ANALYSIS: Advertising - AdSociety banks on China offline potential. Network will need to prove its value proposition first, reports Atifa Hargrave-Silk

Pacific Century CyberWorks' online advertising network AdSociety was recently granted a full advertising agency licence in China, strengthening its ambition to move into offline services to reduce its reliance on online advertising. While large, multinational agencies have operated in China for several years and also have full agency licences, AdSociety is hoping to sell services to the agencies themselves. It believes its restructuring will allow it to grab a slice of China's US$10 billion advertising market, which is tipped to hit an average annual growth of 13.8 per cent in constant prices over the next three years, according to Zenith Media. With its eye on this pie, AdSociety Daye, the company's joint-venture agency in China, believes there is a place for it to become a "broker of the brokers". Patrick Jonathan Wong, chief executive officer, AdSociety, comments: "China's accession into the World Trade Organisation and the 2008 Beijing Olympics will add greater momentum and growth to China's ad market. The positioning of the joint-venture is to operate full-scale advertising service across all types of media platforms - similar to Tom.com. The joint-venture will provide all traditional advertising platforms, including TV, billboard, outdoor, print, radio and event management." AdSociety is counting on earning 65 per cent of revenues from offline advertising by the end of next year. As a media representative, it expects to take 15 to 20 per cent as a commission from media owners. Wong estimates this to be a market of between US$1.2 and $1.6 billion. Antony Young, Zenith Media, chief executive officer, sees the entry of an "international" player like AdSociety into media representation as an interesting development. Local brokers still dominate this part of the business, with many advertisers and agencies buying through them. However, the highly-fragmented nature of this part of the business will make the ride a rough one for AdSociety. Grey China chief executive officer and chairman, Viveca Chan, doubts if an international or even a new player will enjoy any advantage. "There is a narrowing market for brokers in China, especially new ones that do not have established connections," Chan says. "Media buying needs media clout and strong media relations. AdSociety is not an 'international' player compared to the large agency networks. "In any case, buying is very localised. You need to know each market well, all the media etc. And it takes time to develop a network." Both Chan and Young agree there is a need for more professional media selling in China. Young says: "China media owners, while they have become increasingly more sophisticated in the major markets, generally still tend to operate with a monopoly viewpoint." Although recent consolidation of media ownership into regional groups - the setting up of the Shanghai Media & Entertainment Group last April, for example - is gaining widespread momentum, he says the challenge will be to convince established media owners to take on such partners. AdSociety believes its offer of an integrated platform will be a compelling argument. Like Hong Kong tycoon Li Ka Shing's Tom.com company, which extended its offerings to sports marketing, print magazines and outdoor media, AdSociety is venturing far from its core internet advertising business. "It's about survival," says Wong, outlining the company's many revenue-generating ideas. One is to use its overseas network to source programmes for China's television stations, something that WPP's media holding company is doing through a joint-venture with Hong Kong's Star East Works. "With the consolidation of China's TV stations, competition will stiffen and better programme content quality will be expected," says Wong who sees this as another revenue opportunity. While Young believes pricing will be critical as "PRC clients remain highly price-sensitive", Chan says the value proposition will be the key. "There is a general need to increase standards, which goes back to the training, quality of people etc. Agencies already have integrated capabilities. But it is the value proposition that will win," says Chan. "Can they offer a better rate, or cover areas others don't, such as in the second or third tier cities. Will they be able to monitor as well as do the buying? Of course every agency wants the best deal, rates, quality of service and are willing to work with third parties to get value for something such as buying direct, syndicated programmes. Being just a broker is not enough."

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