Q: How did CCME rank in the recent China Outdoor Advertisement Industry survey?
We were ranked as one of the "Top 10 Special Channel Media suppliers" on the survey conducted by China Advertising Association (Government Affiliate) published in January 2011.
Q: How effective is CCME's advertising channel?
In 2008, we engaged CTR Media Intelligence, an independent 3rd party, (http://www.ctrchina.cn/ctrwebsite/en/index.php), to study CCME's effectiveness as well as our market share. The study can be found at:
CTR was again engaged by CCME in 2010 to provide an updated overview of the inter-city and airport express buses market and the media effectiveness of our platform. We expect to receive the final report in the first half of 2011.
Q: How much interest does CCME earn from its cash balances?
As of September 30, 2010, CCME had net cash and cash equivalents of $169.9 million. CCME's cash is primarily in interest-bearing savings accounts in several reputable banks in China, earning 0.36% APR. A treasury management plan, such as allocating part of our cash in time deposit, with commercial banks have been arranged to maximize the return of cash.
Q: What is the dividend policy for CCME?
A semi-annual cash dividend of 5% to 10% of CCME's net profit may be declared upon receipt of the related financial statements by CCME's Board. The Board will determine the exact payable amount at the corresponding board meetings in light of CCME's cash flows, expected liquidity needs and future corporate strategies.
Q: What is CCME's tax rate?
We are paying 5% in business tax for our advertising revenue, 5% in business tax for the income transferred from the operating company to the WOFE, and 25% in enterprise income tax.
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:
- 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.)
- 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.
- 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.
Q: Why do the two satellite TV stations provide free content to CCME?
The satellite TV market in China is very competitive. CCME has over 27,000 inter-city and airport buses in its network, which service more than 1 billion passengers a year. Working with CCME is very beneficial for these satellite TV stations to promote their content through CCME's platform, a win-win situation for both CCME and TV stations. Of note, our small competitors, because of their relatively small size and number of passengers traveling through their network, are generally unable to obtain free content.
Q: Why have advertisers selected CCME to promote their products?
The CCME platform provides advertisers with:
- High media reach and ad awareness: Media reach of inter-city bus TV is 1.28 times higher than of traditional TV and 2.18 times higher as compared to intra-city bus TV. According to a survey conducted by CTR Media Intelligence, media reach on our platform is 90%, i.e., 90% of surveyed passengers claimed that they watch advertisements when riding on the buses.
- Low Cost Per Minute (CPM). CCME's CPM of a 15 second ad time slot on inter-city buses was $0.50 (approximately RMB 3.5) in first half of 2010, which is approximately 3% of CPM of local TV station advertising therefore it is very cost effective for the advertisers.
Q: What are the differences between inter-city buses and intra-city buses?
The differences are quite significant. The journey for inter-city buses is usually longer (2 to 5 hours) while intra-city buses will travel within the downtown area, making the journey time short. Also, the environment for inter-city buses is more quiet and comfortable and all passengers have a clear view of the monitors as everyone is seated, as compared to noisy intra-city where most of the passengers are standing blocking the view to TV monitors.
Q: What are the bus routes for airport buses?
Airport buses connect airports with hotels, tourist attractions, transportation terminals, cultural centers and suburban cities.
Q: Historically, why has CCME sold more minutes through advertising agencies and less minutes through its sales force?
Advertising agencies are crucial to our business.
- Advertising agencies lower our risk of having unsold minutes because they already have the customer resources and bundle multiple advertising mediums to their customers,
- Advertising agencies can help us in a particular region where our sales are not strong or when we enter a new region. When entering a new region our strategy has always been to sell minutes through the advertising agencies first, and then slowly obtain direct customers.
Q: What is the broadcasting and advertising model in both CCME's inter-city buses and airport express buses?
Our broadcasting and advertising model is 30 minutes of content, followed by 10 minutes of advertisements (called Time Slot A), continuing with 30 minutes of content, followed by 10 minutes of advertisements (called Time Slot B). The Time Slot A and B will be repeated during the journey. The content will be selected randomly by our computer system installed in buses and the advertisements will be repeated and will run in a loop every day.
Q: How does CCME charge its customers for advertising in its inter-city buses and airport express bus network?
Our rates are per province or municipality, per time intervals (e.g. 15 seconds) and per month. The rate is determined based on various factors such as the demographics of each province, passenger flows and number of buses that we have in each province or municipality and the economy of that location.
Please refer to http://www.ccme.tv/eng/pns/rate.php for our rate card charges to advertisers.
Q: What equipment does CCME install in buses?
In general we install two to five screens on each bus, and a hard disc player which stores the content and the advertisements. All of this equipment belongs to CCME.
Q: Why there are no large investment firms covering CCME in research?
CCME went public through a reverse merger with a Special Purpose Acquisition Company, or SPAC, which is different from a listing through a traditional IPO where several large investment banks may be involved and generally follow their IPO clients in research. We went public in October 2009 and no analysts were covering our stock at the time. Two firms (Global Hunter and Northland Securities) have since initiated coverage with a "buy" rating. Several other analysts are currently performing their due diligence.
Q: Please tell us more about CCME
- Our financial statements are audited by one of the Big Four accounting firms.
- Starr International invested $30 million in CCME in early 2010.
- We have continuously communicated our business model to investors. Our senior management presented at many international investor conferences in the U.S. and China. We have met with investors in NYC, Boston, Chicago, San Francisco and Los Angeles, Hong Kong, Beijing, Shanghai, etc. Several institutional investors and sell-side analysts have visited CCME's headquarters, and we held an Investor Day in Fujian in August 2010 - 22 investors from the U.S. and China attended the event.
- We held our first Annual Meeting of Stockholders in Beijing in January 2011 to which all stockholders were invited and 90% of our outstanding shares were represented at the meeting in person or by proxy.
This FAQ may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will" "believes", "expects" or similar expressions. These forward-looking statements may also include statements about our proposed discussions related to our business or growth strategy, which is subject to change. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this FAQ.