Paul Conway describes the success of SearchMedia Holdings by quoting Woody Allen’s line that 90 percent of success is showing up.
SearchMedia is an advertising company based in West Los Angeles that sells space on billboards, bus wraps and elevator posters in China, a nation with an upward spiraling economy.
Conway, the former chief executive and now a board member at SearchMedia, said Chinese GDP grows about 8 percent a year, but the outdoor advertising industry has grown about 14 percent every year for the last seven years.
“We participate in the growth of the country,” he said. “The media sector in China shows stronger growth than anywhere else in the world.”
SearchMedia’s billboard business targets China’s second-tier cities with populations of 8 million to 10 million people. The company has more than 1,000 billboards in such cities. It also sells advertising in 5,000 public buses in Beijing, and has a network of about 150,000 printed and digital posters in high-rise elevators.
Both Chinese and international companies use outdoor advertising to promote their brands. SearchMedia handles brands such as Gucci, Louis Vuitton and Apple as well as working with Chinese companies including Lenovo and Great Wall Wine.
Conway said a typical billboard in the country costs advertisers about $100,000 a month, the same as a billboard along an L.A.-area freeway. However, a prime location near an airport can sell for as much as $3 million a month, comparable with the highest rates in the world, such as Times Square in New York.
The outdoor market is so lucrative it has attracted plenty of competition. In addition to SearchMedia, several other Chinese outdoor ad companies, including Focus Media Holding, Vision China Media and China New Media Corp., trade in the United States on exchanges or over the counter. Conway said that between them, these companies control between 35 percent and 40 percent of the outdoor market, with the rest spread among small local players.
SearchMedia’s connection to Los Angeles occurred through a special purpose acquisition company or SPAC, a public company that gathers money from investors for the purpose of purchasing another company. In 2008, the L.A.-based SPAC, called Ideation, was formed by Miami investor Phillip Frost and his nephew Robert Fried, a Hollywood producer. The company collected $80 million of investors’ money and began searching for a high-growth media play.
Ideation hired New York investment firm Oppenheimer & Co. Inc. to find a target. Conway, an investment banker with Oppenheimer at the time, conducted a global search but soon focused on China because of its growth potential. He finally selected SearchMedia, a conglomerate of small outdoor advertising companies that had banded together under central management in 2005. In 2009, Ideation bought SearchMedia in a cash-and-stock deal worth $177 million. Fried became chairman and Conway chief executive of the new company.
Government influence
Although SearchMedia doesn’t have any operations in Los Angeles, the company has a new growth initiative that may bring an office here. The strategy is to help Chinese government agencies advertise in the United States and elsewhere.
In February, the company announced an agreement to work on the Hangzhou Tourism Commission’s 2012 Overseas Outdoor Campaign. The $2 million project will feature outdoor advertising in the United States and six other countries.
Conway said he expects the company to land more such deals, which could lead to opening offices in foreign cities, including Los Angeles.
“More domestic Chinese brands and governments are looking abroad to advertise,” he said. “As a Chinese company with ties to the U.S. media industry, we are in a position to capitalize.”
But experts see the unpredictable interference of the Chinese government as a challenge for SearchMedia and other ad companies.
John Dohrmann, director of customer relationship management at ad agency Team One USA in El Segundo, said the Chinese ad market was turned upside down in January when the government decided that TV commercials couldn’t interrupt drama shows. Suddenly, commercials were bunched together in 18-minute blocks between programs, a turnoff for viewers.
“Advertisers started talking about renegotiating their contracts,” he said.
And last April, authorities decided certain words couldn’t appear on billboards for luxury goods.
Jason Yin, professor of management at Seton Hall University in South Orange, N.J., said the advertising market in China is fragmented among many small players – including government officials.
“Billboards and bus wraps are popular outdoor advertising media with huge growth potential,” Yin said. “However, the investment can be very risky if the foreign (company) does not have thorough understanding the operating environment and in particular the rent-seeking behavior of the Chinese local governments.”
Since the beginning of the year, SearchMedia’s stock has more than doubled, rising from 65 cents on Jan. 3 to close at $1.70 on April 11.
Conway attributes the rise to the company’s repurchase and retirement of 4.5 million shares announced Jan. 26. He believes the market has rewarded the firm for keeping its promise to repurchase shares.
“We did what we said we were going to do,” he said. “And with investors that gets a reaction.”
But Casey Alexander, an analyst at Gilford Securities in New York, offered an alternate explanation for the price jump.
“Since September, the stock has gone from $1.90 to about 50 cents and back up to $1.70,” he said. “That looks like tax-loss selling at the end of last year.”
