the year. Thank you. 「

Jason Brueschke – Citigroup
「David, just a quick follow-up -- because of your ownership of so much of the interactive agency business, are you in position to see demand sooner than your clients, Sina and Tencent for example? Is that one of the reasons why there might be what appears to be a slight disconnect between what you are seeing and being [inaudible] about their cautious position that they've given recently?」

David Zhu
「Yes, we -- [the amount of agencies] for the digital Internet business, yes, we are closer with the advertiser, so for those they do not spend the money now, they have a plan to place the ads after the Olympic Games. Thank you, Jason. 「

ames Lee - Sterne, Agee & Leach
「And lastly, a question for Dr. Tan -- I just want to get a clarification on your comments about 2009. It seems like you indicated that the slowing economy is certainly on the minds of the advertisers but you feel confident that even if that's the case, the shifting to a more targeted cheaper platform will be a point in your favor. You seem to indicate that the sentiment from the advertiser in general is neutral to cautious and your assessment is if that's the case, this could be benefiting your platform. Thank you. 「

Dr. Tan Zhi
「We feel the confidence on 2009 based on two factors, I think. Number one is that we -- this year, China's advertising budget is about RMB230 billion and in the last three years, the increase every year is about 15% to 20% the last several years. But conservatively speaking, if market [inaudible] goes well, if the economy [situation is going down], it is at last a 10% increase for next -- for overall budget.
However, those increases will be, if the market goes well, economy is good, everybody will be benefiting. If not, if the economy is not good, then people will take on the effective media to do business and we have been viewed by most advertisers as the most effective media for them to do business. Therefore, as a last -- for example, as Q3 of this year, as we talk to our advertisers, we have received the message from them that they want to spend money wisely if the economy goes well. Therefore, they will use us as a major advertising channel. So that's one part.
Second is that right now, we do have a better structure, better system, and best sales team in place. The message I received from my sales team is that they are very confident to achieve the goals set this year, and also we are in the process to define what we are going to do next year. And in fact, we are starting very early, trying to get this as early as possible, the [sense we received] where it's very confident, very strong and therefore our management team is very confident about 2009.
So I cannot give you a number but the feeling I've received is very good. Thank you. 「


I felt this is very significant information. Even though SINA and Tencents had been providing cautious view of the post Olympics time frame, their can't see China's online market as far ahead as FMCN can see.

FMCN gave a very good rational for a very strong (stronger than the Olympics quarter) 4Q for China's online advertising market. It also give a strong 2009 online advertising forecast based on the feedbacks from its ground sales team.

If you read my articles, I had been suspecting (since 6 yo 9 months ago) that Olympics will serve as the kick off point for the acceleration of China's online advertising market.

I had always think Olympics (and 3rd quarter 2008) will not be as great as some people think as far as online advertising revenue goes. But Olympics will serve as the coming out party for all the new online features such as web2.0, online video, streaming video, etc. All of these new features will enable the acceleration of the migration from other advertising venue (such as TV, newspaper, etc.) to online advertising.

As a result, the growth in the 4Q008 as well as 2009 will be much stronger than what analysts had been predicting.

FMCN, as the middle man between the portals and the advertisers, occupies the unique position to foretell the future direction much earlier than the portals themselves. I am glad what FMCN see is what I had been predicting.

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