BEIJING - Few expected Focus Media to become a "star" on the country's central television CCTV.

In the days that followed the broadcast of CCTV's 2008 March 15th World Consumer Right Day program, Focus Wireless' position as an SMS (Short Messaging Service) spam maker put it and its parent company Focus Media at hot topic across CCTV's largest network. All CCTV reports on the wireless division focused on one topic: SMS spam.

CCTV made huge efforts to expose the Focus Wireless "SMS Scandal", as the public knew it. But why did Focus Wireless gain so much attention from CCTV?

Focus Wireless is a mobile advertising firm, incorporated after Focus Media's acquisition of Shandong Kaiwei in 2006. Shortly thereafter, it gained control of seven mobile advertising companies in China, including Shenzhen Focus Technology, Shenzhen Surge Information and Beijing Shiji Zhongkai. Compared to Focus Media's other businesses, Focus Wireless received little media attention; even less came from Focus Media Chairman Jason Nanchun Jiang. Strange then was that 2007 saw Focus Media posting RMB350 million (US$50 million) in revenue with additional plans for a spin-off listing in July or August 2008.

After pulling the cover off the SMS Scandal, Focus Media Group suspended its wireless division's SMS business and started investigating unlicensed SMS ads. Although Jiang did not reveal how much the SMS business contributed to company revenues, insiders quickly point to a figure hovering around 30%. CCTV's coverage and the consequent sharp reduction in SMS revenue will lead to one significant result: the postponement of Focus Media's IPO.

In all reports, CCTV directly or indirectly equaled SMS Spam to Focus Wireless, which had a negative effect on mobile advertisements. Enthusiasm for attacks against SMS Spam guided many to neglect and, in some cases, kill mobile advertising in its infancy.

Focus Wireless is not the only company suffering from the scandal. iResearch data show that in the US, the mobile advertising market is expected to hit US$1.6 billion in 2008, and surge to US$4.76 billion by 2010. In China, the market registered RMB780 million (US$111 million) in 2007, half from Focus Wireless. The changes currently taking place at the company will have a direct impact on the development of China's mobile marketing sector.

Impacts of the SMS Scandal

Views of the SMS Scandal vary. Some consider it a clash between old and new media, the former headed by CCTV and the latter represented by Focus Media. They believe growing competition on the ad market will lead to clashes and further volatility. Lao Zui, an experienced planner, blogged that "Focus's growing strength in precision marketing is threatening CCTV's potential interests. My most unkind guess is: CCTV has capitalized on 2008's March·15th Program to beat potential competitors, exactly what it did with the Super Girls (a nationwide girl singing competition programmed by a Hunan TV station), to protect itself..."

Interpreting CCTV's "attack" on Focus Media as self-defense has some parallels with the network's position against online games. CCTV commonly presents the dark side of online games, particularly Shanda's MIR and The9's World of Warcraft. Giant's ZT Online, however, is rarely mentioned. That Giant has an advertisement running during CCTV's prime time hints the game maker falls off the radar. Another reason for this is Shi Yuzhu, Chairman of Giant Interactive Group Inc., was a VIP guest at CCTV's Win in China program.

It's not uncommon to see attacks from traditional media against new arrivals. For some-particularly those working in traditional media, the way new media grows is unappealing and superficial. So much so that coverage on new media is often scrapped. With the exception of Sina, Sohu and a few other new media operators, late arrivals like Focus Media and online game companies are targeting China's mainstream ad market. By leveraging technical tools and innovative models, these new companies have put up giant billboards on buildings and embedded ads in mobile content as well as online games. This has cut a chunk out of spots held by traditional media.

In 2007, Focus Media's total revenue exceeded US$500 million, a figure that is expected to range between US$900 million and US$930 million in 2008. As China's second largest media group in terms of revenue, Focus Media is positioned against CCTV, whether it intends to or not.

But if we ignore the competition aspect and approach the scandal from a different perspective, this event may help Focus Media to solve potential problems of their business model. Revenue might decrease over the short term, but it's better than solving them after Focus Wireless goes public. Jiang points out that Focus Media has developed a clear understanding of its direction: "It urges Focus Wireless to develop a clearer picture for its structure." 

Unlicensed SMSs are a major reason why Focus Wireless is recognized as the initiator of SMS Spam. It's not important how many pieces of unlicensed messages Focus Wireless has sent; what really counts is user license-the first barrier for mobile advertising operators-has sounded an alarm for the easy-money-making model. iResearch data shows SMS advertising accounted for 78.1% of all ads on China's wireless market in 2007.

Focus Wireless has suspended its SMS advertising business, and started to build an evaluation system. "You have to pay to gain a user license," Jiang says. He understands his company needs to provide content and services that users need. For instance, if a user wants stock updates, the information can be sent along with a fund advertisement. Or, if a user subscribes to news or weather forecast services, an ad will accompany it, similar to ads found in banks or retail shops. "Ads are irritating, unless they're exquisitely made or pitching exactly what users want," Jiang says.

Database source and user privacy are another challenge Focus Wireless has to address.
 
Trading user information that can be easily handled and verified is a challenge unto itself. Adding wired and wireless networks to the mix presents a whole new series of difficulties for Chinese law. The Mobile Station ISDN number, music downloads and online monitoring of user behavior are among the areas of concern.

Jiang thinks using technology to better understand users' online behavior is both acceptable and important. "It's called excavation of user information and browsing habits," he says, "I believe it is proper to excavate this information through technology. It's also allowed in the international market. It does not violate current laws and regulations." Jiang adds that the database they use is a string of code, which interprets users' habits and interests, but does not include personal information. The program tracks online habits and delivers customized mobile ads. Even on the same site, different viewers see different ads according to their browsing history.

The Future of Mobile Advertising

The SMS Scandal, in the long run, will push Focus Media to explore a business model with higher "technical content" for mobile ad operations, and make it easier to promote other models. These changes will directly impact the future of China's mobile ad market.

Global giants like Nokia, Vodafone and Dentsu Inc. are working to develop the mobile ad market. Japan's well-developed wireless infrastructure gives WAP ads a special prominence, similar to advertising on the Internet. iResearch data show that in 2007, China's WAP ad market was valued at RMB120 million (US$17 million), and it is expected to grow to RMB250 million (US$35.7 million) in 2008.

Focus Media holds a major part of China's WAP ad revenues and has built a strategic partnership with Kong.net and Microsoft's mobile MSN; the company also holds exclusive operation rights for their ad operations. Inside sources say Focus Wireless has launched cooperative projects with 41 of the top 50 WAP sites in China, in hope of monopolizing advertising on major WAP websites. Focus' wireless division now operates 70% ads of China's WAP websites and Jiang believes that during the 2008 Olympic Games, WAP will experience exponential growth. New opportunities await WAP ads.

Focus Wireless' next goal is to enhance WAP effectiveness and precision. This, the company hopes, will put ads on proper content channels. The company's launch of a PPC Click program, for example, will offer a "pay-for-performance" model to mobile advertising operations.

Jiang says embedding ads in mobile newspapers and magazines is now common. A growing number of mobile magazines, like the fashion-oriented title WE, are delivered to mobile users through multimedia messaging service (MMS). Users aren't charged for the information, but ads are part of the content. For instance, the address and telephone numbers of snooker rooms in Guangzhou, Shanghai and Beijing will follow an article on snooker. When a film star's wardrobe is introduced, a link to a specific shop on taobao.com (a large e-commerce website) will accompany it.

Interactivity gives mobile phone magazines a lot of flexibility, and can connect users with gym membership or film tickets though SMS. Independent mobile phone magazines and newspaper are competing against WAP websites in the segmented ad sector. Besides SMS, MMS, personalized ringtone (P-RBT), WAP Push, and WAP website advertising are diversifying the way mobile advertisements are launched.

Technology is also adding new variables to mobile advertising. On March 19th 2008, Focus Media published a financial report on the application of Bluetooth technology in advertising. When entering a building with a Focus LCD screen, mobile phones can receive information related to the featured ads. For advertisers, this represents the beginning of an integrated marketing. But Bluetooth ads cannot be sent to handsets without users' approval. It is thus up to mobile advertisers to convince users to accept.

"In five to ten years, what will replace Focus' LCD screens? Mobile phones are the answer." He hopes to replace his product with his product, not his competitors'.

Jiang is confident in the future of mobile advertising: "I have faith in the potential of mobile advertising. It will develop a line of diversified models, some will be eliminated and some retained. We have to make mistakes before we make further explorations."

The SMS Scandal will speed up the exploration and reform process. This will also lead to the abandonment of inappropriate profit-making models-something to smile about.

This article is from China Business Feature.  You can view more of their coverage at CBFeature.com.