There are thousands of advertising and marketing services agencies operating in China, but no local equivalent of a large holding company such as Omnicom or WPP.

Change, however, is in the air. Private equity firm China Media Capital (CMC) is backing a proposal to take China’s largest domestic ad agency, Nasdaq-listed Charm Communications, private.

“The market is still fragmented, in the first and second tier,” remarks CMC's chairman, Li Ruigang.

“You can facilitate collaboration or consolidation, or even define which company is potentially most powerful going forward so you can invest in them, then use that platform step by step to consolidate others.”

Top-down controls in China have encouraged parallel development of similar media ecosystems at a provincial level.

Although traditional media remain off limits for investors, media and marketing services represent a prime opportunity – poised to proliferate in a multichannel world, but held back by their lack of scale.

Convergence and consolidation

The twin forces of convergence and consolidation, especially potent in China, are key to Li's investment philosophy.

Respective tie-ups between CMC and Star China and TVB, for example, are focused on developing content and IP that can be sold to traditional broadcasters as well as emerging digital players.

With consolidation starting to pick up in distribution, especially in China's more commercially free market for online video, content must follow, reasons Li.

He is familiar with media dynamics in China, having run Shanghai Media Group, one of China's biggest media conglomerates, from 2002 to 2011.

“There will be a few giants controlling the interface, communicating to the audience,” Li suggests.

“At that time, once the battle of the platforms settles, the battle of the channels settles, then the next battle is content. Eventually there will be a few major content providers competing with each other to offer content to the platforms," he adds.

"We have to think about producing content not just for traditional TV, that’s one opportunity, but also for online, while using your brand, your talent to target the live entertainment market.”

A new fund

Li is currently busy with CMC’s next fund, which will invest in US dollars to bolster the company’s international exposure, while strengthening its legitimacy in the eyes of foreign investors.

The final closing should be completed soon, after finishing the first round in the first half of 2013.

There were too many restrictions and too few opportunities to implement such a fund earlier, Li feels – plus, both he and his team were venturing into new territory themselves.

Now, he feels they are ready.

In some ways, Li's activities continue the reform agenda he initiated at Shanghai Media Group, where CMC was first born. He continues to make sure commercial and government interests are aligned.

"The ultimate goal is there, to promote the local cultural industries,” Li notes.

“The government is willing to do something different from the past, but the important thing is how we can find a roadmap or clear strategy to move on to that end."