China Insights

Alibaba buys into Focus Media to find New Retail synergy

Martin Guo

Editor-in-Chief, Kantar China Insights

Retail 23.07.2018 / 15:26

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Alibaba buys into China’s leading out-of-home marketing network which covers 150 cities and creates 500 million daily offline impressions.

Alibaba Group announced on July 19 that it will pay US$1.43 billion for a 6.62% share of Shanghai-based Focus Media. It will also acquire another 5% interest in it within the next 12 months.

Alibaba and its affiliate will also buy shares in an entity controlled by Focus Media’s founder and Chairman Jiang Nanchun. The total investment, not including the expected additional 5% stake, will be US$2.23 billion, giving Alibaba a 10.32% stake in Focus Media and making it the second largest shareholder next only to the founder Jiang.

Focus Media was established in Shanghai in 2003, which concentrated on building a marketing network by installing poster frames, and afterwards digital screens, in office buildings, residential buildings and public transportation stations as well as selling pre-roll ads in cinema screens across China. According to its Chinese website, the company’s lift marketing network now has more than 1.5 million lift display terminals, covering 150 Chinese cities and creating 500 million daily offline impressions among mainstream urban consumers.

The news of the deal has brought China’s out-of-home marketing sector into the limelight. GroupM, Kantar’s sister company underneath WPP, in April published its Spring 2018 edition of This Year, Next Year: China Media Industry Forecast report. It forecasts that total ad spending in the Chinese market will reach 585.8 billion yuan in 2018, with growth rate rebounding to 5.2%. Internet advertising spending is forecast to grow at a slightly slower rate of 13.5% in 2018. The out-of-home advertising market remains buoyant thanks to its advantages, such as viewability, reach, consumer proximity and low interference, and ad spending growth for this sector is forecast to remain high at 9.2%.

According to CTR, the daily reach of OOH has remained around 84% since 2013, the highest among all media formats.

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CTR’s annual marketer planning report has also found that in 2018, OOH accounted for the third largest marketing budget share (20%) among all surveyed marketers, next only to Internet (37%) and TV (22%).

Internet and e-commerce companies are biggest spenders for OOH channels. According to 2017 data from CTR Media Intelligence, among the top 10 OOH ad buyers, half of them are from Internet/e-commerce industry. They are (sorted by spending) second-hand car online trading platform Uxin (优信), (京东), Tmall (天猫), another second-hand online trading platform Guazi (瓜子二手车) and social network Momo (陌陌).

More importantly, small and medium enterprises whose annual marketing budget is below 50 million yuan – a category that most advertisers belong to – favoured OOH as a marketing channel. In 2017, these advertisers had set apart more than 24% of their annual marketing budget for OOH.

Advertiser size 2017 rate card ad spending (yuan) Number of advertisers % of ad spending on traditional OOH % of ad spending on digital OOH
Mega advertisers Spending≥ 10B 6 0.35% 4.56%
Large advertisers 5B≤Spending<10B 17 1.64% 20.73%
Middle advertisers 100M≤Spending<5B 689 3.05% 20.26%
Small advertisers 50M≤Spending<100M 495 7.29% 17.02%
Mini advertisers 10M≤Spending<50M 2607 9.12% 15.59%
Super mini advertisers Spending<10M 57356 14.57% 11.82%

Alibaba Group’s slogan is to “Make it easy to do business anywhere” (让天下没有难做的生意). In its ecosystem, there are not only the world’s largest brands, but also many long-tail small or tiny size brands. By connecting Focus Media’s OOH advertising network into Alibaba’s client pool, the partners can find more opportunities to cross-sell offline advertising inventories.

If we look at the bigger picture, Alibaba Group has been tirelessly promoting its “New Retail” concept. According to Kantar’s research, the earliest public official mentioning of “New Retail” dates back to Jack Ma’s speech during the 2016 Yunqi Conference (Alibaba’s annual developer conference held at Yunqi County, Zhejiang Province) as part of his “Five New’s”: “New Retail, New Manufacturing, New Technology, New Finance, and New Resources”.

By New Retail, Jack Ma said: "(it means) offline companies have to move online, online companies have to move offline. Online, offline, and logistics will need to connect seamlessly."

Through this deal, Alibaba is also expecting Focus Media to find synergies with Alimama, Alibaba’s digital marketing platform, because the two marketing networks will be able to offer brands holistic marketing solutions by connecting the online and offline worlds into one.

Source: CTR, Kantar, GroupM

Editor's notes

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