Replies to post #127348 on Value Microcaps Motherboard

[CPTMatt]

Nlights - One might think that the growth of the company would make up for any decrease in margin. In terms of the "best of breed" for this type of business I'd say CCME is it.

[Jman9000]

RE CCME In the long run, competition could come into play. In the short run (next two years) it is much less likely. CCME has exclusivity through Oct 2012 and has additional room to price (current pricing is lower vs. other adverstising media in china) In addition, most of the bus contracts run 5-8 years so impact would be minimized should the PRC end the exclusive arrangement.

[GorillaGorilla]

CCME - bus operators, which are, I believe, state owned enterprises, will choose the adversting company that the state has annointed. This is CCME - so in the near future they will be the only choice.

Will the monopoly continue? It could well do VISN just renewed their contract for the subway.[1]

"On July 14, 2010, the Company announced the renewal and extension of its exclusive contract with Beijing's subway system, which enables the Company to continue to operate its subway mobile digital television and advertising network in Beijing on an exclusive basis for the next five years."

Assuming they loose their monopoly in 4 years time (or however long it is) While margins would degrade significantly they will have increased the advertising charges which are a fraction of what they could be - think figure was 3 - 5% of what the cost is for advertising on television. Difficult to say exactly but they could well cancel each other out.

rich

[1] http://finance.yahoo.com/news/VisionChina-Media-Inc-prnews-1601565494.html?x=0&.v=101

[curlews]

Re: CCME - It seems that some margins are already slated to come down over the next few years. See the July 26 PR about adding 805 buses in new contracts:

"As per the terms of the agreements, CME will pay the bus operators a fixed monthly concession fee over the term of the contract, with annual increases of 10%-30%."
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Those are very steep annual increases. Assuming they can't raise their advertising fees at the same rate, erosion of margins seems certain.

[tenenbaum]

CCME -- I'm pretty sure that this risk is not as grave as you paint it. The company does have a license from the central government to be the sole provider of these services on inter city bus routes until 2012. The company also believes that this license will be easily renewed. That, in itself, works in their favor with respect to contract renegotiations. Jacky even addresses this issue directly on the Q2 cc when he mentions that pricing and terms of new bus operator contracts that they have recently signed are not materially different from their existing older contracts' pricing and terms. I agree that it is most likely that there will be some nominal increase to pricing when the contracts are renewed, but I think that it will be worth it for renewing another 5-8 year lockup and doubt that it will have too onerous an effect on gross margins.