This was, after all, one of the original poster boys for China’s new-look media sector. Its outdoor and digital business, listed on the Nasdaq stock exchange in 2005, provided US investors with their first major opportunity to buy into a pure-play Chinese ad company. Whatever mistakes it has made along the way, its collapse is a reminder that no media business, however mighty, is immune to the world’s current ills.
Sina’s deal to buy Focus Media’s outdoor business is a masterpiece of opportunism rather than a truly strategic play. Focus Media’s share price has been trading at under US$10, a huge decline from $60 a year ago. When Focus was at its height, some thought it could buy Sina; now Sina has managed to pick up assets worth 52 per cent of Focus Media’s revenues and 73 per cent of its profit at a knockdown price.
Focus has, of course, made its share of mistakes. Earlier this year, problems at its SMS business forced it to post an eye-watering first-quarter loss, and it has struggled to integrate supermarket screen business CGEN into its organisation. But it is not necessarily Focus Media’s fault that investors’ mania for all things China pushed valuations arguably far higher than they should have been. Once you’ve flown that high, any return to normality looks like a bit of a comedown.
It is interesting to consider what Sina didn’t buy - in particular, Focus Media’s digital advertising agency and network Allyes, purchased in 2007 for $300 million in cash and shares. If anything, Allyes would seem a more natural fit with Sina than the outdoor operation. In fact, Sina has been one of Allyes’ clients, using its proprietary online ad tools. As one industry insider put it: “Sina may have faced a conflict of interests with Allyes, but when has that ever been a problem in China?”
Allyes remains a solid business - the question now is whether Focus Media’s owners have the motivation to build a new business around it, or whether, having made their fortunes in the good times, they will sell that off too, effectively ending Focus Media as an independent business.
As for Sina, despite all the talk of synergy and cross-selling, it will face much the same problem Focus Media did: trying to find a crossover between its internet marketing business and an outdoor operation. Just because both can loosely be described by that most fluid of words, digital, does not mean there is anything to link them. That is a little like assuming a poster operator can also make TV ads because both are ‘traditional’. For now at least, the two sectors tend to sell to different advertisers and are dealt with by different agencies.
Sina may begin the new year a more powerful operation, but it will still have plenty of work to do to convince the advertising community it is more than the sum of its parts.
Sina’s deal to buy Focus Media’s outdoor business is a masterpiece of opportunism rather than a truly strategic play. Focus Media’s share price has been trading at under US$10, a huge decline from $60 a year ago. When Focus was at its height, some thought it could buy Sina; now Sina has managed to pick up assets worth 52 per cent of Focus Media’s revenues and 73 per cent of its profit at a knockdown price.
Focus has, of course, made its share of mistakes. Earlier this year, problems at its SMS business forced it to post an eye-watering first-quarter loss, and it has struggled to integrate supermarket screen business CGEN into its organisation. But it is not necessarily Focus Media’s fault that investors’ mania for all things China pushed valuations arguably far higher than they should have been. Once you’ve flown that high, any return to normality looks like a bit of a comedown.
It is interesting to consider what Sina didn’t buy - in particular, Focus Media’s digital advertising agency and network Allyes, purchased in 2007 for $300 million in cash and shares. If anything, Allyes would seem a more natural fit with Sina than the outdoor operation. In fact, Sina has been one of Allyes’ clients, using its proprietary online ad tools. As one industry insider put it: “Sina may have faced a conflict of interests with Allyes, but when has that ever been a problem in China?”
Allyes remains a solid business - the question now is whether Focus Media’s owners have the motivation to build a new business around it, or whether, having made their fortunes in the good times, they will sell that off too, effectively ending Focus Media as an independent business.
As for Sina, despite all the talk of synergy and cross-selling, it will face much the same problem Focus Media did: trying to find a crossover between its internet marketing business and an outdoor operation. Just because both can loosely be described by that most fluid of words, digital, does not mean there is anything to link them. That is a little like assuming a poster operator can also make TV ads because both are ‘traditional’. For now at least, the two sectors tend to sell to different advertisers and are dealt with by different agencies.
Sina may begin the new year a more powerful operation, but it will still have plenty of work to do to convince the advertising community it is more than the sum of its parts.
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