Hong Kong outdoor advertising market set to boom

“(Western) firms lack the expertise in China so they look for firms like us,” says Vincent Lam, chairman of Asiaray, a Hong Kong company which has built up a portfolio of outdoor advertising space in China.

“We know how Western people operate and we also know the China market. We are able to bring them success just like the old days when there were compradors,” he says, referring to the practice of British trading houses giving high-level positions to local business fixers in Hong Kong’s early years.

Lam has built Asiaray from being a one-man outfit in 1993, to a company with 100 staff in Hong Kong and China and annual revenues of HK$200m (US$25.7m).

The success caught the eye of leading British advertising firm Posterscope, which set up a joint venture with Asiaray – Posterscope China – employing 80 people, with Lam as the new company’s chief executive.

It is easy to see why Western companies are eager to enter China’s outdoor advertising market. With 1.3 billion consumers it is potentially the world’s biggest market, and also one of the fastest expanding, with a compound annual growth rate (CAGR) in the past 10 years of 20 per cent, faster than the 12 per cent CAGR of gross domestic product.

Outdoor ads take a 15.8 per cent share of total advertising spend in China, higher than most other countries. The traditional medium of television is highly fragmented with residents of the top three cities Beijing, Shanghai and Guangzhou typically getting access to 70 different channels.

Growth in Hong Kong’s outdoor advertising industry is likely to slow to single digits this year after sales soared 47 per cent to HK$2bn (US$257m) last year or 4.8 per cent of the total ad spend, data from ACNielsen shows. The outdoor industry in China is about 10 times as big as Hong Kong’s, Lam estimates.

The attractiveness of using Hong Kong as a gateway to China’s outdoor advertising market has been underlined by global industry giant JCDecaux’s flurry of acquisitions this year. The rapid build up of its mainland presence has been taken with one eye on the 2008 Olympic Games, when advertising outdoor space will be a particularly hot property.

In April, Paris-based JCDecaux paid HK$372m (US$47.9m) to buy a controlling stake in MediaNation Inc, which was founded by a group of Hong Kong business people. Media Nation has the contract for advertising space on the entire Beijing subway system and two lines of the Shanghai subway, and is a leading advertisement player in Chinese bus networks.

In September JCDecaux announced two more acquisitions. The first was a US$103.5m buy out of Media Partners International Holdings (MPI), which has contracts for space on subways in Shanghai, Guangzhou and Nanjing, a light railway in Beijing and Hong Kong’s Airport Express. Founded by Hong Kong’s Chan family (best known as leading property developer Hang Lung Group) MPI began building a franchise in the city in 1990 before expanding into China in 1994.

The second acquisition of US$19.1m was for Hong Kong company Texon International. CEO Jean-Charles Decaux says the acquisition provides the company “with a pre-eminent advertising bus shelter network in Hong Kong, a city which forms a core component for our strategic growth plans in the Chinese market”.

JCDecaux expects its new acquisitions will make China its third biggest country in terms of revenue next year, after France and Britain.

Getting experience in Hong Kong before stepping into China made sense, said Alex Brazendale, assistant manager for special projects at POAD, a Hong Kong-based outdoor advertising planning agency.

“The Hong Kong market is so aggressive and competitive. If you can survive in Hong Kong you should be able to survive in China,” he says.

The door to foreign outdoor advertising firms in China may soon open wider, as expected reforms in the next few years allow greater concentration of ownership.

Of the various segments in the politically sensitive media sector, outdoor is “the least risky to liberalise,” says Andras Vigh, Hong Kong chief executive of Zenithoptimedia, a global media planning and buying company.

“There’s a very fragmented market in terms of ownership. I foresee some big developments in terms of consolidation.”

Outdoor advertising companies typically have to pay upfront to build advertising hoardings once they have secured a contract for the site. That might provide an opportunity for foreign companies and their Hong Kong partners, said Mr Vigh.

“Development in China is very capital intensive. To do sites on that scale you really need to invest a lot of money. If you do bus shelters in 31 provinces, it would cost a lot. There is a chance that the companies there won’t have enough money.”

In any event, Hong Kong is likely to remain an important staging post for foreign outdoor companies expanding into China, said Melanie Ho, managing director of Mindshare Hong Kong, an advertising planning company.

“Hong Kong people are much closer in terms of Chinese culture and have more experience in terms of servicing international clients,” she says.

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