What is causing the slide of Focus Media?

Focus Media, China’s largest advertising company focused on building lift and corridor ads, had a rough year. Its stock (listed on Shenzhen Exchange) price halved:

A year ago, on 18 Jul 2018, Alibaba announced it was investing CNY 15 billion (US$ 2.16 billion) into Focus Media, taking 10.3% stake with an option to buy up to a further 5%.

That should have been a shot of confidence – and I am pretty sure neither predicted the slide.

What happened?

Not only Xinchao 

It is not (or at least not entirely) because of Xinchao Media Group, a relatively new but aggressive competitor that is backed by a few veteran entrepreneurs and received US$300 million investment from Baidu late last year.

In fact, Xinchao has quieted down lately, with a few key backers not talking about it as much as they used to.

Xinchao was not that much of a direct competition with Focus Media anyway, having figured out that Focus’s penetration amongst tier-3 and lower cities was still quite limited. The market still had a lot of potential growth.

Internet unicorns are to blame

The real culprit here is that much of the revenue of Focus Media came from venture-funded internet unicorns – especially those consumer-facing platforms. They typically competed aggressively against each other and splurged on branding ads.

Venture funded consumer brands (like vacuum cleaners, electric cars, etc.) also formed a large customer base for inner building ads. Traditional FMCG, car and real estate ads are much rarer in comparison.

The logic behind was not hard to understand: these new companies, awash with cash which had to be burnt quickly into growth, were really easy customers.

Also, the geographic targeting of inner building ads is indeed really attractive to internet companies, many offering services that are location-based. 

For a long time, Focus Media’s strong B2B sales team also focused relentlessly on these companies.

In 2019, after a few underwhelming IPOs, late-stage investors in China became much more cautious, which inevitably impacted the advertising spending of venture-funded unicorns. There has not been any reliable statistics on the phenomenon, but a few marketing heads we spoke to all confirmed that they were slowing down their branding spend.

Focus Media became a natural casualty of that.

Nonetheless, this is not the end – a number of market reports predict that overall branding spends in China is still growing, with video and outdoor being favorite categories for growth.

As to Focus Media, they just need to convince the other big spenders that lift ads offer more value.

As to the vision of expanding outside China – a key challenge is that most cities in the world do NOT have the density of high rise blocks their counterparts in China have.