CMM Intelligence is the leading independent consultancy and business-to-business information resource for the Chinese Media Industry.

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Prepared for China Forum Munich

Advertising in China:

A Snapshot

September 2008

Prepared by: Prepared for: China Forum Munich

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About CMM Intelligence

CMM Intelligence is the leading independent consultancy and

business-to-business information resource for the Chinese Media

Industry.

CMM Intelligence has been providing key clients with strategic

market entry intelligence and project implementation services for

broadcast services since 1990. CMM-I is also exclusive Reed

Midem agent China for the MIPCOM and MIPTV Television

markets as well as German Film China Representative and

WirtschaftsWoche China Advertising Agent.

Publications on the Chinese media market include:

- the weekly China Media Monitor

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CMM Intelligence Contacts

Anke Redl

Managing Director,

anke@cmmintelligence.com

Kristian Kender

Research Director,

kristian@cmmintelligence.com

CMM Intelligence Ltd

Tel: +86 10 84186468

B621 Gehua Tower, No 1

Qinglong Hutong, Dongcheng District,

Beijing, 100007 China

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TV Households:

396 million

National TV Penetration:

98.81%

Cable TV Subscribers:

136 million

TV Channels:

1,288

Average Satellite Channels

Received (Nationwide):

20 Average Channels Received (Urban):

60 Average Channels Received (Rural):

36 National TV Station:

CCTV

China Media Landscape: TV Snapshot

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Number of Magazines:

9468

Number of Newspapers:

1938

Number of Publishing Houses:

578

Source: GAPP

China Media Landscape: Print Snapshot

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Internet Subscribers:

256 million

Broadband Penetration:

85%

Main Chinese Portals:

Sina.com

Sohu.com

Netease.com

Main Chinese UGC Sites:

Tudou.com

Youku.com

56.com

Source: CNNIC

China Media Landscape: New Media Snapshot

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Total ad market grew 17% to EUR20.4 billion in H1 2008. Television accounted for more than 80% of total adspend. Online is the fastest growing advertising platform.

Outdoor and radio adspend dropped 23% and 1% YoY. Mobile advertising is still in early stages but growing fast. Adspend across different media platforms in H1:

• Television: EUR13.52 billion

• Newspaper: EUR2.4 billion

• Magazine: EUR0.34 billion

• Online EUR0.457 billion

Source: AC Nielsen and CSM Media Research

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Advertising costs in China are on the rise, particularly for national platforms and

platforms in first tier cities.

CCTV made RMB8 billion when it auctioned off the 2008 prime time ad slots on

November 18, 2007. The total value of the bids grew 18% YoY.

Big difference in costs on CCTV vs major provincial stations versus minor

provincial stations.

Advertising Costs

EUR750 EUR560 EUR350 8-9pm Ningxia Satellite TV EUR3,780 EUR2,650 EUR1,590 8-9pm Hunan Satellite TV EUR12,000 EUR9,600 EUR6,400 8-9pm CCTV-1 15 Second Ad 10 Second Ad 5 Second Ad Time Slot Station

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9 General Challenges for Advertisers

Advertisers face a number of general challenges in China, such as:

Media fragmentation: Huge number of media to navigate

Not one consumer market of 1.4 billion people:

Rural – Urban divide;

Young – old / female - male

South – North / East – West

TV Mass Media No 1 – and increasingly expensive with little program diversification and high CPM as well as YOY 20% price increase

Lack of professionalism with regards to media buying and employment of media agencies

Lack of good analytics & information

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Specific Challenges for Advertisers

Advertisers face a number of specific challenges in China, such as:

Distribution channels for consumer products often fall behind advertising reach

Consumer and media “nationalism” and political fallouts

Political fallouts can seriously harm public sentiment for foreign products

Foreign brands often get caught flat-footed when local

distributors/partners of their products respond badly to consumer complaints

Lack of brand loyalty due to relative immaturity of the market

“Hongbao” culture and check-book journalism

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Beijing 2008 Olympic Games Worldwide Partners

2008 Beijing Olympic Sponsors and Partners

Beijing 2008 Olympic Games Partners

Beijing 2008 Olympic Games Sponsors

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IOC called Beijijng 2008 “the biggest broadcast event in Olympic history.” More than 5,000 hours of Olympic coverage made available to rights

holding broadcasters in more than 200 countries and territories (IOC).

Around 4.4 billion people watched first 10 days worldwide (Nielsen.

More than 86% of Chinese households watched the Games on TV every

day (AGB Nielsen).

Most Chinese used TV as their primary platform for viewing the Games,

supplementing their viewing with coverage on the Internet, mass mobile TV and mobile phone TV.

More than 1 million Chinese watched more than 300,000 hours of Olympic

programs on mobile TV by August 20 (CSM Media Research).

More than 80 million people watched Olympic webcasts every day (CSM).

Source: AC Nielsen and CSM Media Research

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Olympic partners and sponsors increased their adspend by 12%

YoY to EUR1.18 billion by the end of H1 2008.

Olympic partners and sponsors accounted for 5% of the total

adspend in China by the end of H1 2008.

The amount the Olympic sponsors and partners spent on

advertising was proportional to their level of sponsorship:

•

Worldwide Olympic Partners

44% of total

•

The Beijing 2008 Partners

30% of total

Total adspend from Olympic partners and sponsors is expected to

increase to EUR1.8 billion by the end of 2008.

The advertising industry also received a major boost from

companies that launched ambush campaigns.

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Big Spenders in H1, 2008

China Mobile: EUR206 million

Local Dairy Brand Yili: EUR126 million

(KFC) EUR134 million)

McDonald’s: EUR84.4 million

Coca-Cola: EUR81.2 million

(Pepsi) EUR80.0 million)

Johnson & Johnson: EUR78.7 million

(Nike) EUR67.7 million)

Haier EUR60.5 million

Adidas EUR58.9 million

The companies in (parenthesis) are not Olympic sponsors or partners.

Source: AC Nielsen

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Ads With the Highest TV Ratings During Olympics

Lenovo China Mobile Haier Tsingdao Coca-Cola Source: AC Nielsen

Olympic sponsors with the Highest Consumer Recognition

Coca-cola Yili Dairy Lenovo

China Mobile Adidas

Source: CSM Media Research

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The most successful Olympic sponsors:

Started early. Ie, Coca Cola launched a campaign on more than 90%

of the billboards in Beijing in August 2007.

Used above the line and below the line marketing campaigns. Ie,

Coca-cola, Lenovo and Samsung sponsored the torch relay.

Placed increasing ads on websites with digital broadcasting rights to

the Olympics.

Lenovo sponsored 30000 computers plus for computer centers

Most Olympic sponsors with high consumer recognition experienced

revenue gains in H1.

Yili’s business grew 21% QoQ in Q1 2008.

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Case Study - Adidas vs Li Ning

Li Ning spent much less on advertising than Adidas or Nike in June 2008:

Li Ning EUR2.3 million

Adidas EUR15.9 million

Nike EUR22.3 million

Li Ning scored ambush marketing coup at opening ceremony: CCTV reporters wore Li Ning-branded shirts

CCTV broadcast contained no ad breaks and sponsor logos Li Ning sponsored the uniforms of the Spanish Olympic Team Li Ning founder and former gymnast Li Ning lit the Olympic flame The results?

Investors poured EUR13.07 million in Li Ning on HK Stock Exchange. More 40% Chinese think Li Ning is the Olympic sponsor.

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Most major media advertising agencies forecast China’s ad market will sustain

double-digit growth in 2008 and 2009. ie, GroupM estimates:

Why the optimism?

Consumption is not showing any signs of slowing in first and second tier

cities.

Regulatory restrictions imposed in lead-up to Olympics are expected to

ease off.

Major multinationals such as Proctor and Gamble will continue to launch

major campaigns in China.

Non-Olympic sponsors expected to launch major campaigns.

Olympic sponsors expected to keep spending at high levels to maintain

momentum from Beijing 2008 exposure.

Local companies becoming international competitors – companies such as

Lenovo expected to promote their brand overseas after competing successfully with major multinationals during Olympics.

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