Focus Media Wireless, the mobile handset advertising subsidiary of Focus Media, China’s largest advertising company, has found itself in a lot of trouble. China Mobile, China’s largest mobile telecom operator, has blocked the company’s messages from all its ports, and the further development of the subsidiary’s business is in limbo.
China Mobile has blocked ports for the message services of Focus Media Wireless and six other companies, who were exposed as excessive spammers on a consumer protection program on CCTV, China’s national television broadcaster.
For the moment Focus Media has suspended its message service, which after all is only a small part of the company’s business. But the parent company has had its share price slammed in the last two due to the exposure of its subsidiary. On March 15, before the news, its share price on the NASDAQ closed over 16% up at $37.41, while by March 17 it had slumped by 26.59%, bottoming out at $29.25, a new low for the year. Focus Media’s CFO Wu Mingdong said the company’s mobile handset advertising business would be affected in the second quarter.
Upon hearing the news that Focus Media Wireless was spamming egregiously, Jiang Nanchun, chairman of Focus Media, started his own investigation of subsidiaries across the country on March 16th.
Focus Media acquired Dotad Media Holding, Limited, and renamed it Focus Media Wireless, with the business scope including WAP website advertising, wireless advertising, wireless instant communication, and all kinds of wireless communications marketing.
Focus Media Wireless provides advertising services for business clients by delivering advertising to their customers, and charges for this service. Focus Media admits that some of the business departments and subsidiaries it acquired were delivering a great deal of unsubscribed commercial advertisement to cell phone users without permission.
It also said the company can only make sure all its advertising is subscribed to or permitted by cell phone users after its message-delivering system has been restored. Those departments and subsidiaries who have failed to establish effective management systems will be rectified or shut down.
Jiang Nanchun emphasized that as most user information in its database is gained from daily service or by analyzing users’ behavior when visiting WAP websites, it is legal and anyway won’t be sold to other companies.
Due to the importance of wireless advertisement, it would be painful for Focus Media to abandon the business. CFO Wu said judging over the long-term, with the definition of cell phone having transformed from “wireless telecom equipment” to “wireless media access terminal,” the operating income of wireless advertising service would become an important part of Focus Media’s total advertising income.
Public listing now uncertain
Richard Ji, an analyst for Morgan Stanley has published a report in which he points out that the growing concern about cell phone spamming in China would force telecoms operations to set stricter limits on mobile handset advertisement, which would negatively affect Focus Media’s plan to list its mobile handset advertising business and the departments involved.
However, Ji believed the 26.59% drop in the firm’s share price was an over reaction. The company’s 2007 fourth quarter operating income from wireless advertising amounted to only 9% of the company’s total operating income, and that number is expected to fall to 8% in 2008, and 7% in 2009. At worst, without its present wireless advertising business Focus Media’s value would decrease by only 5% to 10%.
The total income of China’s mobile handset advertising in 2007 was RMB0.78 billion (about $0.11 billion), accounting for 0.7% of the total advertising market income.
Focus Media now divides its business into four groups: digital outdoor advertising, Internet advertising, mobile handset advertising and digital TV advertising. The plan to list its wireless advertising business sits at the top of the company’s 2008 agenda.
Jiang Nanchun is interested mostly in emerging businesses such as Internet advertising, mobile handset advertising and digital TV advertising, in which Focus Media hasn’t yet become a major player as it is in in-store advertising. Currently he’s trying to expand the firm’s mobile handset advertising business, to promote continuous high growth in the company’s profit.
Now, however, there is uncertainty on that side of Focus Media’s business.