China Trip: China Mass Media

By Eric Jackson
RealMoney Contributor
4/19/2010 3:30 PM EDT
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Three weeks ago in Beijing, I met with the management of China Mass Media (CMM - commentary - Trade Now), one of the few U.S.-listed Chinese advertising agencies. Despite some challenges in the past year, it's trading at an attractive valuation and is worth a closer look.

I met with CEO and Founder Wang Shengcheng and CFO Eric Cheung. Mr. Wang launched China Mass Media in 2003 and has always had a special relationship with CCTV -- China's largest domestic broadcaster. As a former producer, he enjoys a relationship with a range of CCTV's senior ranks, which helped early on. CMM has traditionally made its money bidding or brokering for ad slots on CCTV.

The Chinese ad industry is still growing by leaps and bounds. During my recent trip, I was amazed by how bombarded consumers are with TV, outdoor, and print ads. You can't ride public buses without seeing ads playing on a couple of screens inside. Of all these ad mediums, TV is the biggest, accounting for $5.9 billion, or 40%, of the total ad market in China as of 2007. Since then, the TV ad market has been growing an estimated 14% yearly.

State-owned CCTV is the dominant player. It's like a combined version of the Big Three U.S. networks, though, like the BBC, it has multiple versions of itself. The niche cable and satellite specialty channels continue to grow, buy CCTV still holds the bulk of national Chinese viewers.

In addition to being a broker for key programs on CCTV, CMM has enjoyed substantial profit margins for years as the exclusive ad agent for CCTV's broadcast of the Chinese New Year Gala. Imagine an ad agency with a lock on selling Superbowl slots in the U.S. and you'll get the picture.

At the moment, some of the changing industry dynamics have rocked CMM. First, CCTV recently announced that CMM would no longer be its exclusive agent for New Year Gala slots. At the same time, the ad business has been so red hot in the past couple of years that last fall's CCTV auction for media underwriters yielded record results.

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