Brothers hear Asia call from the back of taxis

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When the Sullivan brothers decided to make their move into digital media, they opted to move to Shanghai rather than stay in their home town of Vancouver.

“Around 30 per cent of the population of Vancouver is of Asian origin and we tend to feel more connected with the Pacific Rim than with the rest of Canada,” said 34-year-old Ian Sullivan. “My brother Aidan and I had a lot of Chinese friends heading back this way and we heard the opportunity of Asia calling.”

After just three years of feverish expansion, product development and money-raising, the brothers’ company, i-level, has 4,000 digital advertising screens installed in taxis around Shanghai and has contracts to put another 4,000 into the Beijing taxi armada.

Following the enormous success of Nasdaq-listed digital advertising group Focus Media, numerous companies have sprung up across China with plans to put screens everywhere, from public buses to urinal walls.

Taxi companies, like office buildings, are paid a flat fee for carrying screens, making this a scale business that can provide massive margins once a national network is in place, as Focus Media has demonstrated.

I-level’s main rival, Touch Media, which is also owned by foreigners, has more taxis under contract but i-level is ahead in installing screens in Shanghai cabs. I-level also competes with state-owned MMTV for space.

Stiff competition and the nature of the business means i-level has yet to see significant revenue and is still burning through the $1m in start-up capital and $2.5m it raised earlier this year through a convertible bond issue following a backdoor listing on the OTC Bulletin Board in the US.

But the company says it has reached a critical mass in terms of number of screens and in the last two months has been running advertising campaigns for McDonald’s and Eli Lilly.

“In this business there is inevitably going to be a lag between setting up the infrastructure and significant sales,” Ian Sullivan said. “But if you build it, the advertisers will come, especially during the Olympics.”

After Beijing, and after another round of financing, i-level plans to expand into cities such as Dalian, Chongqing and Chengdu, where advertising spending is growing with the economies.

With their expansion into Beijing and the ambitious plan to move into secondary cities, the Sullivans are looking to raise money from institutional investors and put together a war chest for national domination.

The company has found that the regulatory environment is different in every city and region in China and they must make adjustments everywhere they go.

“Setting up a business in Shanghai was much less difficult than we expected,” Ian Sullivan said. “Beijing is somewhere we need to be but progress is much slower and you have to really use connections and guanxi to navigate the regulatory regime.”

While they think there is room in these markets for them and their competitors, the Sullivan brothers believe the end game in the industry will be consolidation, just as in the case of Focus Media, which acquired its main competitor, Target Media, to grab a virtual monopoly across the country.

Ian Sullivan just smiled when asked who will acquire who in the digital taxi screen business.

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