Time For China's Web Advertising Industry To Grow Up?

China SPAC Goes Operational: Alyst Acquisition Corp. (AYA)

There was a release this morning showing that a Special Purpose Acquisition Company (SPAC, or blank check company) called Alyst Acquisition Corp. (AMEX: AYA) has signed an agreement to acquire all of the shares of China Networks Media Ltd., a British Virgin Islands company which owns and is in the process of acquiring television station operating assets in the People's Republic of China.  

Alyst will redomesticate to the British Virgin Islands by merging with China Networks Holdings immediately prior to consummating its transaction with China Networks.  Chardan Capital Markets, LLC is acting as exclusive advisor to the transaction.

China Networks' Advertising Networks Limited has positioned itself as a fast growing television advertising network in China.  China Networks provides local, national and international advertisers with direct access to China's rising audience of consumers.  Through long-term contracts, it also operates as the exclusive advertising arm for stations within its network.

China Networks was established in October 2007 and has completed the consolidation of two television advertising companies to date with additional negotiations in progress with other Chinese stations.

Combined "audited carve-out revenue" for Kunming Taishi Information Cartoon Co., Ltd and Shanxi Yellow River and Advertising Networks Cartoon Technology Co., Ltd for the year ending 2007 was approximately $21.0 million, with net income of approximately $14.7 million.  China Networks' consolidation of each
yields revenue of approximately $21.0 million and net income of approximately $7.4 million.  As a combined entity, China Networks' pro forma two-year CAGR was 15%.

Jon C. Ogg
August 18, 2008

Time For China's Web Advertising Industry To Grow Up?

Ad dollars are pouring into China this year, courtesy of the Beijing Olympics. Yet even though the nation boasts more Web users than any other, only 4% of the country's ad dollars ($1.4 billion) are spent online, compared to 17% in the US.

And while advanced ad-targeting technologies from companies like Tacoda and Blue Lithium are de rigeur in the U.S., and a key component in the strategies of AOL (TWX) and Yahoo (YHOO), it doesn't exist in China.

That may soon change. Kaiser Kuo, editor of Ogilvy Digital Watch, interviewed Grace Huang, an ex-McKinsey consultant who launched PinYou, which is building a behavioral targeting ad network in China. Until now, she says, advertisers are still relatively unsophisticated in China, and aren't yet demanding more precision. So no one's really trying to tackle behavioral targeting yet.

But she thinks behavioral targeting will take hold for two reasons: "(1) we have the demonstrated success from the US, and (2) the Chinese have proven to be quicker to adopt now advertising techniques, as was evidenced with search marketing."

Not surprisingly, the Chinese don't really obsess over their online privacy in the way Americans and their elected representatives do. But Huang says her company will take the issue seriously, and says PinYou is "thinking of various ways for consumers to opt-in and opt-out."

The bigger hurdle in front of behavioral targeting is the same one in front of all Chinese advertising: the lack of reliable third-party measurement. Much online advertising in China is still sold on a "cost-per-time" basis, rather than a CPM, or cost per thousand impressions. Why? Because buyers don't reliably know how many impressions they're getting, or paying for.

As Victor Koo, founder of video-sharing site YouKu points out, comScore and Shanghai-based iResearch don't yet measure Internet cafes, where 30% to 40% of China's 250 million Internet users log on. Getting those kinds of problems solved will do a lot more for China's online ad business than sharper targeting will accomplish.