Citi Downgrades Focus Media (FMCN) to Hold, Slashes Price Target

So just a few months ago I noted how, unlike their American peers the publicly traded Chinese digital signage operators seemed to be doing pretty well.  Well, it looks like the economy is catching up with at least one of them -- the biggie, in fact -- Focus Media.  As a recent StreetInsider article noted, "Citi [is downgrading] Focus Media from Buy to Hold. Price target [is] slashed from $53 to $18." Apparently, Citi analysts are less than bullish on the availability of advertising dollars in China during this economic downturn:

"We remain convinced that the Digital OOH business, with over 175k LCD displays & digital frames, and Allyes, proven business model with dominant market share - are valuable franchises, but believe near-term visibility in the current environment has diminished, and that advertiser demand is uncertain. Accordingly, until we get greater comfort on how long the weakness is likely to persist, we cannot recommend buying the stock."

Global forecasts for both network growth and network advertising growth were relatively bullish in the last few reports I've read, so I have to wonder if this news will have any major impact.  Focus is one of the few firms that could pull the entire sector's numbers down since it's so big (relatively speaking).  The good news, at least, is that there's no domino effect to be had, here. In other words, Focus missing sales targets will hurt Focus, but probably have no effect on other networks, even in China.


Tags: digital signage, business, focus media

Some Tips for Building Your Digital Signage Business

We've been hearing so much about folks in the industry having trouble getting financing, compelling customers to go through with planned projects and even getting senior execs to approve supposedly "pre-approved" budgets. While I don't think there's going to be a quick-and-easy solution to any of these things (thanks a lot sub-prime borrowers and greedy lenders) a bunch of us will be meeting up in Chicago in a few weeks trying to figure out how to help people get through the economic mess we're in right now.

The event is the Strategy Institute's "Building Your Digital Signage Business" seminar, and as the title suggests, it's designed to address all sorts of concerns about actually making a business out of all the hype in this silly industry. (Disclaimer: I'm speaking at this event, but it's the very last session of the 2nd day, so there will probably be about 8 people left in the audience at that point -- but I'll be around the rest of the time to chat if anyone's interested!).

Realizing that there are probably a lot of people out there who need a little extra help getting going these days (or staying going, for that matter), conference organizer David Laird has been tweaking each conference session to provide the maximum benefit for:

• Digital Signage Integrators: If you think that digital signage could be a growth area for their businesses, the conference will help you to understand which clients will be most interested and provide strategies for selling and rolling out large deployments;

• Venues Interested in Hosting Digital Signs: We'll shed some light on the different digital signage business models out there, and explain the best way to work with suppliers and vendors;

• Digital Signage Network Owners: There will be sessions exploring ways to increase ad spends and giving you a better idea of what makes a media planner tick;

• Digital Signage Hardware and Software Suppliers: The biggest benefit here is networking - you'll have plenty of opportunities to connect with Integrators and Digital OOH Networks to partner on the next deployment and (potentially) win new clients;

• Mobile Media Companies: With the 'Outernet' upon us and smart phones and PDAs acting as a bridge to digital signage networks, you'll learn about the new business opportunities that these networks enable;

• Investors (of all sorts): Connect with senior executives about buying, selling or partnering in a digital signage business, and learn about past deals and market trends from those of us who won't be trying to take the money right out of your pockets;

• Traditional Billboard/Poster Advertising Owners: With advertising dollars sometimes growing by large multiples in digital billboards, find out how this business model works for you;

You're probably not going to walk out of the conference with a dozen new advertisers for your network or a check for $10 million, but you probably will meet a lot of people who have faced the same problems that you're facing, have found solutions to them, and are now looking for new ways to grow, even in this challenging environment.

As always when I go to these things, I'll post an update and my own impressions of the conference after it's over -- if it sucks I'll let you know.  But having gone to "Building Your Digital Signage Business" several times in past years, it has generally been one of the most practical and useful conferences I've gone to.  If you're struggling with your digital signage business and feel like you could use some direction -- or even just some empathetic camaraderie -- you might want to check this one out.

Not the tips you're looking for? The best list around is at WireSpring's Digital Signage Journal.


Tags: digital signage, business

Reactrix, Petters, and a little catching up...

It's been busy here at HQ, so I'm sorry for the lack of action on this blog. Fortunately though, there seems to be very little real news in our space right now, so I haven't missed much. Wait... That's not a good thing at all. Maybe this whole economic crisis I keep hearing about on the news has some legs to it?

Regardless, there are two things I thought I'd briefly comment on. First, by popular request, is my take on the implosion of Reactrix.


RIP Reactrix

Ah Reactrix, we hardly knew ye. News of the implosion of the firm started a few weeks ago when Adrian over at DailyDOOH mentioned that "the first, pretty large in this instance, US based Digital Signage vendor has bitten the dust" and there was a great deal of speculation about who it could be. Many top names were thrown around (thankfully WireSpring dodged the bullet there :), and eventually the "winner" of the guessing game was Reactrix... At which point everybody guessing in the comments let out a collective "what? I thought you said they were pretty large??"

While Reactrix did burn through an awful lot of cash ($85M), they hardly had a big footprint, and they had practically no brand presence, at least if you ask me. Their technology was very cool and made for a terrific demo, but at the end of the day content production costs were ridiculous and most of the 120+ installations had full-time staffers present, making ongoing operations extremely expensive. (For those of you who haven't seen these systems before, they're large projected images on floors that users can interact with by walking on them and making body gestures).

The tech might be worth something to somebody, somewhere, but since Reactrix started up many more gestural technologies have become available, so it's going to be hard finding a competitive advantage there. Small company (footprint- and impact-wise). Big company (spending-wise). Apparently a very small company (revenue-wise). That's a tough combination to live through in any economic climate, let alone this one.


On the Petters Group

The other item I've been getting a lot of email inquiries about is this deal/mess/whatever with the Petters Group, notable in this industry only because they own a big chunk of BroadSign (full disclosure: BroadSign is a direct competitor of WireSpring, and Dave Haynes is my arch-nemesis in the blogging world -- and since he has a moustache, I think it's obvious which one of us is the evil one). In any event, the founder of Petters Group, Tom Petters, has been accused of running a $3 billion fraud scheme via their venture capital arm. He's has been arrested and will be showing up soon at a federal court near you.

Petters's venture capital fund was a significant source of funding to BroadSign at some point in time. Since all assets of Petters Group have been frozen, I suspect, but cannot confirm, that any funds that weren't already disbursed to any client companies including BroadSign have been cut off. And that's... it.

I seriously doubt that anybody at BroadSign had any knowledge of, or involvement in, the alleged fraud. I don't know anything about BroadSign's financial situation (and I don't want to speculate). And while I wouldn't recommend you go and use their software (you did read the above disclaimer, right?), it has nothing to do with the current Petters situation.


One final note: I do think that some degree of failure and consolidation is inevitable. It has nothing to do with the current financial climate (though that will no doubt accelerate things), but rather is a simple function of our market's size and the number of players in it. However, I certainly understand that these failures and closures mean that value is being destroyed and jobs are being lost. That's no fun in any economy, but it'll probably feel a lot worse for those people whose money or jobs were lost in this one.

Revisiting the make-buy argument for digital signage software now that Coolsign is for sale...

If Adrian's DailyDOOH update is to be believed (and hey, why not?), one of the more established digital signage software packages out there -- Coolsign -- is to be sold:

Just over a month ago Planar engaged an investment banking and asset management firm with instructions to sell its Coolsign division.

Planar remember is primarily a high end screen manufacturer (and very much struggling itself at the moment) but in July 2006 it bought itself into the software arena with the acquisition of Clarity Visual Systems (Coolsign) for the not insignificant sum of USD 46 million in cash and Planar stock.

Coolsign is not surprisingly running at a loss at the moment but has revenues of USD 6.6 million. The folks looking after the fire sale are looking for a price of 3 times revenue - i.e. USD 20 Million or so.

We doubt if there will be many takers even at that price.

Yeah, I'd definitely have to agree with that last part. But the fact that Coolsign is even on the block indicates a larger problem, for Planar and perhaps for the industry at large.

First off, Planar has been hurting for a while. Their stock has taken a pummeling, and now they're trying to raise cash by any means possible. While at one point they might have been able to go back to the market and sell some new shares, the current climate on Wall Street makes that close to impossible, even for a company with good financials.

However, Coolsign, with over $6M in revenue (which is pretty good for digital signage software vendors), is still running at a loss. With smaller firms like Localvision signing off, Focus Enhancements's recent bankruptcy (with more on the way), and bigger players like Broadsign and Enquii either announcing new private capital raises or admitting to having done them in the recent past, we're starting to see several factors come together in a perfect storm of digital signage doom and gloom:

1. Too much competition, not enough innovation: We track over 300 competitors -- firms that claim to sell digital signage software. Seriously, 300. There isn't enough differentiation between them, and I'd be surprised if the vast majority had fewer than 100 sites installed by now. But they suck up capital and add hype and confusion to the market.

2. Tightening credit markets mean less capital to work with: It seems like too many digital signage software companies spend WAY more than they actually make, which is a big problem now. Panicked VCs are tightening down and parent companies have less to spend on their digital signage subsidiaries. Plus, with access to credit now all but out-of-reach, fewer networks can lease equipment for new installations or factor advertisement revenue streams to stay afloat.

3. It costs a boatload to make this stuff and keep it up to date: WireSpring probably has one of the more sane cost structures out there, and we can easily spend over a million bucks a year on R&D and basic QA and support. When you consider the number of competitors I mentioned above, plus all of the guys that are building their own software to "save money" for their internal network (which is how Coolsign started, actually), you can imagine that there are very few software guys out there that are actually turning a profit, and thus very little software that generates a positive return.


So, what has to happen?


Simple. First off, there will be more messy bankruptcies and quiet "going out of business sales." Just like after the dot-com bubble, lots of companies will try to sell their half-finished, never-quite-worked-right software and other "intellectual properties." Hopefully, nobody will buy them, and they will die quiet deaths.

Next, there will be consolidation. Some industry players will band together to form better-capitalized entities with bigger customer bases. Others will choose vertical integration, forming full-service companies that can count on revenue from more than just technology.

Finally, the "builders" will eventually go away, and the "buyers" will at last win the make-buy argument. Just as practically nobody builds their own inventory or accounting systems anymore, more people will realize that making in-house digital signage software is a losing proposition. More people will turn to off-the-shelf solutions and customize them instead.

I know what you're thinking: this sounds self-promotional. After all, my company stands to win if this happens. But point out a flaw in my logic above that would suggest otherwise and I will happily debate it with you.


The bottom line: if Coolsign, with a significant revenue stream and excellent market presence, is going down, rest assured that many more will follow.


Tags: digital signage, software, coolsign, business

Wireless Ronin (RNIN) calls in bad debt, is left with a big pile of hardware

I hate to say I told you so, but ... well, I told you so.

While Wireless Ronin has yet to restate its past years' earnings based on the decision by its biggest customer -- start-up company NewSight Corp -- to throw in the towel and hand over its assets since it hasn't been able to pay, that may still come to pass. Right now, the company has simply called in the note that it has been allowing NewSight to hold. Instead of the $2.4 million that RNIN originally claimed to have gotten from the company, it will instead get a load of quickly depreciating hardware that NewSight was busily installing into Meijer stores for their in-store TV network.

I know, I know, technically they could just write the whole thing off as a bad debt, and perhaps that's what they'll do. But seriously, it's $2.4 million of bad debt, which is an enormous chunk of their stated revenues since they went public. I don't know if their investors will let them off the hook that easily. At the very least, I'd expect a management change.

As for the Mejier network, Ronin has a few options. They could try to sell the hardware and come away with some cash (not that they need it after a few rounds of very successful fundraising on the public markets). They could try and contract out the network management to a new company, essentially replacing NewSight's role while maintaining control over it. Or, I suppose, they could try to run the network themselves, which would be a big repositioning from them (it's hard to sell hardware, software and services when you're competing with all of your clients), but might actually be the best possibility for both short-term revenues and long-term growth that the company has.

Granted, the rumors floating around that Meijer is looking for a new provider can't be helping them much on that side of things.

Tags: digital signage, rnin, business

The dragons roar

A few weeks ago a trio of publicly traded US companies announced their quarterly results, and if you'll recall, they were not stellar. All three lost millions of dollars in spectacular style. At the time, I wondered whether public digital signage companies were somehow required to lose money.

Well, apparently that's not the case, as some other digital signage companies recently posted Q2 results and other announcements. Though trading on US exchanges, the companies this week were all Chinese, and doing business on the mainland. Consequently, they've been able to take advantage of China's strong economy and new appetite for consumerism to drive growth. The first was AirMedia, which announced that:

Total revenues increased 251.6% year-over-year and 37.9% sequentially to US$29.8 million; -- Revenues from digital frames in airports for the second quarter of 2008 grew 63.4% sequentially to US$11.0 million. Revenues from digital frames in airports was nil in the same period one year ago; -- Net income increased 241.8% year-over-year and 0.7% sequentially to US$7.3 million.

Net income of $7.3M on revenues of $29.8M translates to margins of over 24%, which would make most Fortune 500s -- let alone the handful of unprofitable US digital signage guys -- green with envy. Next comes one of my favorites, Focus Media China, who announced that:

Total advertising revenue from our digital out-of-home advertising reached $135 million in the second quarter of 2008, up 76.2% as compared to $76.9 million in the second quarter of 2007 and 24.4% sequentially.

Within our digital out-of-home advertising business, the revenue from our commercial location network in the second quarter was $81.1 million, up 58.9% year over year and 29.9% quarter over quarter. The revenue from our in-store network was $17 million, up 135% year over year but down slightly due to our continuing effort to optimize the combined in-store network coverage during the integration of CGEN acquisitions. The revenue from our poster frame network in the second quarter was $37.3 million, up 101.2% year over year and 27.9% quarter over quarter. The commercial location network, in-store network, and poster frame network contributed 59.9%, 12.6%, and 27.5% of the total digital out-of-home advertising revenue in the second quarter respectively.

Not satisfied with mere double-digit growth, Focus Media shows that digital signage really is an emerging medium, and perhaps, just maybe, that whole notion of hockey stick growth has some legs under it. Maybe not in the US market, mind you, but elsewhere? Sure. Lastly, Vision China, who announced their quarterly results last month (noting that they had revenues of CNY 1.6 billion in their LED billboard advertising market, representing growth of 69.6% over the period last year) decided to up the ante, and taking advantage of their recent successes just raised $101.2 million via an additional offering of 6.325 million shares at a price of $16 apiece. Needless to say, those LED billbards are pretty darned expensive, so the $100 million will go a long way towards helping the firm plaster major Chinese cities with outdoor digital billboards.

So is it US versus Chinese market conditions that are enabling these Chinese firms to kick butt while their US counterparts languish? Or is it the business model -- after all, Focus and Vision are more akin to ClearChannel than Wireless Ronin, and their market caps and profitability ratios reflect that. Or, maybe it's better management teams, better planning and better execution.

My guess would be that all three factors are in play. And while some are fixed and immutable as far as these companies are concerned (e.g. larger macroeconomic conditions), others should be more fixable. We'll see if any of that holds true next quarter, when the next round of results are announced.

Tags: digital signage, business, advertising