Charm Communications Inc. ( CHRM)

Q3 2010 Earnings Call

October 29, 2010 8:00 am ET

Executives

Henry Fraser - IR, Brunswick Group

He Dang - Chairman and CEO

Analysts

Wallace Cheung - Credit Suisse

James Marsh - Piper Jaffray

Presentation

Operator

Hello and thank you for standing by for Charm Communications earnings conference call. (Operator Instructions) I would now like to turn the meeting over to your host for today's conference, Henry Fraser from Brunswick Group.

Henry Fraser

Hello everyone and welcome to Charm Communications earnings conference call for the third fiscal quarter which ended September 30, 2010. The company's earnings results were released yesterday and are available on the company's IR website at ir.charmgroup.cn as well as on newswire services.

Today you will hear opening remarks from Charm's Founder and Chairman, Mr. Dang; followed by the company's Chief Financial Officer, Wei Zhou, who will provide a financial overview and guidance for the fourth quarter. After their prepared remarks, they will be available to answer your questions.

Before we continue, please note that the discussion today will contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Charm does not assume any obligation to update any forward-looking statements except as required under applicable laws. Also, please note that some of the information that we discuss include non-GAAP financial measures, as defined in Regulation G. The most directly comparable U.S. GAAP financial measures and information reconciling these non-GAAP financial measures shown as financial results prepared in accordance with U.S. GAAP are included in Charm's earnings release which has been posted on the company's IR website at ir.charmgroup.cn.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Charm's Investor Relations website.

I will now turn the call over to Charm Communications' Founder, Chairman and CEO, Mr. Dang.

He Dang

I'm very pleased to share our third quarter financial overview. To begin with, I would like to talk to you about business developments for the third quarter 2010.

In the earnings release we sent out this morning, you will see that all of our business segments have performed strongly over the quarter. Our core agency services are growing from strength-to-strength, and our media investment management business is showing solid growth.

We also started to see meaningful contribution from our Charm Interactive business, and we have set up new strategic initiative with trusted industry leaders to expand into new areas, including digital media and content production.

The third quarter is a very busy time for the Chinese advertising market, and we have been very active in advertising to prepare the budget and advertising strategy for next year. And our agenda is looking for effective partners.

The Chinese advertising market maintained strong growth in the third quarter and would be up for the fourth quarter as well. TV media is still the mainstream media platform in China and accounts for 70% market share in advertising placement.

As you know, Chinese largest TV media network, CCTV, holds an advertising option for prime time media resources every November which people look at as a barometer for Chinese economy. It also allows us to observe clients (inaudible) and expectations in the domestic advertising market in 2011.

This year's CCTV prime auction consists of three sections; the online auction, pre-sales, and the on-site primetime auction. From the online auction and pre-sale, which was finished in the middle of this month, we have seen that advertising clients are very confident about the Chinese market for next year, with prices up 30% to 40% from last year.

We expect we will see a similarly enthusiastic response for the November 8 on-site CCTV auction.

Charm first participated in the CCTV auction in 1995. We have been the number one agency eight times in total and have helped more than 100 clients successfully achieve their goals at the auction. This August, when we started preparation of the auction, we have been appointed for many of China's leading companies. And the quality and number of our clients is higher than ever. We believe that we will maintain our leading position in the CCTV auctions this year.

This additional TV advertising market continues to grow, and we see particularly strong opportunities in the satellite TV sector. Advertisers are seeing more than ever that regional satellite channels have key advantages, including increased local relevance, closely targeted programs and increased flexibility.

In addition, the satellite TV ratings are on a strong upward trend. Charm has been operating advertising on satellite channels since 2008 and has strategic partnerships with Shanghai Dragon TV and Tianjin Satellite TV. These partnerships have given us important insight into satellite marketing strategy and operational best practices. They have also laid a strong foundation for future cooperation with other satellite TV channels.

We also recently renewed our contract with Tianjin Satellite TV as well as setting up a joint venture with a channel to enter into content production related advertising sales, which will allow us to expand our service offerings. We contend we will be able to continue our exclusive agreements with existing media partners, including Shanghai Dragon TV and CCTV into 2011.

Meanwhile, we continue to look for opportunities to cooperate with other satellite TV channels and look forward to updating you on our progress in the coming quarters.

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