CCME Visit:
I met with the company on June 7th in Fuzhou. They were nice enough to send someone to pick me up at my Hotel at around 9:30am. The HQ is located in a skyscraper with the actual offices on the 22nd floor. I was led to the CEO's office which has a very nice tea-ceremony table (His office is fantastic, loved the decorations (laugh)). Unfortunately the CEO and CFO were not in Fuzhou that day, however I got to ask questions for 1 hr+ of the following people:
Ivan Siu (Who translated) -- Head of Internal Audit (Ie: GAAP accounting, etc etc), used to work for PriceWaterhouse and lived in California for 11 years.
Fanny Zheng (Financial Controller, she made the tea...Gender roles I guess). She has been with the company since they had 30 buses in their network.
Dragon Du -- Chief Marketing Office, Director and Vice President (In charge of direct client sales)
James Yu -- Chief Operating Officer, Director (In charge of daily operations, he began at CCME in 2007. He had an ad company before 2007 which he sold for FMCN.).
After the Q&A session, they drove me over to a bus hub (large) nearby where I got to go into a CCME affiliated bus and look at the TV screens, see how they update the content (via USB), etc. The system plugs into the bus almost like a stereo system, connecting to the TV's and built-in Bus Sound system. It takes roughly 20 minutes to do a full update for the content per bus.
Next they invited me to have lunch with them at a local Seafood restaurant. Delicious food if you like clams (So many varieties! I assume this type of seafood is popular in Fuzhou). I especially enjoyed the Rice Wine (Pretty darn strong) which was served. I think they went a bit overboard on the lunch because they had an Investor visiting (So far they have only had a few analysts visit their HQ's in Fuzhou). Needless to say, I did not mind the VIP treatment.
Once lunch finished, I bid them farewell. They were gracious enough to have someone drive me to Drum Mountain (Touristic spot near Fuzhou) which they recommended. Nice BMW on a hot day, no complaints. As you can see, they were extremely hospitable.
Regarding the actual Q&A, I did not record the meeting aside from a few short notes. These were my key takeaways:
1) COO is *very* confident that the 2012 agreement with the Ministry of Transport will be renewed. The response had a bit of a surprise that I even questioned that. Strong response.
2) Their plan to get revenue from the bus passengers will be via a catalog. They have received strong interest from their ad-clients on this. They will get money by both charging their clients for product-space on the catalog and per product-sale to bus-customers. They did not give a concrete date for when this program will contribute to revenues, I plan to ask Jacky this at the Q2 conference call (Or I might just send him an email).
3) They have a trial program (beta) in place (In multiple cities) for ad placements (LCD screens) on bus stands / etc. It is going well but is not contributing any revenues right now -- They are doing media surveys on the impact of ads here, etc... Content is the same format as on the bus. I would not be surprised to start seeing revenue from this segment before too long.
4) COO says they are strongly considering moving into the new highspeed trains (China is doing a huge buildup here). It looks like a fairly open market (at the moment) and has very similar viewership characteristics as their inter-city buses (Captive audience, etc etc). Keep an eye out for this segment going forward -- I do not expect this to be a short-term thing that they move on in next 3 months.
5) COO confirmed that direct-sale margins are roughly 10% better than through the bundled ad-agencies. Indicated that he did not expect ad-inventory utilization percentages to drop significantly as they increase direct-sales volume going forward.
6) COO confirmed that one reason for the CPM differences between CCME and VISN has to do with consumption-power-difference of tier-1 city dwellers versus tier2/3 (CCME has much more exposure to the faster growing Tier2/3). He expects this CPM gap to close over time and believes that the company has good pricing-power at this time. As Jacky said on the CC, the company is focusing on maintaining high ad-inventory utilization and increasing their client-list as they grow the bus network and start new initiatives.
7) When I asked about the 30k bus-network target for the end of 2010, questioning if they would hit this target given their bus-growth so far in 2010... The COO replied that we could expect much faster bus-network growth in the second half compared to the first half. He did not say we would hit 30k buses by the end of 2010, but explained how the bus-growth tends to always be significantly weaker in the first half of the year.
8) We had a discussion with regards to the current 20min-content 10-min-ad format of their displays. I asked if clients/surveys showed that the first 1-3 minutes of that 10minute block were more effective. They confirmed that this was so (all things being equal in ad-quality) but the overriding factor was how good the ad was for the customer. The COO indicated that they might shorten this 20/10 format to a 16min/8min split but that he did not know how well received any further 'splits' would be received by the bus-riders. Some kind of difference in cultural expectations compared to US TV viewers was my take-away. I believe this is an area where they can obtain further efficiencies, i'm sure its something they will consider.
9) The COO seemed to like the idea of doing the network-content-update upgrade for the buses (Something Jacky has seemed to indicate was a possibility but was shelved for awhile as they figured out the cost/benefit analysis properly). I'm not sure how likely this upgrade is to happen, it could simply be that the COO (since he has to deal with daily operations including content updates) wants to make his own life easier by improving that system ;). With regards to this, I think I will have to ask further questions of the CFO-Jacky directly.
10) This one is completely subjective but extremely important to me. I got a very good impression of the people working there (Those I met anyhow, I just wish the CEO/CFO had been there...) Thankfully I have had a friend meet the CEO before in Beijing before and can use his impressions of him -- My friend bought CCME stock after meeting with the CEO, heh.
I guess thats enough for a write-up. I just wish I had recorded the Q&A as there was more 'background filling' that I have not mentioned here. Regardless, this should be a good account of the highlights of the Q&A.
-Fernando
p.s. I'll get some pictures up at some point, for some reason my PC isn't recognizing my camera when I plug it into the USB (Doesn't detect any device being connected at all). Might need to go out and buy a memory-card reader (Grrr).
