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More subways mean more business opportunities for DMG

By Ding Qingfen and Du Fangshu (China Daily)
Updated: 2009-08-03 07:58

People wait at a subway station in Shanghai.China's fast expanding subways are providing a gold mine for digital media companies. [CPF]

China's rapidly expanding subway system is proving a lucrative opportunity for the niche business of subway digital media companies.

Among them is Digital Media Group Ltd, or DMG.

In February, DMG won a bid for an exclusive five-year contract to broadcast advertising on television monitors on 13 Shanghai subway lines.

DMG outbid numerous competitors, including its chief rival, Vision China Media Inc.

The value of the contract, the largest ever by volume in the Chinese subway digital media sector, is estimated at $250 million.

"The deal shows our commitment and confidence in the Chinese subway advertising market," said DMG CEO Cao Jiatai.

"Although the traditional outdoor advertising market is shrinking, we are upbeat about our business. Since more people are taking subways, more advertisers are expected to enter this sector," he said.

Related readings:  Shanghai subway to be world's longest by 2010  Subway construction kicks off in Dalian  Beijing approves new subway line plan  Guangzhou to have extensive subway system

The costs are lower, too. An ACNielsen report stated that subway-advertising fees are generally one-fifth that charged for traditional television commercials.

Cao said his company's continuing expansion plans are based on the growing number of subway lines in China.

China now has 44 subway lines in operation and expects that number to more than double to 100 lines within the next five years.

DMG plans to bid on 30 to 60 of those lines, Cao said.

In February, the company obtained a third round of investments worth $30 million from private equity firms.

Previously, DMG raised funds worth $70 million from foreign and domestic investors.

Oaktree Capital Management LLC and the Gobi Fund are DMG's top two shareholders.

Cao said proceeds will fund network expansion and also mergers and acquisitions.

The company is also considering an initial public offering on the United States and Hong Kong stock exchanges, he said, but added that there is no timetable attached to that proposal.

Vision China Media is listed on NASDAQ, the US exchange.

Established in 2002, Cao said DMG did not begin to realize profits until last year.

"The first five years were hard, but the next five years will be a fruitful period," Cao said.