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Chongqing Unicom Out-of-Home Display Business Sued

China Business Daily, 11/11/11

Chongqing Unicom's new out-of-home display screens have come under attack from ad agencies suing to be released from their contracts. Four Chongqing-based ad agencies sued Chongqing Unicom subsidiary Chongqing Unicom Information Navigation on June 28, alleging that when the company had recruited the agencies in late 2010, it had falsely promoted its outdoor display system Wo Xun Media to the agencies. The four agencies signed agency contracts totaling more than RMB 7.5 mln with Unicom Information Navigation in 2011. The company won contracts totaling RMB 13.35 mln this year.

The four agencies filing the suit allege that Unicom had promoted its Wo Xun Media network as having cutting-edge features, including instantaneous publication and remote monitoring and publishing via the operator's 3G network. When the agencies attempted to use the network, they found no such capabilities, and discovered moreover that hardware misconfigurations and incompatibilities led to system instability and frequent crashes. A joint investigation by the agencies found that of the 1,300 display screens surveyed, only 200-odd were capable of normal operation - meaning that only 21% of the company's screens passed muster, a figure that fell below 10% in the worst-affected areas. When the agencies attempted to dissolve their contracts with the company they were told that they would have to pay RMB 2.09 mln in breach of contract penalties.

Open-court hearings began in the companies' suits against Unicom Information Navigation in late October. No verdict has yet been announced.

"There is no problem whatsoever with our screens," a spokesperson for Chongqing Unicom Information Navigation said. "All of them function normally. The third-party report they have provided is not credible." The spokesperson said that the report was not credible because the investigators may have tested screens during non-operating hours, or during times when the screens were receiving data updates.

An investigation by China Business Daily found that while Wo Xun Media was created through a strategic agreement between China Unicom (NYSE: CHU; 0762.HK; 600050.SH) and Chongqing's fire prevention department, the installation of Wo Xun Media screens in residential compounds has brought no positive impact for facilities management in the compounds. Digital media and Internet advertising operator Focus Media (Nasdaq: FMCN), which operates a similar business, installs its screens in residential and commercial developments through profit-sharing agreements with facilities management companies. Facilities management companies frequently shut off power to Wo Xun Media screens to protest the installation of the advertising screens under the guise of "fire prevention equipment."

Editor's Note: For more background on this topic, please see "Chongqing Unicom Begins Out-of-Home Display Trials" MD 10/28/11 issue.

Keywords: digital media advertising wireless China Unicom television 3G out-of-home display 0762.HK 600050.SH CHU Wo Xun Media law litigation

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