Focus Media like so many other businesses that derive a majority of revenue from advertising, has faced a very difficult 2009. In addition to drastic cuts in advertising spending from companies across the board, FMCN management attributed, on the company’s Q2 2009 earnings call, a large portion of lost sales in the company’s poster frame business to unsustainably low pricing from competitors in the segment. FMCN is responding by focusing on more advanced products, like the company’s Frame 2.0, and higher quality locations. Management expects heavy competition to persist for one or two years then ease as many players will be unable to maintain their current pricing and drop out of the market.

Income from continuing operations has been declining due to poor market conditions as well as to a number of divestitures. FMCN is currently in a restructuring process whereby the company is disposing of certain subsidiaries in the Internet, billboard advertising and other segments. Certainly the most significant divestiture the company is working on is the sale of FMCN’s LCD display network, in-elevator poster frame network and certain in-store networks to the SINA Corporation (NASDAQ:SINA), a $1.86 billion market cap online media company based in Shanghai. Under the terms of the agreement, SINA will issue 47 million new ordinary shares to FMCN as the consideration. FMCN will then distribute the SINA shares to its shareholders shortly after closing. The deal is currently under anti-trust review by China’s Ministry of Commerce.

Commentary prepared by Henry Sandberg