China MediaExpress Holdings, Inc. (fka CCME)

[bigpike]

Is the ministry of Transport complicit in this 'fraud' also?

Q: How does CCME achieve relatively high operating margins when compared to other outdoor media companies?
Our relatively high margins are mainly as a result of:

1. The support from the Ministry of Transport: In November 2007, the Ministry of Transport granted a document (http://www.ccme.tv/eng/about/free_installation.pdf) to all bus operators in China to encourage them to work with CCME for the "Copyright Project." Upon receipt of this document, CCME started to consolidate the market efficiently and formed what has become the largest inter-city bus and airport express bus network in China. As a result, CCME has no comparable competitors (size and experience), and no open bidding process is needed to obtain contracts from the bus operators. Thus, the concession fees that CCME pays to inter-city bus operators are lower compared to concession fees paid by other outdoor media companies (including markets such as intra-city bus, airport, billboards, high speed trains, taxis, etc.)

2. In addition to the low concession fee, we also have low operating expenses. Our content cost is relatively low because we are able to obtain free content from two reputable program providers: Hunan Satellite TV and Southeast Satellite TV. Our depreciation is also low as the cost of equipment installed in buses is not high.

3. As the leader in this niche market, we cover not only 1st tier cities but also 2nd tier and 3rd tier cities. These smaller markets are highly fragmented with hundreds of small to mid-size bus operators. This fragmented market provides us with bargaining power when we sign contracts with bus operators. Of note, the intra-city bus market is not fragmented; competition is high (there are several large size media companies competing to get the business) and the focus is the tier 1 cities

Q: Why did CCME obtain the support of the Ministry of Transport in 2007? What is the contract with the Transport Television and Audio-Video Center ("TTAVC") about? What is the expected impact on CCME after the contract expires in 2012?
In October 2007, the year before the start of the 2008 Olympic Games in China, CCME entered into a five-year cooperation agreement with China's Ministry of Transport, helping the government in the establishment of a nationwide in-vehicle television system that display copyrighted programs on buses traveling on highways in China. In 2007, most of the content broadcast on inter-city buses was unauthorized, or pirated material and China's Central Government wanted to regulate and monitor this media space and launched the "Copyright Project". At the time, CCME had a solid platform, extensive experience in the inter-city buses market (with a network of approximately 10,000 buses), had signed agreements to receive free content from two satellite TV stations providing copyrighted content, and had a very experienced management team. As a result, the Ministry of Transport decided to support CCME's platform, as an ideal partner to implement the "Copyright Project." At the same time, CCME signed a supplementary agreement with TTAVC, the designated agent of the Ministry of Transport, to be the sole strategic alliance partner for this program. Under the five year exclusive agreement, the Ministry of Transport or the TTAVC agreed that they would not enter into a similar agreement with any other media company.

It is CCME's belief that the Ministry of Transport or the TTAVC will not grant another similar agreement to another media company when the current exclusive agreement expires in late 2012. However, CCME believes as the largest company in its field, with such a vast head start over its competitors, the renewal or nonrenewal of that exclusive agreement with TTAVC is not expected to be a material factor in the future growth of CCME.