Advertising agencies target US$400m from New York offerings
Charm Communication and Shanghai Yuantai Communication, two mainland television advertising companies, plan to raise a combined US$400 million from initial public offerings in New York as early as this year, market insiders said.
A Charm spokesman could not be reached for comment on the anticipated listing, while a Shanghai Yuantai spokesman declined to comment.
Charm, which was founded in 1995, handles a client advertising budget of 1.2 billion (HK$1.35 billion)yuan a year. It is one of the top-10 advertising spenders, on behalf of its clients, on state-owned broadcaster China Central Television, according to its website. It also provides video production services.
'They're one of the better ones in my opinion,' said one media specialist not working on the initial public offering. 'They advertise on a number of different broadcast companies instead of just one like many of the others.'
Shanghai Yuantai Communication focuses on advertisement space on televised sporting events. The company has the exclusive rights to sell advertisements on sports channels run by Beijing Television, Shanghai Television and Guangdong Television. It also publishes a sports magazine.
'The China advertising industry has grown 15-20 per cent annually over the last five years and it will maintain double-digit growth in the next few years,' said Rita Chan, an executive director of client services and sales at Nielsen Media Research, China.
According to Nielsen, advertising spending on the mainland last year rose 15 per cent to 441.5 billion yuan across the three mainstream media: television, newspapers and magazines. Television continues to take the lion's share of China's advertising pie, attracting 82 per cent of total advertising, or 363.03 billion yuan, up 16 per cent from 2006. Pharmaceuticals, toiletries and beverages were the top-three advertised categories last year, accounting for 46 per cent of China's total advertisement market.
That growth continued strongly this year. Television, newspaper and magazine advertising hit 117.5 billion yuan in the first quarter, up 20 per cent from the same period last year, according to Nielsen. About 85 per cent of that, or 99.88 billion yuan, went towards advertisements on television.
Despite the rapidly growing sector, some observers are wary of certain advertisement agencies. 'A lot of these companies are built on the relationships with the broadcaster developed by just one or two guys,' said the media specialist. 'They may have won the company some auctions for two or three years, but a listed company is supposed to exist for a 100 years or so.'
Advertisement companies compete in annual auctions to buy time from broadcasters that they then sell to companies that want television exposure. Even with the big numbers profit margins are tight. 'Although the scale is large, advertising agency for television channels is not a high margin business,' said Jacky Huang, an analyst at IDC China, who estimated the average net margin of the industry was about 10 per cent.
