From Outdoors To Digital: Fifteen Years Of Advertising Agency Evolution

摘要: The listing of the three new board heralded the streaming-in of the capitals and since then advertising has been riding on the tide of capitalization. Here in the spotlight are the digital advertising agencies.

(Chinese Version)

The current wave of capitalization for Chinese advertising industry is the greatest it has ever seen. Right in the spotlight are the advertising agencies.

Not long ago, advertising agencies for digital marketing nominated three new board members. According to rough estimations, up until July, 33 advertising agencies for marketing has been enlisted as three new board members. Days before, the backdoor listing scheme of Focus Media - HEDY Holding were approved by the CSRC, which also signaled the comeback of the CCS was to be kicked off.

In terms of capital operation, digital marketing agencies feature huge spending. This year of capital come-and-gos began when Wutong Communication spent 1.35 billion RMB merging with Huzhong Advertising; later this year, the A share market saw the merging hike when Keda Holding for road works and Tianlong Inc. for textiles joined the game of digital marketing. Not long ago, Pinyou, the DSP leader, announced that they’d recapitalize to return their VIE back to China and at the same time rumors of its 500 million RMB financing flooded my Moments.

As one of the “New Youth” joining the advertising industry in 2004, I believe it is high time that we looked back at how this industry evolved. Not surprisingly, capitalization for going public reflects to a large extent the projection of Chinese advertising industry.

2001: Private Capital Leads in the “Year One” of the Advertising Age

Since the mid-90s, the official-media-led advertising companies have begun the process of capitalization. Generally speaking, 2001 was regarded as the “Year One” of the advertising age. But for bus body and bus shelter advertisements, the listing of Clear Media on HK Stock Exchange has been taken as the starting point for privately-owned agencies going public.

Afterwards, outdoors became the most booming field of China’s advertising industry and thus impacted the projection of the industry. On the one hand, under the special rules of the media in China, the threshold of international and civic investments into the mass media remained relatively high; however this is not the case for outdoors since it does not have direct links with ideology; on the other, outdoor-oriented advertising companies could easily achieve economy of scale with the help of capitals. Outdoors, therefore, become the “poster kid” of capitals.

2004: The Spring of Outdoors

Years past when outdoors appeared not to be so attractive to the capitals as it used to be, “outdoors plus digital” became the new business model. Marked by the listing of the Focus Media owned by Jiang Nanchun from Ningbo in 2004, Chinese advertising agencies became the rising stars of the global capital market.

Under the category of outdoor advertising, “outdoors plus digital” has not only different forms of presentations but also different selling models compared with traditional outdoor advertising. It was widely known in the advertising industry that at the beginning Focus Media focused most of its time on selling; they did the selling themselves.

Since the media budget of international brands were in the hands of Mindshare, ZenithOptimedia and other 4A agencies while media purchases were in the hands of different functional departments, for the outdoor-plus-TV Focus Media, the question becomes whom to woo, the outdoor department or the TV department? The astute Jiang Nanchun realized that as an outdoor agency it is hard to battle for international brands; the breakthrough lied in the wedge between TV advertising that is worth of 30 billion RMB and outdoors worth of five billion RMB; budget shall be squeezed out of TV advertising. Jian Nanchun thus used the selling language for TV advertising to sell Focus Media whose advertising box, originally priced at 99 RMB per box, is sold at six times more.

Focus Media and similar models seeded advertising in consumer’s daily life. Since outdoors feature compulsory reception and exact position of the touchpoint, it is endorsed by both investors and clients. Recently the booming entrepreneurship of outdoors is on the rise since a great variety of companies for demassification is mushrooming while the mobile TV on subway and advertising on handles, mobile TV on airplanes, trains, taxis and in supermarkets see new innovations and developments.

In 2004, I was enrolled in advertising of Minzu University of China. A couple of my senior schoolmates from the Chinese or Journalism Department also set up their own start-ups. Our teachers at that time joked that we chose the most promising industry and said they would try to train the next Jiang Nanchun.

None of us became Jiang Nanchun though. Half of the 2008 advertising graduates in my school joined internet companies working for China’s BATs.

And that’s the end of Focus Media — the global financial crisis saw a 768 million USD loss of the Focus Media, its market share price saw several rounds of plunge. With the dawn of the 3G era, concept of the mobile internet gained an upper hand. The “enclosure movement” of Focus Media halted. My four years in college studying advertising witnessed the decline of Focus Media. What a pity.

If everything goes well, Focus Media would make its comeback to A share within two to three months. The new story unfolds as Focus Media practices up-and-downs: It looks up to the “Cloud” strategies to be a well-oiled LBS company while settles down to leverage on local media edges and thus to kick off O2O businesses. Nice try. This time the emerging digital advertising instead of the declining TV advertising would be the focus. Yet still it is hard to imagine how much budget could Focus Media wins from the clients since Focus Media has only resources but not core technologies.

2008: Asset-light Service Firm of Advertising Emerged

The 2008 Olympics put Beijing into the limelight despite the global financial crisis, CCTV’s advertising revenue grew: In 2007 it reached 11 billion RMB while the year 2008 saw a 5.1 billion RMB growth. That’s when a wave of CCTV’s advertising agencies got listed on the overseas market, like the Advertising and Publicizing Media went public in the New York Stock Exchange and the CTV Golden Bridge was listed in HK, which marked the beginning when service firms of advertising started entering the capital market.

Even though being service firms of advertising, this kind of business helps provide strategic communication solutions, poised as advertising agents and (media) purchasers, GIMC, for example, is a case in point. When they went public, emphases have been laid upon its relative control of and strong ties with media resources, which can been seen in CTV Golden Bridge, Advertising and Publicizing Media and Charm Communication. Among them are a few companies provide service mainly of media channels not agents, evokes integrated strategies and creativity. Companies as such include Bluefocus and Spearhead Integrated Marketing Communication Group; both of which started off as a PR and terminal communication company.

The media contracted responsibility system originates from socialism with Chinese characteristics. Even though with a higher-than-commission-fee gross profits, it can hardly win the confidence of the American market. In 2012, the Advertising and Publicizing Media was delisted from the New York Stock Exchange while in 2o14 Charm Communication signed a privatization contract and thus was delisted from NASDAQ. From an American point of view, the international 4A standards only suggest advertising companies as only agencies; relying on CCTV resources and practicing contracted responsibilities are not an advanced form of advertising agencies.

2015: Digital Advertising Made its Debut, with Unrests but Growths

Since around 2015, digital advertising featuring online marketing has been the new model favored by the capital market.

In terms of forms of advertising, search engine ads and banner ads are in real terms divide the market into two. Baidu championed in terms of search engine ads, capturing an 82.3% market share. (Q3 data from iResearch)

Banner ads are more similar to traditional ads, charging by numbers of ad placements. In the past three years, its revenue grew from zero to ten billion RMB. According to the estimation of eMarketer and iResearch, Chinese programmatic direct buy would reach 10.1 billion RMB in 2015 and 28.2 billion RMB in 2017, growing by two to three times at the time being, which shall become the biggest growth for the digital marketing industry.

Lying ahead are a bright future yet a treacherous road. Clients demand for good advertising flow while quality media of scale looks to direct marketing in order to gain premiums. If models featuring RTB are combined with residual flows, the development could be halted. Moreover, clients could also worry about the outcome of ad placement, for example if Channel’s commercial is followed by a soy sauce ad then such a contrast could potentially harm Channel’s brand equity. Therefore, programmatic direct buy should be enhanced in terms of technologies.

In a word, I do not want to see the advertising industry jump onto the bandwagon of capitalization. I do not deny that for media-oriented advertising agencies, capitalization would help achieve economy of scale, which is good. But since capital values short-term returns, for creativity-oriented advertising companies – advertising companies in real sense for some – more focus on short-term returns and commercialization would do harms to the quality of creativity and corporate cultures.


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[The article is published and edited with authorization from the author @Wenwuzhao, please note source and hyperlink when reproduce.]

Translated by Vanessa Hao (Senior Translator for PAGE TO PAGE), working for TMTpost.




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