You probably haven't heard of VisionChina Media before. I wasn't familiar with them until I saw their SEC registration statements. Apparently, the company has 33,000 screens in mass transit systems in 14 "economically prosperous" cities. In all, the screens reach about 26 million consumers every day and broadcast a combination of news, financial information and, of course, targeted advertisements. When they say "mass transit," the company is mainly referring to buses, noting that traffic is becoming quite a problem and more people are turning to public transportation. I think "economically prosperous cities" means "cities where capitalism is allowed." Here's their year-to-date synopsis:
Through September 30, 2007, more than 230 advertisers had purchased advertising time on our network either directly or through an advertising agent. We have the ability to place advertisements in one or more cities, both within and beyond our network, according to their demands. As of September 30, 2007, we have placed advertisements in 26 cities across China. Our top two international brand name advertisers, Yum! Brands, Inc. (whose brand portfolio includes KFC, Pizza Hut and Taco Bell) and Spalding Group, in aggregate accounted for approximately 7% of our advertising service revenues for the nine months ended September 30, 2007. Our top five domestic brand name advertisers, China Citic Bank, Guangxi Wuzhou Pharmaceutical Group Co., Ltd., Hangzhou Minsheng Pharmaceutical Group Co., Ltd., Nice Group Co., Ltd. and Jilin Wutaigankang Pharmaceutical Industry Co. in aggregate accounted for approximately 31% of our advertising service revenues for the nine months ended September 30, 2007. We have grown significantly since our inception in April 2005. We generated total revenues of US$3.9 million in 2006 and US$17.4 million for the nine months ended September 30, 2007. We achieved net income of US$3.7 million in the nine months ended September 30, 2007, but we incurred a net loss of US$4.1 million for the year ended December 31, 2006.So the name of the game for VisionChina is growth. Going from $3.9 million in 2006 to probably over $20 million in 2007 (they did more than $17M as of September 30) represents growth in excess of 400%. Their net income of $3.7M on revenues of $17.3M translates to over 20% margins. Given their type of operation, they should be able to achieve even higher margins over time, since I suspect that a number of these big networks will exceed 30% net margins once they get the hang of balancing growth with maximizing profitability of their existing screens. From the looks of things, though, VisionChina is off to a good start. In 2006, the company sold a total of 20,126 hours of broadcasting across about 17,000 screens, with average revenues of about $34/hour. In 2007, they've not only nearly doubled the number of screens to over 33,000, but their revenues per hour of broadcasting have skyrocketed to $282/hour. They're either selling a greater percentage of their ad slots, raising the rates on the slots, or both. They claim to be filling about 31% of the slots on screens in their "exclusive agency cities," a collection of seven cities where the firm has the exclusive right to sell all of the advertising time on the city's existing mobile digital television network. This network consists of screens on buses and enjoys contracts ranging from four to twelve years, and probably has the highest fill-rate of VisionChina's holdings. While it's unlikely they'll ever fill 100% of their slots, with improved sales approaches and more established marketing data, it seems likely that they could take that number to 45% or above. This would be extremely lucrative, since any additional sales are virtually 100% margin (i.e. no more network buildout required to achieve them).
While VisionChina's SEC filings don't have the fantastic revenue breakdowns that AirMedia's did, we have enough data available to make some basic observations about the monetization of their screens. Let's start with the facts about their 2007 performance through September 30:
Advertising service revenues: $15.8 million
Percentage of revenues from mass transit digital signage: 91%
Number of screens in operation in January 2007: 16,809
Number of screens in operation in September 2007: 33,584
Number of hours of broadcasting in 2007: 54,017
Greatest percentage of advertising slots sold: 31%
Average content loop length: 12.5 min
From this data, we can estimate some of the more interesting metrics:
Amount of revenue derived from mass transit digital signage: $14.378 million
Average number of screens in operation from January-September 2007: 25,196*
(*assuming a steady installation and monetization of new screens throughout the year)
Total revenue per screen over the nine month period: $570.65
Average monthly revenue per screen: $63.40
Loops per month (assuming a 12.5 minute average loop length, with content running 24 hours/day): 3,456
Unfortunately, here's where it gets messy. The company doesn't say how much of the content in their loops is revenue generating, and how much is not. So I made up a quick table that might tell us what they can sell an average slot for, based on different ad-to-content ratios and the assumption that they sell 15-second slots. Email subscribers, if the table below doesn't look right to you, click the link at the top of this message to see it on the web.
% ads | # of 15-second slots available in each loop | # of 15-second slots sold based on 31% booking rate | Revenue per slot sold (per screen, per month) |
15% | 7.5 | 2.33 | $27.21 |
30% | 15 | 4.65 | $13.63 |
45% | 22.5 | 6.98 | $9.08 |
60% | 30 | 9.3 | $6.82 |
Assuming that 60% of the airtime is dedicated to ads, advertisers would be paying around $6.82 per screen per month for placement on the network. While that sounds like next to nothing, if advertisers have to buy space on 1,000 screens at a time, the revenue per media buy climbs to a much more respectable $6,820. Regardless, this pricing is much lower than other networks we've seen, which indicates that perhaps advertising on buses and other mass transit systems isn't as valuable as advertising at the point of purchase. Or it might reflect the possibility that mass transit riders are less affluent or have less expendable income than the viewers of some of China's other major digital out-of-home networks that focus on office buildings and airports, where more wealthy viewers might watch. However, one thing is certain: while we've seen the finances of many companies that sell each ad for $150/month per screen, VisionChina proves that there's more than one model that makes money in this industry. And here's the most encouraging part for other network owners who are seeking fast growth: VisionChina is growing rapidly and profitably despite selling less than one-third of their ad slots, which suggests a lot of room for achieving even higher margins in the future.
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