Chinese digital middle class luring US media

Felix Poon in the Billboard Radio China studio
Source: Billboard Radio China
Felix Poon in the Billboard Radio China studio

Growing demand for advertising opportunities in China is opening the door for more American media companies to expand in the country, no longer as deterred by censorship worries.

"We're very bullish on the region," said John Amato, co-president of trade publications Billboard and The Hollywood Reporter. "We think that digitally, the market is maturing."

Last year, Billboard launched digital radio station Billboard China in Hong Kong. The music publication also announced its first China-based chart in November in collaboration with music sharing site YinYueTai. In addition, the company has a Chinese digital version of The Hollywood Reporter in partnership with Internet giant Tencent. Amato said expansion plans are in the works.

While Billboard isn't the first American media company to launch in China, it's part of a trend of firms looking to spread their footprint in the country — and seek new sources of advertising revenues. The U.S. remains the largest advertising market with $189 billion spent on total media in 2015, according to eMarketer, but China is in second place. Last year, companies spent a total of $73 billion on advertising in the country.

Conde Nast launched Vogue China in 2005 with state-owned China Pictorial Publishing House and has since expanded to include Chinese editions of Architectural Digest, GQ, GQ Style, Self, Vogue Collections and Conde Nast Traveler. Vice Media also has been in the country for several years through several different digital properties. It's even had some episodes of its The Creators Project air on state-owned China Central Television.

What's fueling advertiser interest is China's rapidly expanding middle class. A Credit Suisse report found that China now has middle class citizens than America. As of October, there were 109 million Chinese in the economic group, defined as households making the equivalent of $50,000 to $500,000 in U.S. dollars. Twice as many Chinese citizens as Americans have joined the middle class since 2000, though the growth rate has been slowing in the last few years.

Companies want to get in front of these Chinese consumers, who have a strong affinity for name-brand goods. To do so, they want to advertise with trusted media brands, opening opportunities for American media outlets willing to set up shop in the country. Vice's China outlets, for example, have worked with AB InBev, Intel, Diageo and Reebok.

"When we got a global brief before, it would ask for the U.S., U.K., France, Germany, Spain and maybe Japan," said advertising agency KBS global CEO Guy Hayward. "Now it says USA and China. They are the must-haves. Everywhere else is a nice to have. ... Europe remains a valuable market, but it's stagnant. If you're looking for fast growth, you need to go to China."

While Hayward said that companies overall are still only dedicating less than 10 percent of their advertising budget to China, interest is growing. Some of the international companies working with its London office have expressed just as much interest in advertising in China as in the U.S., he pointed out.

"The U.S. is still top of mind for most brands," Heyward said. "They generally still are the biggest market. What China offers is growth. Most global brands are spending a lot of time in China just to figure it out so they won't miss out on a huge growth opportunity."

Despite the advertiser interest, it may not be that simple for American companies to open up shop in China. The Chinese media environment differs greatly from America. While the U.S. was built on print and television, China is rooted in digital with companies like Alibaba, Baidu and Tencent leading the way. Advertisers are responding in kind: Though digital advertising makes up less one-third of U.S. budgets, about 40 percent of ad budgets in China are allocated toward digital.

While traditional print and television advertising exists in China, citizen's mobile-first mindset drives up demand for digital advertising opportunities, Code and Theory's brand design group managing partner Steve Baer said.

"Apps and devices are full marketplaces," Baer said. "Aside from it's massive reach, platforms like WeChat have gone beyond messaging to integrating commerce in a compelling, behavior-driven manner. Audiences are using these platforms as all-in-one experiences, from messaging to entertainment to commerce and beyond. The path from engagement to purchase is faster and more fluid compared to the U.S."

Forrester senior analyst Xiofeng Wang said that because Chinese consumers are used to different kinds of media, it may be hard for American companies to come over without making huge adjustments. Wang pointed out that even digitally native companies Google and Yahoo haven't found success in the country, while Facebook and YouTube also remained blocked.

"Besides language and cultural barriers, Chinese consumers have formed their unique online behaviors," said Wang. "They are used to concentrating on only a few local digital media outlets or mobile apps. If you don't localize or work with a local partner, it is hard to survive in this highly competitive market."