Are you reaching your 1.3 billion customers? – the WTO-column

In the quest for the favor of 1.3 billion consumers in China, billions of dollars are being spent each year, in 2005 240 billion Renminbi, and the figure is growing although growth has been decreasing over the past few years. Traditional media and especially the TV-stations take up the lion part of that advertisement revenue. Is that money well spent? The doubts have been growing over the years, but that had not lead to a major shift in spending.

Chinese spend on average a bit less than half of the time they have available for media in front of a TV. It is not exactly clear what they exactly do there. One argument from the advertisers’ side is that Chinese TV programs are mostly so boring; the effect of commercials is in China much higher than elsewhere. It was even an argument against a Chinese TIVO-like service that allows you to watch TV-programs without commercials: Chinese viewers were expected to like the commercials more than the TV-programs.

I do not buy that argument anymore, especially in the larger cities; the alternatives to stay away from televised boredom are so huge that you would rather expect viewers would switch off. I do expect they increasingly do so in the larger cities while the country side might keep the averages still up.

Twenty percent of the so-called media time is the Chinese on average spending on the internet. Since only ten percent of the population is online, those figures will vary enormously. Compared to that the ad revenue flowing to this medium, 0.8 percent, is tiny. Online marketers argue that there should be at least a connection between the time consumers spend on a medium and the revenue stream. In China the gap is gigantic and the advertisement bucks are not spent where the consumers are. In the next five to ten years the number of online users is expected to double to about 250 million, putting more pressure on the old media.

On top of that: most of that 0.8 percent is going to the big three ones, Netease, Sohu and Sina, leaving out the largest part of the internet as a way to get to your consumers.

Mostly that is seen as a problem for the internet companies. Of course, when you are online video-sharing company number 151, you do need a very good story to secure capital from a VC. But this is no longer a problem for the internet companies only.

One of the reasons to ignore the internet users was the supposed relative low income of those internet users. First, I’m not sure that all the TV-viewers are that wealthy. And of course, if there would be a channel to go directly to all the 300,000 millionaires in China that would be a sure winner. But those internet users are not only increasingly earning more money. They belong to the trendsetting elite in China. The internet has become the mainstream. It is the place where stars and starlets are being made, not the old media anymore. That is also the place where the ad revenue increasingly should go to.

So, why is the revenue stream not shifting, I asked an expert in online marketing. “It’s the mafia,” he said. That might be part of the problem and for sure it might be hard to break up the existing routines in any business, but is that not what marketing departments of the larger companies should do? Should they not spend their money in the best possible way?

They might also have a hard time to find a decent way to reach those consumers at the internet? But both internet companies and marketers seem to have here a common interest to find solution for a problem they share: how to get advertisement dollar where they are most effective.

Print media have already lost the race with the internet; TV is certainly heading for the same direction.

Fons Tuinstra