China: Focus Media Holding Ltd.

Fast profits from slow elevators

Sometimes, boredom is the mother of invention. Back in 2002, Jason Jiang was cooling his heels, waiting for an elevator in Shanghai. The ad exec had been looking for new advertising opportunities in China when inspiration suddenly hit him square in the eye. He was standing in front of a poster of sultry actress Shu Qi plastered on the elevator door. He quickly realized that if he could replace such simple posters with a video screen in elevator lobbies, he could grab lots of bored eyeballs -- and make good money giving them something to focus on. "Elevators in China are slow," says Jiang, now 32. "People spend an average of five minutes a day waiting for them."

So Focus Media Holding Ltd. (FMCN ) was born. The Shanghai native quit his job with local ad agency Everease Communications and staked his savings on the idea. By January, 2003, he had secured six-month trial deals with 50 buildings in Shanghai and had persuaded Hennessy Cognac, Fujifilm, TAG Heuer watches, China Netcom, and others to advertise on his 17-in. screens.

The idea quickly took off, but like many entrepreneurs, Jiang lacked the cash to expand as fast as he wanted to. Unlike most entrepreneurs, though, Jiang had the good fortune of working across the hall from a venture capitalist. Chauncey Shey, the chief executive of Softbank China Venture Capital, says he was impressed by Jiang's stamina and sales savvy. "He was working until 2 a.m. every night," says Shey. "Jason knows how to sell, he's a smooth communicator, and looks friendly and honest -- he has a fundable face."

HEAPS OF CASH

In may, 2003, Shey agreed to underwrite that face to the tune of $500,000 in exchange for a 5% stake in Focus. The money was crucial to Focus' growth, of course, but Jiang also liked the help Softbank provided in beefing up his company's back-office operations, upgrading its financial controls, and improving governance. The tie-up with Softbank helped generate interest from other VCs, and last year Jiang raised an additional $42.5 million from investors including Draper Fisher Jurvetson, 3i Group, and Goldman Sachs Capital Partners (GS ). "All the VCs could give money, but I had to see who could really help the company," says Jiang, now Focus' CEO.

With heaps of cash in hand, Jiang has been expanding rapidly. He first targeted buildings with affluent workers in Beijing, Shenzhen, and Guangzhou, then went after smaller cities. Focus also struck deals to install screens in supermarkets and airport shuttle buses. Today, the company operates more than 35,000 screens in 52 cities.

All those bored people watching Focus' screens have added up to big profits. Earnings in the first half of this year soared 159%, to $7 million, on sales of $24 million, up 190% from a year earlier. For the year, Focus could end up making $23 million on sales of $63 million. Next year, it could make profits of $46 million on $132 million in revenues, Goldman Sachs (GS ) estimates. Those results have generated a lot of interest among investors. In July, Focus raised $172 million in a listing on NASDAQ. Since then, its shares have jumped by more than 50%.

Focus' success has spurred plenty of interest among competitors. Crosstown rival Target Media Holdings Ltd. has installed screens in high-rise buildings, stores, and even on the station platforms for Shanghai's high-speed maglev train. Backed by $35 million from Carlyle Group, Target has its own plans to list on NASDAQ soon. Another competitor, CGEN, recently beat Focus in a bid to put screens in Carrefour hypermarkets.

It may also be tough for Focus to continue its blistering growth. One challenge is that advertising revenue per screen in smaller cities is a fraction of what the company can charge in big ones. In Shanghai, advertisers pay $34,000 per week to show a 30-second commercial 60 times a day. In Taiyuan, in the interior province of Shanxi, that costs just $3,400. But the rent Focus pays to hang its screens is smaller, too, and in some places even free because building owners think the service adds cachet.

Jiang is pressing ahead -- and is expanding beyond video ads. On Oct. 17, Focus announced it was paying $106 million in cash and stock for Shanghai Framedia Advertising Development Ltd., which installs framed print ads in residential elevators -- just like the one that inspired Jiang to found Focus in the first place. Jiang, it seems, is betting that China will suffer from slow elevators for quite some time.

By Frederik Balfour in Shanghai

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