CCTV 2009 Advertisement bidding

Sorry for not posting any articles in the last three months. But it is clear that any fundamental analysis won't have any relevance in this market condition.

Hopefully, the market could calm down in 2009 and people will get back to the fundamental of the companies.

On 11/18/2008, CCTV conducted the annual bidding for 2009 CCTV commercial. CCTV is the biggest TV station in China. Its bidding represents how companies in China see the state of Chinese economy. If you had listened to the earning call conference of companies such as Sina, Sohu, Ntes, Bidu, and Fmcn, they based their advertising rate increase and forward yearly guidance based on this annual event.

It is really amazing no stock analysts covering Sina, Sohu, Bidu, and Fmcn even mentioned about this important event.

On 11/18/2008, CCTV got 9.26 billion RMB for its 2009 advertising. See the following articles:

http://finance.sina.com.cn/focus/2009CCTVggzb/index.shtml

From the following web site, we can find out the annual bidding amount through the recent years:

http://blog.sina.com.cn/s/blog_483476660100bor4.html?tj=1

We can put all the historical data in the following table:

	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Total	0.33	1.06	2.3	2.8	2.16	1.92	2.155	2.616	3.315	4.412	5.248	5.869	6.796	8.029	9.256
YoY Increase		221%	117%	21.7%	-23 %	-11 %	12.2%	21.4%	26.7%	33%	18.9%	11.8%	15.8%	18.1%	15.3%
Delta			-104	-95	-45	12	23.2	9.2	5.3	6.3	-14.1	-7.1	4	2.3	-2.8
GDP Growth	10.5%	9.6%	8.8%	7.8%	7.1%	8.0%	8.3%	9.1%	10.0%	10.1%	9.9%	11.1%	11.4%	8.5%

Amount in Billions of RMB

The GDP growth number comes from the following web sites:

http://www.chinability.com/GDP.htm

The 2008 estimated GDP comes from the most recent IMF (International Monetary Fund) estimate on 11/08/2008:

http://www.chinadaily.com.cn/china/2008-11/08/content_7186685.htm

Note that the Asian Financial Crisis started on July 1997 and it last until 1999. China』s GDP never get below 8.0 except during the Asian Financial Crisis years.

Some other interesting information that can be glanced from the following articles:

http://business.sohu.com/20081119/n260719159.shtml

1). There are unusually large numbers of new customers. Up to one third of all customers are new customers.

2). The major customers come from the following industries: Food, Medicine, Mobile Phone, Solar Power, Fashion, Automobiles and Home Electronics. In addition, Finance and Insurance are growing also. Home furniture is also a bright spot.

3). The absence of foreign companies. Unlike previous bidding, foreign companies are largely absent in this year's bidding. Domestic industries concentrate on domestic market dominate in this year's bidding.

What can we get from this event? I think we can get some important observation about the state of China』s advertising industry.

1). 15.3% Year over Year growth is extra-ordinary in this environment. But those are real numbers Chinese companies paid to put advertising on CCTV for 2009. It speaks volumes about how much Chinese companies willing to spend for 2009.

2). It gives great leverage to Sina, Sohu, Ntes, and Fmcn when they raise their advertising prices because they uses CCTV as benchmark.

3). The multi-nationals had reduced their advertising spending greatly due to the global financial crisis.

4). China's domestics companies had more than picked up the slack.

5). China's export industry was impacted greatly by the crisis, but they were never going to spending money for China』s domestic advertising.

6). China's domestics companies were extremely optimistic about China. They are so optimistic they more than make up for the absence of the foreign companies; they make a banner year for CCTV's 2009 advertising revenue.

7). There is a possibility that we will be see a segmentation of China's advertising market, at least in the 1^st half of 2009. Top level advertisers such as Sohu, Sina, and CCTV would benefit greatly while lower level advertisers suffers. New technology advertisers such as internet portals: Sohu, Sina, and Ntes could benefit as a cost effective way to advertising while lower level internet verticals suffers.

8). Note that when CCTV was growing by 16% or 18% the last few years, Sina, Sohu, and Ntes were growing like 40% to 50%. A CCTV growth of 15.3% for 2009 will probably foretell a 30% to 40% advertising growth for the dominant internet portals for 2009.

9). Of course, thing could get worse as we go forward. It is possible that 30% to 40% growth is way too much. But we are also in this vacuum where thing is probably worst before China's massive stimulus package kicks in.