UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

     ¨ Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

or

     x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2011.

or

     ¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

     ¨ Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission file number 000-51387

Focus Media Holding Limited

(Exact Name of Registrant as Specified in Its Charter)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

Unit No. 1, 20th Floor, The Centrium

60 Wyndham Street, Central, Hong Kong

(Address of Principal Executive Offices)

Contact Person: Mr. Kit Leong Low

Chief Financial Officer

Phone: +852-3752-8009

Facsimile: +852-3583-0082

Address: Unit No. 1, 20th Floor, The Centrium

60 Wyndham Street, Central, Hong Kong

*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Ordinary Shares, par value US$0.00005 per share	Nasdaq Global Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

646,452,740 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨  No x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registration was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.  Item 17  ¨ Item 18  x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ¨  No ¨

FOCUS MEDIA HOLDING LIMITED

FORM 20-F ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, 2010

Table of Contents

	Page
SUPPLEMENTAL INFORMATION		1
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED		1
PART I		2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		2
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		2
ITEM 3. KEY INFORMATION		2
ITEM 4. INFORMATION ON THE COMPANY		35
ITEM 4A. UNRESOLVED STAFF COMMENTS		61
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		61
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		94
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		99
ITEM 8. FINANCIAL INFORMATION		106
ITEM 9. THE OFFER AND LISTING		107
ITEM 10. ADDITIONAL INFORMATION		108
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		118
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		118
PART II		118
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		118
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		119
ITEM 15. CONTROLS AND PROCEDURES		120
ITEM 16.		122
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		122
ITEM 16B. CODE OF ETHICS		122
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		122
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		122
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		123
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		124
ITEM 16G. CORPORATE GOVERNANCE		124
PART III		124
ITEM 17. FINANCIAL STATEMENTS		124
ITEM 18. FINANCIAL STATEMENTS		124
ITEM 19. EXHIBITS		125
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

i

SUPPLEMENTAL INFORMATION

In this annual report, unless otherwise indicated:

• the terms “we,” “us,” “our company,” “our” and “Focus Media” refer to Focus Media Holding Limited, its subsidiaries and its consolidated affiliated entities;

• “shares” and “ordinary shares” refer to our ordinary shares, par value $0.00005, “ADSs” refers to our American depositary shares, each of which represents five ordinary shares, and “ADRs” refers to the American depositary receipts which evidence our ADSs;

• “China” and “PRC” refer to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau;

• all references to “RMB” are to the legal currency of China and all references to “U.S. dollars,” “US$,” “dollars” and “$” are to the legal currency of the United States. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding;

• “Framedia” refers to Infoachieve Limited and its consolidated subsidiaries and affiliates, which we acquired in January 2006;

• “Target Media” refers to Target Media Holdings Limited and its consolidated subsidiaries and affiliates, which we acquired in February 2006;

• “Focus Media Wireless” refers to Dotad Media Holdings Limited, and its consolidated subsidiary and affiliate, which we acquired in March 2006 and renamed Focus Media Wireless. We terminated our mobile handset advertising business, including Focus Media Wireless, in December 2008;

• “Allyes” refers to Allyes Information Technology Company Limited, and its consolidated subsidiaries and affiliates, which we acquired in March 2007 and subsequently disposed of in 2010;

• “CGEN” refers to CGEN Digital Media Company Limited, and its consolidated subsidiaries and affiliates, which we acquired in January 2008 and disposed of in December 2008; and

• This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2009, 2010 and 2011, and as of December 31, 2010 and 2011.

FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT

MAY NOT BE REALIZED

This annual report on Form 20-F contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan”, “believe”, “is/are likely to” or other similar expressions. The forward-looking statements included in this annual report relate to, among others:

• our goals and strategies;

• our future business development, financial condition and results of operations;

• projected revenues, profits, earnings and other estimated financial information;

• our plans to expand our advertising network into new cities and regions in China

• the growth of our LCD display network, poster frame network, in-store network, movie theater and traditional outdoor billboards;

• our plan to identify and create additional advertising platforms that target specific consumer demographics, which could allow us to increase our advertising revenue;

• competition in the PRC advertising industry;

• the expected growth in the urban population, consumer spending, average income levels and advertising spending levels;

• PRC governmental policies and regulations relating to the advertising industry and regulations and policies promulgated by the State Administration of Foreign Exchange;

• other risks outlined in our filings with the Securities and Exchange Commission, including our registration statements on Form F-1, as amended; and

• those other risks identified in “Item 3. Key Information — D. Risk Factors” of this annual report.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from or worse than our expectations.

1

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2010 and 2011 have been derived from our audited consolidated financial statements, which are included elsewhere in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. The historical results are not necessarily indicative of results to be expected in any future period.

Our selected consolidated statement of operations data for the years ended December 31, 2007 and 2008 and our consolidated balance sheets as of December 31, 2007, 2008 and 2009 have been derived from our audited consolidated financial statements, which are not included in this annual report.

The selected consolidated financial information for the periods and as of the dates indicated should be read in conjunction with our financial statements and the accompanying notes and “Item 5. Operating and Financial Review and Prospects”.

In April 2005, we commenced commercial operations of our in-store network and through our acquisition of Framedia, we commenced operation of our poster frame network on January 1, 2006. In February 2006, we acquired Target Media and in March 2006, we acquired Focus Media Wireless. In March 2007, we acquired Allyes. In January 2008, we acquired CGEN.

In December 2008, we disposed of our in-store advertising operations of CGEN, which resulted in a $190.5 million disposal loss, which includes the write-off of the carrying value of intangible assets and goodwill of $39.5 million and $145.6 million, respectively. This disposal loss was recorded as other operating expense in the consolidated statement of operations. Also in 2008, the disposal of our mobile handset advertising business due to changes in market conditions and the regulatory environment resulted in a loss from disposal of $92.1 million. In September 2009, we terminated our agreement of December 2008 to sell substantially all of the assets of our advertising networks using LCD displays, in-store and poster frame to SINA. In 2008, these assets were accounted for as assets-held-for-sale and their results were presented as discontinued operations. Following the termination of the agreement in September 2009, these assets have been reclassified as assets-held-for-use and the results have been presented as continuing operations for all periods presented.

In the third and fourth quarters of 2009, we restructured continuing operations and disposed of interests in certain subsidiaries in our Internet segment. The results of these companies were accounted for as discontinued operations for all periods presented in accordance with U.S. GAAP.

In January 2010, certain employees and management of Allyes and certain members of the Company’s management and directors entered into a definitive agreement with the Company and Allyes to buy-out an aggregate 38% interest in Allyes from the Company for a cash consideration of $13.3 million, which was determined based on the estimated fair value of $35 million as of January 1, 2010 which was derived from an income approach methodology. On July 30, 2010, the Company further sold its entire remaining 62% ownership to Silver Lake, a third party investor, at a cash consideration of $124 million. Therefore, the results of Allyes and its consolidated subsidiaries and affiliates have been classified as discontinued operations for all the periods presented.

2

	For the years ended December 31
	2007			2008			2009			2010			2011
	(In thousands of U.S. Dollars, except share and per share data)
Selected Consolidated Statements of Operations Data:
Net revenues:(1)
LCD displays	$	184,643		$	244,540		$	208,799		$	297,642		$	444,365
In-store		27,444			60,719			30,346			37,777			56,374
Poster frame(2)		85,472			146,751			98,962			121,893			185,449
Movie theatre		5,259			10,335			9,436			18,095			50,835
Traditional outdoor billboard		32,046			66,843			49,621			40,908			55,597
Total net revenues		334,864			529,188			397,164			516,315			792,620
Cost of revenues:
LCD displays		52,648			80,451			76,418			67,513			85,847
In-store		23,502			61,834			24,170			23,432			20,582
Poster frame(2)		28,086			59,815			95,401			84,487			110,370
Movie theatre		2,941			6,598			7,063			13,849			25,753
Traditional outdoor billboard		25,555			50,346			38,022			32,409			47,092
Total cost of revenues		132,732			259,044			241,074			221,690			289,644
Gross profit		202,132			274,144			156,090			294,625			502,976
Operating expenses:
General and administrative		42,452			79,162			88,833			79,760			127,013
Selling and marketing		53,523			82,258			79,787			103,722			147,717
Impairment loss		—			377,629			63,646			5,736			—
Other operating expenses (income), net		(7,615	)		183,113			13,111			(14,144	)		(16,138	)
Total operating expenses		88,360			722,162			245,377			175,074			258,592
Income (loss) from operations		113,772			(452,018	)		(89,287	)		119,551			244,384
Investment loss		—			—			—			1,288			—
Interest income		9,239			7,130			4,946			7,260			15,539
Interest expense		17			—			—			—			717
Income (loss) from continuing operations before income taxes		122,994			(444,888	)		(84,341	)		125,523			259,206
Income taxes		5,912			25,278			13,780			22,336			54,761
Loss from equity method investee		—			—			—			—			43,633
Net income (loss) from continuing operations		117,082			(470,166	)		(98,121	)		103,187			160,812
Net income (loss) from discontinued operations, net of tax		28,048			(300,672	)		(111,612	)		83,078			—
Net income (loss)		145,130			(770,838	)		(209,733	)		186,265			160,812
Less: Net income (loss) attributable to noncontrolling interests		694			(150	)		3,524			1,991			(1,865	)
Net income (loss) attributable to Focus Media Holdings Limited Shareholders	$	144,436		$	(770,688	)	$	(213,257	)	$	184,274		$	162,677
Income (loss) per share from continuing operations — basic	$	0.20		$	(0.73	)	$	(0.15	)	$	0.15		$	0.24
Income (loss) per share from continuing operations — diluted	$	0.19		$	(0.73	)	$	(0.15	)	$	0.14		$	0.23
Income (loss) per share from discontinued operations — basic	$	0.05		$	(0.47	)	$	(0.17	)	$	0.12		$	—
Income (loss) per share from discontinued operations — diluted	$	0.05		$	(0.47	)	$	(0.17	)	$	0.11		$	—
Income (loss) per share — basic	$	0.24		$	(1.20	)	$	(0.33	)	$	0.26		$	0.24
Income (loss) per share — diluted	$	0.24		$	(1.20	)	$	(0.33	)	$	0.25		$	0.23
Shares used in calculating basic income (loss) per share		590,387,396			643,989,522			651,654,345			707,846,570			671,401,000
Shares used in calculating diluted income (loss) per share		608,326,450			643,989,522			651,654,345			731,658,265			693,971,258

	As of December 31
	2007		2008		2009		2010		2011
	(In thousands of U.S. Dollars)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	450,416	$	142,434	$	568,159	$	454,476	$	331,218
Other current assets(3)		431,043		665,137		269,279		397,885		701,665
Non-current assets		1,258,079		724,723		556,005		531,799		708,554
Total assets		2,139,538		1,532,294		1,393,443		1,384,160		1,741,437
Total current liabilities		276,287		318,864		197,056		172,719		364,410
Total non-current liabilities		6,394		13,540		5,435		9,998		104,205
Total liabilities		282,681		332,404		202,491		182,717		468,615
Ordinary shares ($0.00005 par value; 19,800,000,000 shares authorized in 2007, 2008, 2009, 2010 and 2011; 640,230,852, 646,081,710, 725,278,005, 677,934,625 and 646,452,740 shares issued and outstanding in 2007, 2008, 2009, 2010 and 2011, respectively)		32		32		36		34		32
Other equity		1,854,912		1,197,752		1,189,088		1,200,445		1,253,138
Total Focus Media Holdings Limited shareholders’ equity		1,854,944		1,197,784		1,189,124		1,200,479		1,253,170
Noncontrolling interests		1,913		2,106		1,828		964		19,652
Total equity		1,856,857		1,199,890		1,190,952		1,201,443		1,272,822

3

(1) Advertising service revenue is presented net of business tax. Business tax on advertising service revenue from our LCD display network amounted to $20.3 million, $24.7 million, $20.6 million, $31.0 million and $42.2 million in 2007, 2008, 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our in-store network amounted to $2.8 million, $6.3 million, $3.2 million, $4.0 million and $5.3 million for 2007, 2008, 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our poster frame network amounted to $7.9 million, $13.9 million, $9.6 million, $12.2 million and $17.1 million, for 2007, 2008, 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our movie theater network amounted to $0.3 million, $0.6 million, $0.3 million, $1.9 million and $2.5million for 2007, 2008, 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our traditional outdoor billboards amounted to $1.0 million, $2.2 million, $1.2 million, $0.8million and $1.1 million for 2007, 2008, 2009, 2010 and 2011, respectively. Business tax includes aggregating business tax and surtax of 5.55% and cultural industries tax ranging from 0% to 3.0% of our gross advertising service revenue. Commencing from January 1, 2011, the maximum cultural industries tax levied was reduced from 4% to 3%.

(2) The net revenues and cost of revenues from our poster frame network include the respective net revenues and cost of revenues derived from our LCD 1.0 picture frame devices in Tianjin, Kunming and Shijiazhuang.

(3) Other current assets equal to total current assets less cash and cash equivalents.

In our earnings release for the fourth quarter and full year 2011 released on March 19, 2012, we announced a change in classification of the LCD 1.0 picture frame devices from the LCD display network division into the poster frame network division, and we are now revising the data for years 2007, 2008, 2009, 2010 and 2011 to reflect this change in categorization and thereby align our operating and financial data with respect to the LCD 1.0 picture frame devices. In order to help investors gain a better understanding of our media platform and the differentiations between different types of devices, and to align this operating metric with our internal financial reporting, starting from the fourth quarter of 2011 the Company has decided, for screen count purposes, to re-categorize the LCD 1.0 picture frame devices from the LCD display network into the poster frame network. Historically, for screen count purposes the Company categorized the LCD 1.0 picture frame devices in the division of LCD display network because those devices were developed by the Company’s LCD display network team. For financial reporting purposes, revenues and costs attributable to such LCD 1.0 picture frame devices have been and continue to be categorized under the poster frame network.

We are providing the following breakdown of operating data to clarify these changes and will use this method of classification going forward.

	As of December 31
	2007		2008		2009		2010		2011
	(In thousands)
Selected Operating Data:
Number of LCD screens in our LCD display network:
— Our direct cities(1)		82,375		86,961		90,645		96,506		113,859
— Our regional distributors(2)		4,765		5,436		5,411		6,659		8,256
Total number of LCD screens(1)		87,140		92,397		96,056		103,165		122,115
Number of LCD 2.0 digital picture screens		20,210		26,291		26,337		33,333		33,636
Total displays in the LCD display network(1)		107,350		118,688		122,393		136,498		155,751
Number of displays in our in-store network(3)		49,452		42,824		44,517		48,179		50,076
Number of stores in our in-store network(3)		4,063		3,275		3,097		2,858		2,801
Number of installed frames in our poster frame network(1)(4)
Frame 1.0 picture frames(1)		184,597		299,514		233,717		328,089		445,126
Frame 2.0 digital picture screens		10,819		34,195		35,972		35,810		35,050
Total displays in the poster frame network(1)		195,416		333,709		269,689		363,899		480,176

(1) Pursuant to the re-classification described above, the data presented here reflect the re-classification of 4,948, 9,345, 8,613, 28,077 and 30,804 LCD 1.0 picture frame devices as of December 31, 2007, 2008, 2009, 2010 and 2011, respectively, from the LCD display network to the poster frame network under Frame 1.0 picture frames to align our operational and financial data.

(2) Data that has been provided by our regional distributors is based on the results of surveys we requested them to provide to us and it is possible such data is not entirely accurate.

(3) Operating data for our in-store network does not include data from CGEN’s business and operations.

(4) Number of installed frames includes frames we currently market and frames that have been installed, for instance, in buildings that are still under construction and which we have not yet begun to market. Data includes both traditional poster frames and, for periods starting from June 30, 2007, digital frames.

4

Currency Translations and Exchange Rates

Our operating businesses are currently conducted in China and substantially all of our revenues and expenses are denominated in Renminbi. The People’s Bank of China, or PBOC, sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. The PBOC also takes into account other factors, such as the general conditions existing in the international foreign exchange markets. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates in the world financial markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration for Foreign Exchange and other relevant authorities. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day.

5

For all dates and periods through December 31, 2008, exchange rates of Renminbi into U.S. dollars are based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2009 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. For your convenience, this annual report contains translations of Renminbi at $1.00 to RMB6.2939, which was the prevailing rate on December 30, 2011. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you.

	RENMINBI PER U.S. EXCHANGE RATE
	AVERAGE		HIGH		LOW		PERIOD-END
2007		7.5806		7.8127		7.2946		7.2946
2008		6.9193		7.2946		6.7800		6.8225
2009		6.8295		6.8470		6.8176		6.8259
2010		6.7603		6.8330		6.6000		6.6000
2011		6.4475		6.6364		6.2939		6.2939
October		6.3710		6.3825		6.3534		6.3547
November		6.3564		6.3839		6.3400		6.3765
December		6.3482		6.3733		6.2939		6.2939
2012 (through April 20)		6.3018		6.3330		6.2935		6.3080
January		6.3119		6.3330		6.2940		6.3080
February		6.2997		6.3120		6.2935		6.2935
March		6.3125		6.3315		6.2975		6.2975
April (through April 20)		6.3052		6.3150		6.2975		6.3080

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be materially harmed.

Risks Relating to Compliance with PRC Law

Our failure to comply with certain aspects of applicable PRC laws and regulations could adversely affect our business operations and corporate structure.

In order to conduct our business operations through our indirectly wholly-owned operating subsidiaries in China, which we collectively refer to as our PRC operating subsidiaries, and our consolidated affiliated entities in China, which we collectively refer to as our PRC operating affiliates, also referred to as our variable interest entities, or VIEs, we are required to comply with a range of PRC laws and regulations, including laws and regulations applicable to contractual arrangements among our operating subsidiaries and affiliates, requirements to register the equity pledges relating to those contractual arrangements, other registration requirements under State Administration for Industry and Commerce, or SAIC, rules and regulations, and obligations by us, our management and our PRC shareholders or beneficial owners to comply with the State Administration of Foreign Exchange, or SAFE, registration and disclosure requirements.

Due to uncertainties in the law, the lack of implementing regulations and, in some instances, our delay in complying with some of these rules, there is a risk that we could be found to have violated rules and regulations relating to our corporate structure, SAFE and SAIC registration and PRC foreign exchange rules. As detailed in the risk factor paragraphs below, if we are found to have failed to comply with or breached PRC laws and regulations applicable to us and our PRC operating subsidiaries and affiliates we could be subject to, among other things, penalties including fines, revocation of business licenses of the PRC entities or requirements to restructure our business operations. Our failure to comply with PRC laws and regulations relating to the registration of equity pledges under our contractual arrangements with our PRC operating affiliates could also render the equity pledge, and the structure, unenforceable.

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As of December 31, 2010, our PRC operating affiliates accounted for $438.8 million of our assets, of which $397.8 million consisted of goodwill associated with acquisitions conducted in the early stages of our corporate history. Excluding goodwill, assets of our PRC operating affiliates accounted for 3.3% of our total assets as of December 31, 2010, composed primarily of cash and cash equivalents, rental deposits and accounts receivable.

Currently, our consolidated variable interest entities hold less than 20% of the leases used in the operation of our LCD display network, in-store network and movie theater network. Net revenues generated by our PRC operating affiliates accounted for approximately 1.5% of our net revenues in 2011. In the event of such deconsolidation, to continue operating the businesses currently conducted by our consolidated variable interest entities, we may need to take certain actions, for example, transferring the equity ownership of our consolidated variable interest entities from our nominee shareholders to our PRC operating subsidiaries which are directly owned by non-PRC subsidiaries of ours, which we collectively refer to as wholly-foreign owned, or WFOE operating subsidiaries, which may result in additional administrative and legal costs, less favorable business relationships or other regulatory burdens or otherwise materially and adversely affect our business. If we are unable to continue operating the businesses using the leases held by our PRC operating affiliates and unable to renegotiate new leases through our PRC operating subsidiaries, we may not be able to collect the 1.5% of our net revenues currently derived from our PRC operating affiliates. In addition, we may lose access to the assets of our PRC operating affiliates, excluding goodwill, which represent 3.3% of our total assets

Further, if our consolidated variable interest entities are deconsolidated and the PRC authorities did not allow us to transfer the operational assets of our consolidated variable interest entities to our WFOE operating subsidiaries, in order to continue operating the businesses of our consolidated variable interest entities, our consolidated variable interest entities may need to terminate the leases they hold and we may need to negotiate new leases for the underlying properties through our WFOE operating subsidiaries. Such termination and renegotiation may entail additional administrative and legal costs and we may not be able to obtain similarly favorable terms for such properties.

Furthermore, advertising businesses conducted by our WFOE operating subsidiaries are subject to certain risks associated with PRC laws and regulations on foreign investment in the advertising businesses in China. See “—If the PRC government determines that the ownership structure of our operating subsidiaries or our operating affiliates, or the agreements that establish the structure for operating our China business do not comply with current or future PRC governmental restrictions on foreign investment in the advertising industry, we could be subject to penalties which may materially and adversely affect our business or financial condition.” Increasing the proportion of our business conducted by our WFOE operating subsidiaries increases our exposure to certain risks associated with such laws and regulations while mitigating other risks.

If we were subject to any such penalties or negative consequences, our business and operations could be materially and adversely affected.

If Jason Nanchun Jiang, our founder, chairman and chief executive officer, were to breach any of his contractual or fiduciary obligations to us and our affiliated consolidated entities, we could be subject to regulatory penalties and sanctions and our operations could be materially adversely affected.

Jason Nanchun Jiang, as the 85% holder of Shanghai Focus Media Advertisement Co., Ltd., or Focus Media Advertisement, entered into contractual agreements among us, our PRC operating subsidiaries, and our PRC operating affiliates. See “Item 7.B Major Shareholders and Related Party Transaction — Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders”. Under those agreements, Jason Nanchun Jiang is obligated to procure the consummation of the transactions contemplated thereunder, to maintain the valid existence of and obtainment and maintenance of all the requisite operation licenses by the relevant PRC operating affiliates, and to prevent the PRC operating affiliates from entering into any transaction that jeopardizes the assets, business operation, ownership structure and other rights of the PRC operating affiliates. As our chairman and chief executive officer, he also has fiduciary obligations to us under Cayman Islands law.

Due to uncertainties in the implementation of PRC laws and regulations, we may be put at risk from failures to comply with all such laws. See “— We use contractual arrangements with our PRC operating affiliates and their shareholders for a portion of our China operations, and uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and thus our ability to conduct our business” relating to the failure to register the equity pledges, “— PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. A failure by us or our shareholders or beneficial owners who are PRC citizens or residents in China to comply with such regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition” relating to Jason Nanchun Jiang’s failure to complete subsequent registrations with the SAFE, and “Our PRC operating subsidiaries and operating affiliates may have engaged in business activities without the necessary registration with local authorities. This could subject us to fines or other penalties, which could negatively impact our revenues or interfere with our ability to operate our business” relating to the failure of some of our indirect operating subsidiaries or our operating affiliates to register with the relevant local branch of SAIC for their expansion of business or for their branch offices in each of the cities where we operate.

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Neither we, our operating subsidiaries, operating affiliates or Jason Nanchun Jiang has been subject to fines, sanctions or penalties as a result of these legal compliance matters. Nevertheless, if we, our operating subsidiaries, operating affiliates or Jason Nanchun Jiang are subject to such fines, sanctions or penalties resulting from any such non-compliance, our business operations could be materially adversely affected.

If the PRC government determines that the ownership structure of our operating subsidiaries or our operating affiliates, or the agreements that establish the structure for operating our China business do not comply with current or future PRC governmental restrictions on foreign investment in the advertising industry, we could be subject to severe penalties.

Substantially all of our operations are or will be conducted through our PRC operating subsidiaries and through our contractual arrangements with our consolidated affiliated entities in China. PRC regulations require any foreign entities that invest directly in the advertising services industry to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been allowed to own directly 100% of PRC companies operating an advertising business if the foreign entity has at least three years of direct operations in the advertising business outside of China or less than 100% if the foreign investor has at least two years of direct operations in the advertising industry outside of China. Generally we do not currently directly operate an advertising business outside of China and our non-PRC subsidiaries cannot qualify under PRC regulations for direct investment in the advertising industry. Thus, our non-PRC subsidiaries and our WFOE operating subsidiaries are ineligible to apply for the required licenses for providing advertising services in China. Our non-PRC subsidiaries are ineligible to apply for such required licenses too. However, current PRC regulations do not restrict domestic companies controlled by WFOEs through contractual arrangements from operating advertising businesses. As such, in the early stages of our corporate history, our advertising businesses were initially provided, and most businesses we acquired from third parties were provided, through contractual arrangements between our WFOE operating subsidiaries and our PRC operating affiliates. Nevertheless, PRC governmental authorities may in the future deem that such business operations by domestic companies controlled by WFOEs evade the qualifications requirements on foreign investment in the advertising industry, and thus, restrict our business operations.

However, despite these restrictions, the PRC restriction on foreign investment in the advertising industry does not expressly apply to the investment activities of WFOEs, and starting from late 2007, the advertising industry has been re-classified from a “restricted” area to a “permitted” area for foreign investment. Thus, WFOEs may establish subsidiaries in China to operate advertising business directly in China. As such, certain of our indirect PRC operating subsidiaries succeeded in obtaining the required licenses for providing advertising services in China. However, the PRC governmental authority may determine in the future that such indirect investments evade the qualification requirements on foreign investment in the advertising industry and thus bans such investment activities.

For the year ended December 31, 2011, approximately 98.5% of our net revenue was generated by our indirect PRC operating subsidiaries, in which we hold equity interests through our WFOEs, and 1.5% of our net revenue was generated by our PRC operating affiliates, which we control through contractual arrangements. All of the revenues generated by our indirect PRC operating subsidiaries may be distributed to our WFOEs as dividends without reliance on contractual arrangements between any of our entities. Such revenues may then be further distributed to offshore entities, including Focus Media Holding Limited, by our WFOEs following the applicable SAFE registrations and procedures. All of the revenues generated by our PRC operating affiliates are available to us for general business operations in China. Although we have been migrating business from the PRC operating affiliates to our indirect PRC operating subsidiaries and intend to reduce our reliance on our contractual relationships with our PRC operating affiliates and increase the portion of our advertising revenues generated from our indirect PRC operating subsidiaries, we expect to continue to rely on our PRC operating affiliates, to operate a portion of our advertising business for the foreseeable future, given the time and financial costs required for converting these PRC operating affiliates into our indirect subsidiaries or transferring their business to our PRC operating subsidiaries. We currently do not have any plans to terminate existing contractual relationships with our PRC operating affiliates, although our reliance on such relationships has decreased over time. As of December 31, 2011, our PRC operating affiliates accounted for $461.7 million of our assets, including $399.1 million in goodwill associated with acquisitions conducted in the early stages of our corporate history, as well as $5.5 million in goodwill associated with our acquisition in 2011 of a controlling interests in Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd , or Enjoy Media, which we operate through a VIE structure, because Enjoy Media distributes electronic coupons via Q.com.cn which may require an Internet content provider, or ICP, license in the future and because it operates in an area in which direct foreign ownership is subject to certain conditions and restrictions. Excluding goodwill, assets of our PRC operating affiliates accounted for approximately 3.3% of our total assets excluding goodwill as of December 31, 2011.

Accordingly, our advertising services are currently conducted by (i) our indirect PRC operating subsidiaries and (ii) our PRC operating affiliates, including Focus Media Advertisement and its subsidiaries. Our PRC operating affiliates, which we control through contractual relationships are owned by either (i) one or more individuals designated by us, (ii) one or more PRC entities owned by other PRC operating affiliates or (iii) a combination of individuals and PRC entities owned by other PRC operating affiliates. We have entered into contractual arrangements with certain of PRC operating affiliates and their respective shareholders pursuant to which we, through our PRC operating subsidiaries, cooperate with, and provide technical support services to, our PRC operating affiliates. In addition, we have entered into agreements with certain of our PRC operating affiliates and each of their shareholders which provide us with the substantial ability to control these affiliates and their existing and future subsidiaries.

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If we, our existing or future PRC operating subsidiaries and operating affiliates or their ownership structure or the contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, or our existing or future PRC operating subsidiaries or operating affiliates fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the State Administration for Industry and Commerce, or SAIC, which regulates advertising companies, and the Ministry of Commerce, which regulates foreign investments in China, would have broad discretion in dealing with such violations, including:

• imposing fines or other monetary penalties on our PRC subsidiaries or affiliates;

• revoking the business and operating licenses of our PRC subsidiaries and affiliates;

• discontinuing or restricting our PRC subsidiaries’ and affiliates’ operations;

• imposing conditions or requirements with which we or our PRC subsidiaries and affiliates may not be able to comply;

• requiring us or our PRC subsidiaries and affiliates to restructure the relevant ownership structure or operations; or

• restricting or prohibiting our use of the proceeds of any offering or from other sources to finance our business and operations in China.

The imposition of any of these penalties could result in additional administrative and legal costs, less favorable business relationships or other regulatory burdens or otherwise materially and adversely affect our business.

If the PRC government finds that the ownership structure of our operating affiliates violates PRC laws as a result of the change in Jason Nanchun Jiang’s citizenship, we could be subject to severe penalties, and our ability to conduct our business may be affected in a material and adverse way.

Jason Nanchun Jiang, who is one of the shareholders of Focus Media Advertisement, one of our major PRC operating affiliates, which owns all other PRC operating affiliates that hold the advertising operating licenses connected with our operating businesses, completed naturalization procedures to become a citizen of Singapore in the second quarter of 2009 for personal reasons.

The “Provisions regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,” or the New M&A Rule, promulgated by six PRC government and regulatory authorities, including the PRC Ministry of Commerce and the Chinese Securities Regulatory Commission, or the CSRC, which became effective on September 8, 2006 and was revised in 2009, provides that change in the citizenship of a shareholder of a PRC domestic company does not change the nature of such PRC domestic company. Further, based on our enquiries and discussions with the relevant official of the local branch of the SAIC in Shanghai, we have also been orally informed that Jason Nanchun Jiang’s change in citizenship does not change the nature of our PRC operating affiliates. However, there is no guarantee that governmental authorities, mainly including the SAIC and the Ministry of Commerce, will not challenge such status due to change in law or change in implementation of relevant laws or for any other reason.

If the ownership structure of our PRC operating affiliates is found to be in violation of any existing or future PRC laws or regulations, the relevant PRC regulatory authorities, mainly including the SAIC and the Ministry of Commerce, would have broad discretion in dealing with such violations, including:

• imposing fines or other monetary penalties on our PRC operating affiliates;

• revoking the business and operating licenses of our PRC operating affiliates;

• discontinuing or restricting our PRC operating affiliates’ operations;

• requiring our PRC operating affiliates to restructure the relevant ownership structure or operations.

The imposition of any of these penalties could result in additional administrative and legal costs, less favorable business relationships or other regulatory burdens or otherwise materially and adversely affect our business.

We use contractual arrangements with our PRC operating affiliates and their shareholders for a portion of our China operations, and uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and thus our ability to conduct our business.

We have in the past used contractual arrangements with our PRC operating affiliates and their respective shareholders to operate a portion of our advertising business. We have transferred the majority of our operations to our subsidiaries since 2009. For a description of these contractual arrangements, see the sections titled “Organizational Structure” “Business Overview — Recent Developments” in Item 4. “Information on the Company” and “Item 7. — Major Shareholders and Related Party Transactions”.

Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements.

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For example, the PRC Property Rights Law that was promulgated on March 16, 2007 and became effective on October 1, 2007 requires that registration with the local SAIC is necessary to create security interest on equity interest in a PRC company, which means that before the equity pledge is duly registered with the local SAIC, the equity pledge is unenforceable even though the relevant equity pledge agreement is still binding. Almost all our existing equity pledge agreements between certain of our operating subsidiaries and certain of our operating affiliates and their shareholders were signed before the PRC Property Rights Law took effect. The relevant PRC operating affiliates registered the equity pledges on their registry of shareholders according to then applicable law. The Company attempted to register the relevant equity pledges after the PRC Property Rights Law became effective and we have successfully registered the equity pledge in connection with Focus Media Advertisement, one of our major PRC operating affiliates, which owns all other PRC operating affiliates that hold the advertising operating licenses connected with our operating businesses in December 2010 and certain other PRC operating affiliates with the local SAIC. However, the implementation rules were not promulgated until late 2008 and in some cities late 2009, and the practices taken by the local SAIC authorities vary from city to city. Thus, we are still in the process of applying for registration of other relevant equity pledges and there is no assurance that we can have these equity pledges registered on time or at all. We have completed the registration of four pledges with the local counterparts of the SAIC, and are in the process of registering an additional nine pledges. Considering that we have not registered some of these existing equity pledges, and may fail to register future equity pledges, with the local SAIC, any equity pledge created under these equity pledge agreements may be considered unenforceable. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating affiliates, and our ability to conduct our business may be negatively affected.

Non-performance of the contractual arrangements with our PRC operating affiliates and their shareholders will result in material and adverse effect in our corporate structure and our business operation.

Although we operate a substantive portion of our advertising business through contractual arrangements with our PRC operating affiliates and their respective shareholders, these contractual arrangements may not be as effective in providing us with control over our PRC operating affiliates as direct ownership. If we had direct ownership of our PRC operating affiliates, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of those companies, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, as a legal matter, if our PRC operating affiliates or any of their shareholders fails to perform its or his respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you to be effective. For example, if any individual designated by us as the shareholder were to refuse to transfer his equity interest in any of our PRC operating affiliates to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if the individual shareholder were otherwise to act in bad faith toward us, or if the individual or entity designated by us failed to cause the unrelated third parties holding minority interests in certain of our PRC operating affiliates to waive their right of first refusal or to cooperate with him or it to fulfill his or its contractual obligations, then we may have to take legal action to compel him to fulfill his or its contractual obligations. Accordingly, it may be difficult for us to change our corporate structure or to bring claims against our PRC operating affiliates or its shareholders if they do not perform their obligations under their contracts with us or if any individual who holds the equity interest in our PRC operating affiliates does not cooperate with any such actions.

We may rely principally on dividends and other distributions on equity paid by our WFOE operating subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our operating subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we may rely principally on dividends and other distributions on equity paid by our WFOE operating subsidiaries for our cash requirements, including the funds necessary to service any debt we may incur. If any of our WFOE operating subsidiaries incurs debt on its own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements our WFOE operating subsidiaries currently have in place with our PRC operating affiliates in a manner that would materially and adversely affect our WFOE operating subsidiaries’ ability to pay dividends and other distributions to us. Furthermore, relevant PRC laws and regulations permit payments of dividends by our PRC operating subsidiaries only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations.

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Under PRC laws and regulations, each of our PRC operating subsidiaries is also required to set aside a portion of its net income each year to fund specific reserve funds. These reserves are not distributable as cash dividends. In particular, subject to certain cumulative limits, the statutory general reserve fund requires annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends. Our WFOE operating subsidiaries have allocated annual after-tax profits to each of their respective reserve funds in compliance with these laws and regulations. For the years ended December 31, 2009, 2010 and 2011, we made total appropriations of $10,765,735, $21,211,346 and $10,214,705 respectively, including the reserve funds of our PRC operating subsidiaries and PRC operating affiliates. As a result of these PRC laws and regulations, our PRC operating subsidiaries and our PRC operating affiliates are restricted in their ability to transfer a portion of their net assets to us in the form of dividends, loans or advances. As of December 31, 2011, the amount of these restricted portions was approximately $234.1 million. Our PRC operating affiliates have historically not paid dividends to us from their accumulated profits, as we do not own any direct equity interest in these operating affiliates and we do not intend for our operating affiliates to pay dividends to us in the foreseeable future. All of the reserve funds of our PRC operating subsidiaries and affiliates are generally available to us to use in expanding our business in China. Any limitation on the ability of our WFOE operating subsidiaries to receive distributions from their respective subsidiaries or pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business. See “Risk Factors — PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. A failure by our shareholders or beneficial owners who are PRC citizens or residents in China to comply with such regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.”

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and affiliates.

As an offshore holding company of our PRC operating subsidiaries and affiliates, we may make loans to our PRC subsidiaries and consolidated PRC affiliated entities, or we may make additional capital contributions to our WFOE operating subsidiaries. Any loans to our PRC subsidiaries or consolidated PRC affiliated entities are subject to PRC regulations and approvals. For example:

• loans by us to our foreign invested enterprises to finance their respective activities cannot exceed statutory limits and must be registered with the PRC State Administration of Foreign Exchange or its local counterpart; and

• loans by us in foreign exchange to our PRC operating affiliates and our PRC operating subsidiaries owned by our WFOE operating subsidiaries, which are domestic PRC enterprises, must be approved by the relevant government authorities and must also be registered with the PRC State Administration of Foreign Exchange or its local counterpart. In practice, it is very difficult if not impossible in most cases, to obtain the approval of or complete the registration regarding our loan to any PRC operating affiliate.

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We may also determine to finance our PRC foreign invested enterprises by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce or its local counterpart. Because our PRC operating affiliates and our PRC operating subsidiaries owned by our WFOE operating subsidiaries are domestic PRC enterprises, we are not likely to finance their activities by means of direct capital contributions due to regulatory issues relating to foreign investment in domestic PRC enterprises, as well as the licensing and other regulatory issues discussed in “Business Overview — Regulatory Matters” of Item 4. “Information on the Company” of this annual report. We cannot assure you that we can obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our PRC operating affiliates and our PRC operating subsidiaries owned by our WFOE operating subsidiaries. If we fail to receive such registrations or approvals, our ability to capitalize our PRC operations would be negatively affected which would adversely and materially affect our liquidity and our ability to expand our business.

Furthermore, on August 29, 2008, State Administration of Foreign Exchange, or SAFE, promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or SAFE Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. When applying for conversion of foreign exchange in “capital account”, such as foreign exchange received from capital contribution or loans, into Renminbi, the company is required, except for small amount conversion not exceeding US$50,000 for daily expenses, submit to the bank the relevant documents supporting such conversion, such as the business contracts, related Renminbi payment notice, and documents evidencing the use of funds previously converted from foreign exchange in its capital account. Further, SAFE Circular 142 requires that Renminbi converted from the foreign currency-denominated registered capital of a foreign-invested company may only be used for purposes within the company’s business scope approved by the applicable governmental authority, which is typically the Ministry of Commerce or its local counterparts, and registered with the local SAIC authority, and may not be used for equity investments within the PRC unless specifically provided for otherwise in its business scope. In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency denominated registered capital of a foreign-invested company. The use of such Renminbi may not be changed without approval from SAFE, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Violations of SAFE Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. As a result, SAFE Circular 142 may significantly limit our ability to effectively use the net proceeds from future offerings of our ADRs through our PRC operating subsidiaries as our PRC WFOE operating subsidiaries may not convert the funds received from us or our non-PRC subsidiaries in foreign exchange into Renminbi to invest in or acquire any other PRC company or finance the operation or development of our PRC operating affiliates. While the Company is pursuing and will continue pursuing a strategy of development partly through acquisition of other advertising companies, SAFE Circular 142 may adversely affect our liquidity and our liability to fund and expand our business in the PRC.

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We may be deemed a PRC resident enterprise under the PRC Enterprise Income Tax Law and be subject to PRC taxation on our worldwide income.

The PRC Enterprise Income Tax Law, or the New Law, and the implementation regulations to the New Law issued by the PRC State Council, became effective as of January 1, 2008. The New Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations for the New Law issued by the PRC State Council, “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Further, on April 22, 2009, the State Administration of Tax (“SAT”) issued a Tax Circular, Guoshuifa [2009] No. 82 on Certain Issues regarding the Determination of Offshore Companies Controlled by PRC Companies as Resident Enterprises pursuant to “De Facto Management Bodies” Standard, or Circular 82, which took effect on January 1, 2008. According to Circular 82, any company established pursuant to laws and regulations other than PRC laws but that is controlled by companies or company groups within China shall be deemed as a resident enterprise for PRC tax purposes if all the following conditions are met: (i) the senior management in charge of the daily operation and management of the company is based within China or the premises where the senior management performs its duties are located within China; (ii) the financial matters (such as raising funds, financing or financial risk management) and human resources matters (such as appointment and dismissal of employees or their payrolls) are decided by companies or individuals within China or require approval from companies or individuals within China; (iii) primary property, books and accounts, company seals and board and shareholder meeting minutes are kept or placed within China; and (iv) 50% or more of the directors with voting rights or senior management habitually reside within China. According to Circular 82, in determining the location of de facto management, “substance over form” principle should be followed. On July 27, 2011, SAT issued a notice of Interim Measures on Corporate Income Tax of Offshore Companies Controlled by PRC Companies as Resident Enterprises, which took effect on September 1, 2011. It further implements Circular 82 in detail, as well as clarifying that SAT or its local competent branch shall investigate an entity once it discovers such entity may satisfy the conditions set out in Circular 82, including requesting such entity to provide all relevant materials requested. Although Circular 82 was issued to regulate the PRC tax resident judgment of companies established overseas and controlled by PRC companies, which is not applicable in our case, the criteria in Circular 82 and the investigating approach SAT may take as set out in its implementation measures may be used as references to the SAT’s view on this issue.

Most of our major board decisions, such as those relating to strategic planning, significant investments, raising fund and all matters related to capital market activities are made outside of the PRC. We have an office in Hong Kong and appointed a General Manager of Sales in July 2010, who habitually resides in Hong Kong. Our Chief Financial Officer, appointed in January 2010, also spends most of his time in our office located in Hong Kong and is in charge of the Company’s investments, financial management, internal control and compliance. In addition, our senior management spends a significant amount of time outside of the PRC developing and managing investor relations. As such, we believe that the de facto management body of the Company is located outside of the PRC, and, accordingly, we believe the risk of being deemed a PRC tax resident is low. However, there is uncertainty regarding whether PRC tax authorities would deem us to be a PRC resident enterprise. If we are treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income, which would have an adverse effect on our effective tax rate and net income.

PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. A failure by us or our shareholders or beneficial owners who are PRC citizens or residents in China to comply with such regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.

The PRC National Development and Reform Commission, or NDRC, and SAFE promulgated regulations that require PRC residents and PRC corporate entities to register with and obtain approvals from relevant PRC government authorities in connection with their direct or indirect offshore investment activities and subsequent round trip investment into China. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

Under such SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies will be required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to file with the local branch of SAFE, with respect to that offshore company, any material change involving capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long term equity or debt investment or creation of any security interest over the assets located in China. The SAFE regulations also impose obligations on onshore subsidiaries of the offshore special purpose company to coordinate with and supervise the beneficial owners of the offshore entity who are PRC residents to complete the SAFE registration process. If any PRC resident fails to comply with such SAFE regulations, the PRC subsidiaries of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, such as fines.

As a Cayman Islands company, and therefore a foreign entity, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us. Moreover, if we purchase the assets or equity interest of company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in such SAFE regulations.

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These regulations may affect our financial status, business operations or strategies. For example, our present or future PRC subsidiaries’ ability to conduct foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, may be subject to compliance with such SAFE registration requirements by relevant PRC residents, over whom we have no control. We require our shareholders who are PRC residents or have PRC residents as its beneficial owner to comply with these SAFE regulations. However, we may not be fully informed of the identities of all our beneficial shareholders who are PRC citizens or residents, and we cannot compel our beneficial shareholders to comply with SAFE regulations. We cannot assure you that all of our shareholders or beneficial owners who are PRC residents have complied or will comply with our request to make or obtain any registrations or approvals required under these regulations or other related legislation. Furthermore, much uncertainty remains concerning the reconciliation of these regulations with other approval requirements. It is unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities.

Jason, Nanchun Jiang, who is a major beneficial owner of our company and a PRC resident under these SAFE regulations, has completed initial registration with SAFE. Due to frequent acquisitions and dispositions by the Company of its businesses which trigger the requirement on the subsequent registrations and filings with SAFE in accordance with these regulations, the complexity in registration requirements and time required for such registration and filing procedures, it is difficult to complete all the subsequent registrations and filings in a timely manner. As a result, Jason Nanchun Jiang has in the past failed and may fail in the future, to make subsequent registrations and filings for some of subsequent investments and other material changes in the offshore company in accordance with these regulations.

One primary legal consequence of failure to make SAFE registration is the restriction by SAFE on the remittance of funds between onshore PRC entities to offshore non-PRC entities. Such activities are most commonly conducted by direct subsidiaries of offshore non-PRC entities. Indirect subsidiaries that are owned by other PRC entities are not likely to engage in such fund transfers, and accordingly SAFE registration is not always carried out by indirect PRC subsidiaries that will not engage in fund remittances involving offshore non-PRC entities. In the past five years, we have made acquisitions of approximately 60 legal entities, including the conversion of some of our former PRC operating affiliates to indirect PRC operating subsidiaries, which may require registration or filing with the local SAFE. Among these acquisitions, 12 have been registered or filed with the local authority of SAFE, and most of the significant acquisitions with transaction values over US$50 million have been registered or filed. As most of the acquired legal entities that have not completed SAFE registration became indirect PRC operating subsidiaries directly owned by our other PRC operating subsidiaries, they will only distribute dividends directly to PRC entities. While it is difficult to predict if SAFE will strengthen the enforcement of its regulations in the future to include dividend distributions from PRC entities to PRC entities who are ultimately owned by offshore holding companies, we believe that onshore dividend distributions are unlikely to be subject to SAFE’s scrutiny and, therefore, penalties from SAFE.

Four of our active WFOE operating subsidiaries are directly owned by overseas parent companies and may distribute dividends to them from time to time. Two of these four active WFOE operating subsidiaries have already been registered or filed with the local authority of SAFE. We also intend to register or file Focus Media (China) Information Technology Co., Ltd. and Chizhong Information Technology (Shanghai) Co., Ltd. with the local authority of SAFE in the future to comply with SAFE regulations and facilitate dividend distributions from the active WFOE operating subsidiaries to their respective offshore parent companies.

Furthermore, relevant SAFE implementation rules promulgated in 2007, as revised in 2011, require foreign-invested enterprises to disclose the ultimate ownership in them by PRC resident shareholders or beneficial owners to SAFE when they apply for the initial foreign exchange registration. In practice, SAFE may require foreign-invested enterprises to make such disclosure as well when they make subsequent foreign exchange registration in relation to their capital increase. Given these requirements, we typically engage an outside agent for the purposes of filing foreign exchange registrations on behalf of our subsidiaries. Despite these efforts, such disclosure was not made when one of our WFOE operating subsidiaries applied for its initial foreign exchange registration and when another WFOE operating subsidiary filed a subsequent foreign exchange registration in relation to its capital increase. The existing and future failures by our WFOE operating subsidiaries to make such disclosure may inhibit their ability to pay dividends to us.

The failure or inability of us or our PRC resident shareholders or beneficial owners to comply with these regulations may subject us to fines and other legal sanctions although no legal or administrative sanctions have been taken against us so far. In particular, regarding the dividends distributed by our WFOE operating subsidiaries prior to the completion of subsequent registrations by our PRC resident shareholders or beneficial owners, SAFE may, at its discretion, choose to order our PRC resident shareholders or beneficial owners to complete the necessary subsequent registration, to order our WFOE operating subsidiaries to procure the wiring of the foreign exchange back to the PRC in an amount equal to the dividends previously distributed, and to impose monetary fines in an amount up to that of the dividends so distributed. If any of such penalties are imposed, our business operations and financial status could be adversely affected. Furthermore, the non-compliance may also restrict our overseas or cross-border investment activities, limit our ability to inject additional capital into our PRC WFOE subsidiaries and the ability of our PRC WFOE subsidiaries, to make distributions or pay dividends, or materially and adversely affect our ownership structure in which case, our acquisition strategy, business operations and financial status and our ability to distribute profits to you could be materially and adversely affected. And such SAFE regulations may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects.

See “Exchange Controls” in Item 10. “Additional Information” in this annual report.

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A failure to comply with PRC regulations regarding the registration of shares and share options held by our employees who are PRC residents may subject such employees or us to fines and legal or administrative sanctions.

State Administration of Foreign Exchange, or SAFE promulgated regulations that require PRC residents who are granted shares or share options by an overseas-listed company according to its employee share option or share incentive plan, through such overseas-listed company’s PRC subsidiary or branch located in the PRC, any other PRC entity that is under control of such overseas-listed company or other qualified PRC agents, or collectively the PRC agent, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan and to open a special foreign currency account and apply for fund transfer and conversion into RMB. More specifically, the PRC agent will have to apply for the annual quota of fund transfer and currency conversion, including transferring of overseas share sale proceeds to the PRC and converting such proceeds from US dollars to RMB. In addition, an offshore entity is required to be appointed to act as trustee to handle share transfer transactions or options exercises relating to the share option or other share incentive plan. We and our PRC resident employees who have been granted share options, or PRC option holders, are subject to these rules. We attempted to comply with these rules. The initial SAFE registration of the share option or other share incentive plan was completed in April 2011 with quota for the year ended December 31, 2011 being granted by the SAFE at the same time. We are currently in the process of applying for quota for the year ended December 31, 2012. If we or our PRC option holders fail to comply with these rules in a timely manner or at all, we or our PRC option holders may be subject to fines and other legal sanctions.

If the custodians or authorized users of our controlling non-tangible assets, including corporate chops and seals fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and adversely affected.

We are incorporated in the Cayman Islands and the authority of persons to execute contracts on our behalf is subject to our memorandum and articles of association. No person may execute contracts on our behalf unless authorized to do so by our board of directors or someone who had been delegated power by the board to provide authorizations on the board’s behalf. Our company seal is held by our legal department. In the event that our company seal is used to execute a contract without our board’s authorization, we may still be bound by the contract on the basis that the person who executed the contract had implied or ostensible authority to execute the contract on our behalf as he possessed our company seal. In the event that our company seal becomes lost, this would not prevent us from being able to execute contracts as there is no requirement under Cayman Islands law for our contracts to be executed under seal. However, if the company seal were lost we would need to apply for a replacement.

Under PRC law, legal documents for corporate transactions, including contracts such as the leases and sales contracts that our business relies on, are executed using the chops or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with Administration of Industry and Commerce, or AIC. We generally execute legal documents with chops or seals, rather than the signatures of the designated legal representatives.

We generally use corporate chops for executing documents to be submitted to government agencies, including in applications for changing business scope, directors, or company name, and for legal letters. We generally use contract chops for executing leases, and supply and sales contracts. We generally use finance chops for making and collecting payments, including, but not limited to issuing invoices. Use of corporate chops and contract chops for our company, our PRC operating subsidiaries and our PRC operating affiliates must be approved by our legal department in Shanghai. Use of finance chops for our company, our PRC operating subsidiaries and our PRC operating affiliates must be approved by our finance department in Shanghai.

The chops of our PRC operating subsidiaries and PRC operating affiliates incorporated in Shanghai are generally held by the legal and finance departments in Shanghai. The chops of our PRC operating subsidiaries and PRC operating affiliates incorporated in other cities in China are generally held locally by the finance department of the relevant entities so that original documents can be executed locally.

Although we usually utilize chops to enter into contracts, the registered legal representatives of each of our PRC operating subsidiaries and our PRC operating affiliates have the apparent authority to enter into contracts on behalf of such entities without chops. All designated legal representatives of our PRC subsidiaries and PRC affiliates are members of our senior management team who owe us fiduciary duties.

Accordingly, there is a risk that employees in our legal or finance department or the relevant designated legal representatives could abuse their authority, for example, by binding the company with contracts against the company’s interest or intentions which could result in economic harm or damages as a result of any contractual obligations, or resulting disputes, that might arise. If the party contracting with the company did not act in good faith under such circumstances, then we could incur costs to nullify such contracts.

In order to maintain the physical security of our chops, they are generally stored in secured locations accessible only by the authorized personnel in the legal or finance departments. Our designated legal representatives generally do not have access to the chops, but if such designated legal representatives were to obtain the chops, in spite of these protections, then we may encounter difficulties in maintaining control over the relevant entities. Although we monitor such employees and the designated legal representatives, such procedures may not be able to prevent all instances of abuse or negligence. If the designated legal representative obtains control of the chop in an effort to obtain control over the entity, we would need to pass a new shareholder or board resolution to designate a new legal representative and we would need to take legal action to seek the return of the chops, apply for a new chop with the relevant authorities (when relevant authorities accept our application of their discretion), or otherwise seek legal redress for the violation of their fiduciary duties to us.

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We rely on the company seals, financial chops and business licenses of our PRC entities or our legal representatives for entering into contracts, conducting banking business, or taking official corporate action of any sort including registering any change to the composition of the board or management with the relevant PRC authorities. Accordingly, if any of our legal representatives obtained and misused or misappropriated our corporate chops, seals, business licenses or other controlling intangible assets, whether as a result of an employment or other dispute, such person’s malfeasance or any other reason, we could incur economic damage and disruption to our operations that may necessitate corporate or legal action. Such corporate or legal action could involve significant time and resources to resolve while distracting management from our operations. In particular, during any period where we lose effective control of the corporate activities as a result of such misuse or misappropriation, the business activities of the affected entity could be disrupted and we could lose the economic benefits of that aspect of our business which may negatively impact our business and reputation.

Risks Relating to Our Business and Industry

We have been named as a defendant in certain purported shareholder class action lawsuits that could have a material adverse impact on our operating results and financial condition.

We will have to defend against lawsuits described in Item 8 of this annual report, “Financial Information — Consolidated statements and other financial information — Legal Proceedings,” including any appeals of such lawsuits should our initial defense be successful. We are currently unable to estimate the possible loss or possible range of loss, if any, associated with the resolution of these lawsuits. An unfavorable outcome from the lawsuits, including any plaintiff’s appeal of the judgment in these lawsuits, could have a material adverse effect on our consolidated financial position, results of operations, or cash flows in the future. The litigation process may utilize a material portion of our cash resources and divert management’s attention from the day-to-day operations of our company, all of which could harm our business. There can be no assurance that we will prevail in any such appeal and any adverse outcome of these cases could have a material adverse effect on our business or results of operations.

Our business may be negatively affected by adverse publicity.

Adverse publicity and damage to our reputation arising from our failure or perceived failure to comply with legal and regulatory requirements, alleged financial reporting irregularities, increasing regulatory and law enforcement scrutiny, and regulatory action or litigation that arises from the failure or perceived failure by us to comply with legal, regulatory and compliance requirements, could result in adverse publicity. For instance, in late 2011 and early 2012 we were subject to significant negative publicity resulting from reports published by a short seller of our ADSs. This negative publicity resulted in significant volatility in the trading price of our ADSs and also led to the filing of a shareholder class action lawsuit against us alleging that our filings and earnings releases contained certain material misstatements and omissions. Such adverse publicity could result in reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers, affect our ability to attract and retain key personnel, affect our ability to maintain access to the capital markets, or have other material adverse effects on us in ways that are not predictable.

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We derive a substantial majority of our revenues from the provision of advertising services, and advertising is particularly sensitive to changes in economic conditions and advertising trends.

Demand for advertising time slots and advertising frame space on our networks, and the resulting advertising spending by our clients, is particularly sensitive to changes in general economic conditions and advertising spending typically decreases during periods of economic downturn. Advertisers may reduce the money they spend to advertise on our networks for a number of reasons, including:

• a general decline in economic conditions;

• a decline in economic conditions in the particular cities where we conduct business;

• a decision to shift advertising expenditures to other available advertising media;

• a decline in advertising spending in general; or

• a decrease in demand for advertising media in general and for our advertising services in particular would materially and adversely affect our ability to generate revenue from our advertising services, and our financial condition and results of operations.

Since the second half of 2008, global credit and capital markets, particularly in the United States and Europe, have experienced difficult conditions. Although there have been signs of recovery in the United States in early 2012, since late 2009, there have also been growing concerns of another global economic downturn triggered by the failure of certain European countries to finance their budget deficits or service their debt levels. In addition, in early March 2012, China pared its economic growth target to 7.5% from an 8% goal that has been in place since 2005. As a result of such economic downturns, growth in consumer spending in China slowed which resulted in a corresponding slowdown in advertising spending growth. If there is another deterioration in economic conditions, our revenues, net income and results of operations could be materially adversely affected.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period in the future.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period based on the seasonality of consumer spending and corresponding advertising trends in China. In addition, advertising spending generally tends to decrease during January and February each year due to the Chinese Lunar New Year holiday. Factors that are likely to cause our operating results to fluctuate, such as the seasonality of advertising spending in China, the effect of the global economic downturn on spending in China, a further deterioration of economic conditions in China and potential changes to the regulation of the advertising industry in China, are discussed elsewhere in this annual report. If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter by a corresponding amount, which would harm our operating results for that quarter relative to our operating results from other quarters.

Our failure to maintain existing relationships or obtain new relationships that allow us to place our flat-panel digital displays, advertising poster frames and outdoor traditional and LED digital billboards in desirable locations would harm our business and prospects.

Our ability to generate revenues from advertising sales depends largely upon our ability to provide large networks of flat-panel digital displays, advertising poster frames (including digital poster frames), and large outdoor traditional and LED digital billboards, in desirable locations throughout major urban areas in China. We also depend on the ability of our third-party location provider to secure desirable traditional and LED digital billboard locations for our outdoor traditional and LED network. This, in turn, requires that we develop and maintain business relationships with real estate developers, landlords, property managers, hypermarkets, retailers and other businesses and locations in which we rent space for our displays and billboards. Although a majority of our display placement agreements and advertising frame placement agreements have terms ranging from one to five years, and upon expiration give us the right to renew the agreement on terms no less favorable than those offered by competing bidders, we may not be able to maintain our relationships with them on satisfactory terms, or at all. If we fail to maintain our relationships with landlords and property managers, or if a significant number of our existing display or advertising frame placement agreements are terminated or not renewed or if we fail to maintain our relationship with our location provider of traditional and LED billboard space, advertisers may find advertising on our networks unattractive and may not wish to purchase advertising time slots or advertising frame space on our networks, which would cause our revenues to decline and our business and prospects to deteriorate.

Under some of our display placement agreements in Guangzhou, Shenzhen, Dalian and Chongqing, the property manager has the right to terminate the agreement if landlords or tenants in the building lodge complaints about our flat-panel digital displays. In addition, some of our display placement agreements in other cities allow the property manager to terminate the agreement if we fail to keep each flat-panel digital display operational for a minimum amount of time each year. If these tenants complain about our displays, or if the property manager claims we have failed to keep the flat-panel digital displays operational for the stipulated number of days each year, we may be required to remove our panels from these locations.

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In accordance with PRC Property Law, landlords enjoy property rights over public areas or facilities of residential or commercial properties. In substantially all cases, we obtain prior approval from relevant landlords or property managers, before installing any of our advertising equipment in a location. For office buildings, in substantially all cases, we obtain prior approval directly from landlords, and only execute placement agreements with property managers that such landlords authorized and designated to us. For supermarkets and convenience stores, in substantially all cases, we obtain consents from and execute placement agreements directly with the market or store owners who have the exclusive right to operate the site. For residential locations, in a majority of cases, we execute placement agreements with property managers and, in a minority of cases, property owners’ committees.

If we execute placement agreements with property managers, we require that such property managers obtain proper authorization from the relevant property owners’ committees before we execute such placement agreements. If property managers fail to obtain prior approval from the relevant property owners’ committees and misrepresent such authorization in our placement agreements, we could be required to obtain the approval of the landlord or remove our advertising equipment at our own cost. Since our founding, we have not incurred material costs, fees or penalties as a result of failing to obtain any such approvals prior to installing our advertising equipment nor have we been party to any material dispute or litigation as a result of any such failure.

We may not be able to successfully expand our LCD display network, poster frame network and in-store network into new regions or diversify our network into new advertising networks or media platforms, which could harm or reverse our growth potential and our ability to increase our revenues.

If we are unable to obtain or retain desirable placement locations for our flat-panel digital displays, advertising poster frames and outdoor traditional and LED billboards movie theater advertising slots on commercially advantageous terms or if the supply of desirable locations diminishes or ceases to expand, we could have difficulty in maintaining or expanding our network, our operating margins and earnings could decrease and our results of operations could be materially and adversely affected.

Our location costs, which include lease payments to landlords and property managers under our display placement agreements, maintenance and monitoring fees and other associated costs, comprise a significant portion of our cost of revenues. For 2009, 2010 and 2011, our location costs accounted for 48.9%, 60.7% and 64.6% of our cost of revenues and 29.7%, 26.1% and 23.6% of our total revenues, respectively. In the future, we may need to increase our expenditures on our display and frame placement agreements to obtain new and desirable locations, to renew existing locations, and to secure favorable exclusivity and renewal terms. In addition, lessors of space for our flat-panel digital displays, advertising poster frames and traditional and LED billboards may charge increasingly higher display location lease fees, or demand other compensation arrangements, such as profit sharing. If we are unable to pass increased location costs on to our advertising clients through rate increases, our operating margins and earnings could decrease and our results of operations could be materially and adversely affected. In addition, in more developed cities, it may be difficult to increase the number of desirable locations in our network because most such locations have already been occupied either by us or by our competitors, or in the case of outdoor traditional and LED billboards, because the placement of outdoor installments may be limited by municipal zoning and planning policies. In recently developing cities, the supply of desirable locations may be small and the pace of economic development and construction levels may not provide a steadily increasing supply of desirable commercial and residential locations. If, as a result of these possibilities, we are unable to increase the placement of our advertising networks into commercial and residential locations that advertisers find desirable, we may be unable to expand our client base, sell advertising time slots and poster frame space on our network or increase the rates we charge for time slots and poster frame space, which could decrease the value of our network to advertisers.

If we are unable to attract advertisers to advertise on our networks, we will be unable to maintain or increase our advertising fees and the demand for time on our networks, which could negatively affect our ability to grow revenues.

The amounts of fees we can charge advertisers for time slots on our LCD display network, movie theatre advertising network and traditional billboard network depend on the size and quality of these networks and the demand by advertisers for advertising time on these networks. Advertisers choose to advertise on these networks in part based on the size of the networks and the desirability of the locations where we have placed our flat-panel digital displays and where we lease traditional and LED digital billboards as well as the quality of the services we offer. If we fail to maintain or increase the number of locations, displays and billboards in our networks, diversify advertising channels in our networks, or solidify our brand name and reputation as a quality provider of advertising services, advertisers may be unwilling to purchase time on our networks or to pay the levels of advertising fees we require to remain profitable.

In addition, the fees we can charge advertisers for frame space on our poster frame network depends on the quality of the locations in which we place advertising poster frames, demand by advertisers for frame space and the quality of our service. If we are unable to continue to secure the most desirable locations for deployment of our advertising poster frames, we may be unable to attract advertisers to purchase frame space on our poster frame network.

Our failure to attract advertisers to purchase time slots and frame space on our networks will reduce demand for time slots and frame space on our networks and the number of time slots and amount of frame space we are able to sell, which could necessitate lowering the fees we charge for advertising time on our network and could negatively affect our ability to increase revenues in the future.

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Acquisitions we have made, and any future acquisitions may expose us to potential risks and have an adverse effect on our ability to manage our business.

Our integration of acquired entities into our business may not be successful and may not enable us to expand into new advertising platforms as well as we expect. This would significantly affect the expected benefits of these acquisitions. For example, in 2008, we disposed of CGEN’s in-store advertising operations, and discontinued the operations of Focus Media Wireless, both of which were recent acquisitions. These two transactions resulted in impairments losses to our 2008 results of operations. In addition, we discontinued or disposed of certain of our Internet operations in 2009 which resulted in losses to our 2009 results of operations. Moreover, the integration of acquired entities into our operations has required, and will continue to require, significant attention from our management. Future acquisitions will also likely present similar challenges.

The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. In addition, we may face challenges trying to integrate new operations, services and personnel with our existing operations. Our recent acquisitions and possible future acquisitions may also expose us to other potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, our inability to generate sufficient revenue to offset the costs, expenses of acquisitions and potential loss of, or harm to, relationships with employees and advertising clients as a result of our integration of new businesses and new regulations governing cross-border investment by PRC residents. In addition, we cannot assure you that we will be able to realize the benefits we anticipate from acquiring companies, or that we will not incur costs, including those relating to intangibles or goodwill, in excess of our projected costs for these transactions. The occurrence of any of these events could have a material and adverse effect on our ability to manage our business, our financial condition and our results of operations.

There may be unknown risks inherent in the acquisitions we have made.

Although we have conducted due diligence with respect to the major acquisitions we have undertaken and undertake, we may not be aware of all of the risks associated with the targets of such acquisitions we have made. Any discovery of adverse information concerning any company we have acquired since we acquired such entity could have a material adverse effect on our business, financial condition and results of operations. While we are entitled to seek indemnification in certain circumstances, successfully asserting indemnification or enforcing such indemnification could be costly and time consuming or may not be successful at all.

In addition, even if we are able to evaluate such risks, entities we acquire may not perform as we expected due to a range of factors, many of which are beyond our ability to assess or predict. In some instances we may determine to write-off or dispose of acquired entities that underperform. For example, in 2009 we disposed of certain underperforming entities that operated in our Internet division. We may conduct additional such dispositions or write-offs in the future which could have a material and adverse effect on our business, financial condition and results of operations.

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One or more of our regional distributors could engage in activities that are harmful to our reputation in the industry and to our business.

As of December 31, 2011, we covered approximately 33 out of the approximately 114 cities where we provide our LCD display network through contractual arrangements with regional distributors. Under these arrangements, we provide our business model and operating expertise to local advertising companies in exchange for their acting as regional distributors of our advertising services. We also sell our flat-panel digital displays to our regional distributors, who are responsible for developing and maintaining an advertising network in office buildings and other commercial locations in the respective cities where they operate. We also grant our regional distributors the right to use our “Focus Media”, “Framedia” and other brand names and logos. However, our contractual arrangements with our regional distributors do not provide us with control or oversight over their everyday business activities, and one or more of our regional distributors may engage in activities that violate PRC laws and regulations governing the advertising industry and advertising content, or other PRC laws and regulations generally. Some of our regional distributors may not possess all the licenses required to operate an advertising business, or may fail to maintain the licenses they currently hold, which could result in local regulators suspending the operations of the network in those cities. In addition, we do not independently review the advertising content that our regional distributors display on the portion of our LCD display network that they operate independently, and our regional distributors may include advertising content on their part of the LCD display network and violate PRC advertising laws or regulations or expose them and us to lawsuits or result in the revocation of their business license. If any of these events occurs, it could harm our reputation in the industry.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm for a public company must attest to and report on the effectiveness of the company’s internal control over financial reporting. Accordingly, our management assessed our effectiveness of internal control over financial reporting as of December 31, 2011 using the criteria set forth in the report “Internal Control — Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

Our management has concluded that our internal control over financial reporting was effective as of December 31, 2011. Nevertheless, we cannot assure you that any significant deficiency or material weakness in our internal control over financial reporting will not be identified in the future. If, however, we fail to maintain the adequacy of our internal control, we may not be able to conclude that we have effective internal control over financial reporting. Furthermore, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help us to manage the company effectively and prevent fraud. If we are unable to implement solutions to any deficiencies in our existing internal controls and procedures, or if we fail to maintain an effective system of internal controls in the future, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our ADSs may be adversely impacted.

Failure to manage our growth and operations could strain our management, operational and other resources and we may not be able to achieve anticipated levels of growth in the new networks and media platforms we operate, either of which could materially and adversely affect our business and growth potential.

To manage our growth and operations, we must develop and improve our existing administrative and operational systems and our financial and management controls and further expand, train and manage our work force. As we continue this effort, we may incur substantial costs and expend substantial resources in connection with any such expansion or to react to more challenging market conditions, due to, among other things, different technology standards, legal considerations and cultural differences. We may not be able to manage our current or future international operations effectively and efficiently or compete effectively in such markets. We cannot assure you that we will be able to efficiently or effectively manage the growth or changes in our operations, recruit top talent and train our personnel. Any failure to efficiently manage our expansion or changes in operations may materially and adversely affect our business and future growth.

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As we continue to expand into new networks and new media platforms, we expect the percentage of revenues derived from our LCD display network to decline. However, the new advertising networks and media platforms we pursue may not present the same opportunities for growth that we have experienced with our LCD display network and, accordingly, we cannot assure you that the level of growth of our networks will not decline over time. Moreover, we expect the level of growth of our LCD display network to decrease as many of the more desirable locations have already been leased by us or our competitors.

We rely on a small number of suppliers for our LCD display network equipment.

We rely on a small number of suppliers for certain of the equipment used in our LCD display network. In 2011, the majority of our LCD display equipment, in terms or dollars spent, was purchased from one supplier. If, as a result of a change our relationship with our suppliers, for any reason, we can no longer obtain LCD display equipment in the same quantities, or at all, or on favorable terms, we will need to find other suppliers for our LCD display equipment. Such alternative suppliers may not be able to provide equipment of the same or comparable quality as our existing suppliers, may not be as reliable or responsive to our purchase orders and requests, or may otherwise not provide the same level of service as our existing suppliers. As a result, if we are no longer able to source equipment from our current suppliers, our maintenance, enhancement and expansion of our business may be adversely affected.

If advertisers or the viewing public do not accept, or lose interest in, our out-of-home advertising network, our revenues may be negatively affected and our business may not expand or be successful.

The market for out-of-home advertising networks in China is relatively new and its potential is uncertain. We compete for advertising spending with many forms of more established advertising media. Our success depends on the acceptance of our out-of-home advertising network by advertisers and their continuing interest in these mediums as components of their advertising strategies. Our success also depends on the viewing public continuing to be receptive towards our advertising network. Advertisers may elect not to use our services if they believe that consumers are not receptive to our networks or that our networks do not provide sufficient value as effective advertising mediums. Likewise, if consumers find some element of our networks, such as the audio feature of our LCD display, in-store, movie theater and outdoor traditional and LED billboard networks, to be disruptive or intrusive, commercial locations, stores and movie theaters may decide not to place our flat-panel digital displays in their properties or lease us time in movie theaters and advertisers may view our advertising network as a less attractive advertising medium compared to other alternatives. In that event, advertisers may determine to reduce their spending on our advertising network. If a substantial number of advertisers lose interest in advertising on our advertising network for these or other reasons, we will be unable to generate sufficient revenues and cash flow to operate our business, and our advertising service revenue, liquidity and results of operations could be negatively affected.

We depend on the leadership and services of Jason Nanchun Jiang, who is our founder, executive chairman, chief executive officer and, through JJ Media Investment Holdings Limited, a wholly owned holding company, one of our largest shareholders, and our business and growth prospects may be severely disrupted if we lose his services.

Our future success is dependent upon the continued service of Jason Nanchun Jiang, our founder, executive chairman, chief executive officer and, through JJ Media Investment Holdings Limited, one of our largest shareholders. We rely on his industry expertise and experience in our business operations, and in particular, his business vision, management skills, and working relationships with our employees, our other major shareholders, many of our clients and landlords and property managers of the locations in our network. We do not maintain key-man life insurance for Mr. Jiang. If he was unable or unwilling to continue in his present position, or if he joined a competitor or formed a competing company in violation of his employment agreement and noncompetition agreement, we may not be able to replace him easily or at all. As a result, our business and growth prospects may be severely disrupted if we lose his services.

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We may need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.

We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs including for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities, could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

• investors’ perception of, and demand for, securities of alternative advertising media companies;

• conditions of the U.S. and other capital markets in which we may seek to raise funds;

• our future results of operations, financial condition and cash flows;

• PRC governmental regulation of foreign investment in advertising services companies in China;

• economic, political and other conditions in China; and

• PRC governmental policies relating to foreign currency borrowings.

We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us could have a material adverse effect on our liquidity and financial condition.

If we are unable to adapt to changing regulatory requirements or advertising trends and the technology needs of advertisers and consumers, we will not be able to compete effectively and we will be unable to increase or maintain our revenues which may materially and adversely affect our business prospects and revenues.

The market for advertising requires us to continuously identify new advertising trends and the technology needs of advertisers and consumers, which may require us to develop new features and enhancements for our advertising network. The majority of our displays use 21-inch and17-inch liquid crystal displays screens. We also have a growing number of displays that use larger LCD and plasma screens as well as large size LED digital billboards. We also upgraded portions of our poster frame network with digital poster LCD displays. Our movie theater network provides advertising time prior to movie screenings by leasing screen time. In the future, subject to relevant PRC laws and regulations, we may use other technology, such as cable or broadband networking, advanced audio technologies and high-definition panel technology. We may be required to incur development and acquisition costs in order to keep pace with new technology needs but we may not have the financial resources necessary to fund and implement future technological innovations or to replace obsolete technology. Furthermore, we may fail to respond to these changing technology needs. For example, if the use of broadband networking capabilities on our advertising network becomes a commercially viable alternative and meets all applicable PRC legal and regulatory requirements, and we fail to implement such changes on our network or fail to do so in a timely manner, our competitors or future entrants into the market who do take advantage of such initiatives could gain a competitive advantage over us. In addition, the local authorities may issue temporary restriction or prohibition on outdoor advertising at the regional level in light of public events of large scale held locally. For example, the Shanghai local government issued certain local regulations that prohibit advertising on ships (other than cargo ships and ferries) on the Huangpu River and Suzhou Creek area and restrictive rules for applying for outdoor advertising for the period of preparation and hosting of World EXPO 2010, which ended on October 31, 2010. If we cannot succeed in complying with new regulatory requirements or developing and introducing new features on a timely and cost-effective basis, advertiser demand for our advertising networks may decrease and we may not be able to compete effectively or attract advertising clients, which would have a material and adverse effect on our business prospects and revenues.

We may be subject to, and may expend significant resources in defending against, government actions and civil suits based on the content and services we provide through our advertising networks or Internet advertising services network.

PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator’s license for advertising business operations.

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As an advertising service provider, we are obligated under PRC laws and regulations to monitor the advertising content that is shown on our advertising networks for compliance with applicable law. In addition, each of our regional distributors is obligated under PRC laws and regulations to monitor the advertising content shown on the portion of our LCD display network each of them operates. In general, the advertisements shown on our advertising network and the portion of our advertising network operated by our regional distributors have previously been broadcast over public television networks and have been subjected to internal review and verification of such networks. We and our regional distributors are still separately required to independently review and verify these advertisements for content compliance before displaying the advertisements. In addition, where a special government review is required for specific product advertisements before broadcasting, we and our regional distributors are separately obligated to confirm that such review has been performed and approval has been obtained. We employ, and our regional distributors are required under the terms of our agreements with them to employ, qualified advertising inspectors who are trained to review advertising content for compliance with relevant PRC laws and regulations. In addition, for advertising content related to specific types of products and services, such as alcohol, cosmetics, pharmaceuticals and medical procedures, we and our distributors are required to confirm that the advertisers have obtained requisite government approvals including the advertiser’s operating qualifications, proof of quality inspection of the advertised products, government pre-approval of the contents of the advertisement and filing with the local authorities. We endeavor to comply, and encourage our regional distributors to take measures to comply, with such requirements, including by requesting relevant documents from the advertisers. Starting in January 2006, we began to operate a network of advertising poster frames placed primarily in elevators and public areas of residential complexes. The advertisements shown on our poster frame network are defined as print advertisements under PRC laws and regulations and are also subject to the same legal requirements as advertisements shown on our LCD display network. Our reputation will be tarnished and our results of operations may be adversely affected if advertisements shown on our LCD display network, poster frame network, movie theater or outdoor traditional or LED billboard network are provided to us by our advertising clients in violation of relevant PRC advertising laws and regulations or that the supporting documentation and government approvals provided to us by our advertising clients in connection with such advertising content are not complete or that the advertisements that our regional distributors have procured for broadcasting on our network have not received required approval from the relevant local supervisory bodies or are not content compliant. In addition, we commenced operation of our traditional billboard network in January 2007. The placement and installation of traditional billboards are subject to municipal zoning requirements and governmental approvals, including application for an outdoor advertising registration certificate for each traditional billboard subject to a term of use for a period of time, which is typically no more than two years for traditional billboards. If the existing traditional billboards placed by our location provider or us are required to be removed, the attractiveness of this portion of our advertising network will be diminished. Moreover, failure by an owner of traditional billboards to maintain outdoor advertising registration certificates would result in the inability to lease or market such space for the placement of advertisements.

China has also enacted regulations governing telecommunication service providers and the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information over the Internet and telecommunications networks that it believes to violate Chinese law, including content that is pornographic or obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory. If any of the content that we deliver through our Internet advertising network is found to violate Chinese laws and regulations, we could be subject to fines or suspensions.

Moreover, civil claims may be filed against us for fraud, defamation, subversion, negligence, copyright or trademark infringement or other violations due to the nature and content of the information displayed on our advertising network. If consumers find the content displayed on our advertising network to be offensive, landlords, property managers, other location providers or telecommunication network operators may seek to hold us responsible for any consumer claims or may terminate their relationships with us.

In addition, if the security of our content management system is breached through the placement of unauthorized compact flash, or CF cards in our flat-panel digital displays and unauthorized images, text or audio sounds are displayed on our advertising network, viewers or the PRC government may find these images, text or audio sounds to be offensive, which may subject us to civil liability or government censure despite our efforts to ensure the security of our content management system. Any such event may also damage our reputation. If our advertising viewers do not believe our content is reliable or accurate, our business model may become less appealing to viewers in China and our advertising clients may be less willing to place advertisements on our advertising network.

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us, may materially disrupt our business.

We cannot be certain that our advertising displays or other aspects of our business do not or will not infringe upon patents, copyrights or other intellectual property rights held by third parties. Although we are not aware of any such claims, we may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. Successful infringement or licensing claims against us may result in substantial monetary liabilities, which may materially and adversely disrupt our business.

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Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

We regard our copyrights, trademarks, trade secrets and other intellectual property as critical to our success. Unauthorized use of the intellectual property used in our business may adversely affect our business and reputation.

We have historically relied on a combination of trademark and copyright law, trade secret protection and restrictions on disclosure to protect our intellectual property rights. We enter into confidentiality and invention assignment agreements with all our employees. We cannot assure you that these confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our proprietary technology will not otherwise become known to, or be independently developed by, third parties.

We are in the process of registering in China many of the trademarks used in our business. We cannot assure you that any of our trademark applications will ultimately proceed to registration or will result in registration with scope adequate for our business. Some of our pending applications or registrations may be successfully challenged or invalidated by others. If our trademark applications are not successful, we may have to use different marks for affected services or technologies, or enter into arrangements with any third parties who may have prior registrations, applications or rights, which might not be available on commercially reasonable terms, if at all.

In addition, policing unauthorized use of our proprietary technology, trademarks and other intellectual property is difficult and expensive, and litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could disrupt our business, as well as have a material adverse effect on our financial condition and results of operations.

We face significant competition, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.

We compete with other advertising companies in China. We compete for advertising clients primarily on the basis of network size and coverage, location, price, the range of services that we offer and our brand name. We also face competition from other out-of-home television advertising network operators for access to the most desirable locations in cities in China. Individual buildings, hotels, restaurants and other commercial locations and hypermarket, supermarket and convenience store chains may also decide to independently, or through third-party technology providers, install and operate their own flat-panel television advertising screens. Our in-store network faces competition with similar networks operated by domestic out-of-home advertising companies. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, wireless communications, street furniture, billboard, frame and public transport advertising companies, and with traditional advertising media, such as newspapers, television, magazines and radio.

In the future, we may also face competition from new entrants into the out-of-home television advertising sector. Our sector is characterized by relatively low fixed costs and, as is customary in the advertising industry, we do not have exclusive arrangements with our advertising clients. In addition, since December 10, 2005, wholly foreign-owned advertising companies are allowed to operate in China, which may expose us to increased competition from international advertising media companies attracted to opportunities in China.

Increased competition could reduce our operating margins and profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources, or exclusive arrangements with desirable locations, and others may successfully mimic and adopt our business model. Moreover, increased competition will provide advertisers with a wider range of media and advertising service alternatives, which could lead to lower prices and decreased revenues, gross margins and profits. We cannot assure you that we will be able to successfully compete against new or existing competitors.

We do not maintain any business liability disruption or litigation insurance coverage for our operations, and any business liability, disruption or litigation we experience might result in our incurring substantial costs and the diversion of resources.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products and do not, to our knowledge, offer business liability insurance. While business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Any business disruption or litigation may result in our incurring substantial costs and the diversion of resources.

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We may become a passive foreign investment company, or PFIC, which could result in adverse United States federal income tax consequences to U.S. investors.

Based upon the past and projected composition of our income and valuation of our assets, including goodwill, we believe we were not a passive foreign investment company, or PFIC, for 2011, we do not expect to be a PFIC for 2012, and we do not expect to become one in the future, although there can be no assurance in this regard. If, however, we were a PFIC, such characterization could result in adverse United States federal income tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, our U.S. investors will become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (i) 75% or more of our gross income in a taxable year is passive income, or (ii) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. The calculation of the value of our assets will be based, in part, on the then market value of our ADSs, which is subject to change. Furthermore, it is not entirely clear how the contractual arrangements between us and our consolidated VIEs will be treated for the purpose of the PFIC rules. If it is determined that we do not own the stock of our consolidated variable interest entities for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we would likely be treated as a PFIC. Accordingly, we cannot assure you that we will not be a PFIC for 2012 or any future taxable year. For more information on PFICs, see “Item 10.E Additional Information — Taxation — United States Federal Income Taxation”.

Risks Relating to Regulation of Our Business and to Our Structure

Contractual arrangements we have entered into among our subsidiaries and affiliated entities may be subject to scrutiny by the PRC tax authorities and a finding that we owe additional taxes or are ineligible for our tax exemption, or both, could substantially increase our taxes owed, and reduce our net income and the value of your investment.

Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions we have entered into among our subsidiaries and operating affiliates are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties. See “Item 5. Operating and Financial Review and Prospects — Taxation” for a discussion of the transactions referred to above. In compliance with existing PRC law, our PRC operating subsidiaries and affiliates have filed with the relevant tax authorities on an annual basis a report disclosing any related party transactions. As of the date of this Form 20-F, we have not received any order or notice from the PRC tax authorities requiring an upward adjustment of our tax liability or otherwise challenging any related party transaction.

However, there can be no assurance that the PRC tax authorities will not conduct an audit or issue any negative order with respect to any related party transaction in the future. A finding by the PRC tax authorities that any of our PRC operating subsidiaries or affiliated entities are ineligible for their tax exemptions or an order by the PRC tax authorities that requires an upward adjustment on taxation or any interest on late payments or other penalties should be imposed would substantially increase our taxes owed and reduce our net income and the value of your investment. As a result of this risk, you should evaluate our results of operations and financial condition without regard to these tax savings.

Our business operations may be affected by legislative or regulatory changes.

There are no existing PRC laws or regulations that specifically define or regulate out-of-home digital media. Changes in laws and regulations or the enactment of new laws and regulations governing placement or content of out-of-home advertising, our business licenses or otherwise affecting our business in China may materially and adversely affect our business prospects and results of operations. An example of regulatory changes that affected our business was the introduction of “anti-spam” rules governing the sending of SMS messages without a user’s consent. These changes in rules governing wireless services contributed to a market environment that eventually contributed to our decision to terminate our mobile handset advertising network in April and December 2008. Further, in 2009, in response to a regulation promulgated by Shanghai Municipality Government in early 2009, regarding the operation of boat-based advertising platform on the Huangpu River, we suspended operation of the LED billboard aboard a boat we had purchased as an advertising platform on the Huangpu River. Accordingly, we recorded an aggregate impairment loss of $12.7 million for the year ended December 31, 2009, consisting of a $3.2 million impairment of acquired intangible assets and a $9.5 million impairment of the boat and LED equipment, as, following renovations and outfitting of the boat for non-passenger and non-cargo services and an eight-month solicitation effort to use the boat for advertising purposes in other markets, we were unable to find a suitable alternative market where the boat could be put to active use.

Risks Relating to the People’s Republic of China

Substantially all of our assets are located in China and substantially all of our revenues are derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and legal developments in China.

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The PRC’s economic, political and social conditions, as well as governmental policies, could affect the financial markets in China and our liquidity and access to capital and our ability to operate our business.

The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, under current PRC regulations, since December 10, 2005, foreign entities have been allowed to directly own 100% of a PRC advertising business if the foreign entity has at least three years of direct operations of an advertising business outside of China, or to directly own less than 100% of a PRC advertising business if the foreign entity has at least two years of direct operations of an advertising business outside of China. This may encourage foreign advertising companies with more experience, greater technological know-how and more extensive financial resources than we have to compete against us and limit the potential for our growth. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency- denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government implemented a number of measures, such as raising bank reserves against deposit rates to place additional limitations on the ability of commercial banks to make loans and raise interest rates, in order to slow down specific segments of China’s economy which it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our ability to operate our business.

The PRC legal system embodies uncertainties which could limit the legal protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation since then has significantly enhanced the protections afforded to various forms of foreign investment in China. Each of our PRC operating subsidiaries and affiliates is subject to PRC laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our operating affiliates. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the advertising industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with Focus Media Advertisement and its subsidiaries and shareholders, and other foreign investors, including you.

If tax benefits currently available to us in PRC were no longer available, our effective income tax rates for our PRC operations could increase.

We are incorporated in the Cayman Islands where no income taxes are imposed.

We generated substantially all our net income from our PRC operations. Our China operations are conducted through various subsidiaries and operating affiliates. Prior to January 1, 2008, pursuant to the PRC Income Tax Laws, our subsidiaries and operating affiliates were generally subject to EIT at a statutory rate of 33%.

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The PRC Enterprise Income Tax Law, or the New Law, and the implementation regulations to the New Law issued by the PRC State Council, became effective as of January 1, 2008. Under the New Law, China adopted a uniform tax rate of 25% for all enterprises (including domestically-owned enterprises and foreign-invested enterprises) and revoked the previous tax exemption, reduction and preferential treatments applicable to foreign-invested enterprises. There is a transition period for enterprises, whether foreign-invested or domestic, which received preferential tax treatments granted by relevant tax authorities prior to January 1, 2008. Enterprises that were subject to an enterprise income tax rate lower than 25% prior to January 1, 2008 may continue to enjoy the lower rate and gradually transition to the new tax rate within five years after the effective date of the New Law subject to relevant transaction rules. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term prior to January 1, 2008 may continue to enjoy such treatment until the fixed term expires. Preferential tax treatments may be granted to industries and projects that are strongly supported and encouraged by the state, and enterprises that qualify as “High and New Technology Enterprise” (“HNTE”) are entitled to a 15% enterprise income tax rate.

Further, Notice of the State Council concerning Implementation of Transitional Tax Incentives for HNTE newly-established in Special Economic Zones and Shanghai Pudong New Area (“Circular 40”) allows high tech companies established in the Special Economic Zones and Shanghai Pudong New Area to enjoy enterprise income tax exemption for the first to second year and half-rate of 25% statutory rate for the third to fifth year.

Most of the Company’s PRC operating subsidiaries and affiliates have completed transition from 33% to 25% starting from January 1, 2008. Those that enjoyed a lower tax rate of 15% before January 1, 2008 will gradually transition to the uniform tax rate of 25% from 2008 to 2012 unless they obtain the HNTE status under the New Law.

Among the subsidiaries and VIEs, Beijing Focus Media Wireless Co., Ltd. was qualified for the transitional rule under Circular 39 and thus enjoyed 0% for 2008 and enjoy a 50% reduction off the tax rate from 2009 through 2011. Accordingly, for the years ended December 31, 2009, 2010 and 2011, Beijing Focus Media Wireless Co., Ltd., was subject to a preferential tax rate of 10%, 11% and 12%, respectively.

Focus Media (China) Information Technology Co., Ltd. was incorporated on August 22, 2008 in one of the specific areas designated by the State Council, and obtained the HNTE qualification on June 22, 2010. Therefore, Focus Media (China) Information Technology Co., Ltd. is exempted from the EIT for the two years ended December 31, 2010 and 2011 and will enjoy a 50% tax deduction for the next three years.

We cannot assure you that the tax authorities will not, in the future, discontinue any of our preferential tax treatments, potentially with retroactive effect. The discontinuation of our preferential tax treatments or the change of the applicable preferential tax rate could materially increase our tax obligations.

Dividends we receive from our operating subsidiaries located in the PRC may be subject to PRC withholding tax.

The New Law, and the implementation regulations for the New Law issued by the PRC State Council, became effective as of January 1, 2008. The New Law provides that a maximum income tax rate of 20% will be applicable to dividends payable to non-PRC investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within the PRC, and the State Council has reduced such rate to 10% through the implementation regulations. Pursuant to the New Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

We are a Cayman Islands holding company and substantially all of our income may be derived from dividends and royalty fees we receive from our operating subsidiaries located in the PRC. Thus, dividends paid to us by our WFOE operating subsidiaries in China are subject to the 10% withholding tax if we are considered as a “non-resident enterprise” under the New Law. If we are required under the New Law to pay income tax for any dividends we receive from our subsidiaries, it will materially and adversely affect the amount of dividends, if any, we may pay to our shareholders and ADS holders. Furthermore, the State Administration of Taxation promulgated the Notice on How to Understand and Determine the Beneficial Owners in Tax Agreement in October 2009, or Circular 601, which provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and tax arrangements with other countries or regions. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. The conduit company normally refers to a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. We cannot assure you that any dividends to be distributed by our WFOE operating subsidiaries to our non-PRC subsidiaries who are their respective overseas parent companies, will be entitled to the benefits under the relevant tax treaties or other similar tax arrangements.

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Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws.

Under the New Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. It is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the New Law to withhold PRC income tax on dividends payable to our non-PRC investors that are “non-resident enterprises,” or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.

The New Law also provides that dividend income between “qualified resident enterprises” is exempted income, which may imply that dividends we receive from our PRC subsidiaries would be exempt from income tax if we are treated as a PRC resident enterprise for tax purposes, but we cannot assure you that we will be able to obtain such treatment for dividends paid to us by our PRC subsidiaries. Moreover, if we are deemed to be a PRC resident enterprise under the New Law, a foreign investor in us may be able to claim the benefits of any income tax treaty between his or her resident country and China. We cannot assure you, however, that treaty benefits will be available to you (for example with respect to the withholding tax rate on dividends) even if we are deemed a PRC resident enterprise.

Our PRC operating subsidiaries and operating affiliates may have engaged in business activities without the necessary registration with local authorities. This could subject us to fines or other penalties, which could negatively impact our revenues or interfere with our ability to operate our business.

According to relevant PRC laws, a company shall conduct business within its business scope and make supplementary registration with the relevant company registration authority if the company expands or changes its business operation. Furthermore, a company that sets up a branch to conduct an advertising business in a location where it is not registered must register with the local branch of the SAIC. As our business expands, some of our indirect operating subsidiaries or our operating affiliates may fail to register with the relevant local branch of SAIC for their expansion of business or for their branch offices in each of the cities where we operate and, as a result, we may be subject to administrative order for rectification and penalties for failing to register. These penalties may include, fines, disgorgement of profits or revocation of business license of our operating subsidiaries or our operating affiliates, although we believe that, as a matter of practice, the authorities typically impose an extreme penalty only after repeated warnings are ignored or where a violation is blatant and continuous. Because of the discretionary nature of regulatory enforcements in the PRC, we cannot assure you that we will not be subject to these penalties as a result of violations of the requirement to register with the local branches of SAIC for our local branch offices or for our expansion of business, or that these penalties would not substantially inhibit our ability to operate our business.

We may in the future need to procure an Internet content provider, or ICP, license in connection with the operations of our newly acquired operating affiliate, Enjoy Media. If it is determined that such license is required and we are unable to successfully procure such license, we may be subject to fines, penalties or other sanctions

In 2011, we acquired a controlling interest in Enjoy Media, a start-up company that is mainly engaged in the research and development of Q.com.cn (which focuses on distribution of electronic coupons), and related mobile phone applications. Under applicable PRC regulations relating to Internet information services, an ICP is required either (i) to obtain an ICP license from the Ministry of Industry and Information Technology, or MIIT, if it engages in a profitable online service, or (ii) to make a filing with the MIIT if it engages in a non-profitable online service. As of the date of this annual report, no significant revenue has been generated by Enjoy Media. As a result, we made the requisite filing with the MIIT in 2011 with respect to Q.com.cn. However, the distinction between profitable and non-profitable online service is unclear in practice and our online distribution of electronic coupons may be deemed as a profitable online service by the relevant authorities. In addition, our future business plan for Enjoy Media may involve businesses which are more commonly regarded as profitable online services. To ensure full compliance with PRC laws and regulations, we will apply for an ICP license if the authorities deems us to be a profitable ICP or our future business direction requires us to. If we are required to apply for an ICP license and are not successful in acquiring such license, Enjoy Media could face fines or other sanctions.

The strengthened scrutiny over acquisition and disposition transactions by the PRC tax authorities may have a negative impact on us or your disposition of our ordinary shares or ADSs.

        Our operations and transactions are subject to review by the PRC tax authorities pursuant to relevant PRC laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, in connection with the New Law, the Ministry of Finance and State Administration of Taxation jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008. Under the two circulars, we and certain of our subsidiaries and affiliates may be subject to additional income tax on capital gains generated from their disposition of relevant equity interests in 2009 and 2010. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment. If the PRC tax authorities make such adjustment, our income tax costs will be increased.

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By promulgating and implementing the circulars, the PRC tax authorities have strengthened their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. For example, Circular 698 specifies that the PRC State Administration of Taxation is entitled to redefine the nature of an equity transfer where offshore holding vehicles are interposed for tax-avoidance purposes and without reasonable commercial purpose and thus impose PRC income tax to a transfer of equity in an offshore company. Further, non-resident enterprises may be required to file with the PRC tax authorities to report their indirect transfer of equity interests in a PRC resident company if the transferred offshore holding vehicles are incorporated in a tax jurisdiction where the effective income tax rate is less than 12.5% or if the income of its residents derived outside of such jurisdiction is free of income tax. It is not clear to what extent the holders of our shares or ADS will be subject to these requirements. We have conducted and may conduct acquisitions and dispositions involving complex corporate structures, but we may not be able to make timely filing with the PRC tax authorities as requested. The PRC tax authorities may, at their discretion, impose or adjust the capital gains on us for any of our historical or future acquisitions and dispositions or on the holders of our shares or ADSs for their disposition of our shares or ADSs or request us or the holders of our shares or ADSs to submit additional documentation for their review in connection with any relevant acquisitions or disposition, and cause us or the holders of our shares or ADSs to incur additional costs.

PRC rules on mergers and acquisitions may subject us to sanctions, fines and other penalties and affect our future business growth through acquisition of complementary business.

On August 8, 2006, six PRC government and regulatory authorities, including the PRC Ministry of Commerce and the Chinese Securities Regulatory Commission, or the CSRC, promulgated a rule entitled “Provisions regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,” or the New M&A Rule, which became effective on September 8, 2006 and was revised in 2009. The New M&A Rule, among other things, requires that an offshore special purpose vehicle, or SPV, formed for the listing purpose through acquisition of a PRC domestic entity and controlled by PRC residents should obtain approval from the CSRC prior to publicly listing its securities on an overseas stock market. Based on consultation with the International Department of the CSRC regarding its interpretation of the New M&A Rule, our PRC counsel, Global Law Office, advised us that the CSRC approval was not required for the listing of our ADSs on Nasdaq Global Market and subsequent offerings. However, we cannot assure you that the relevant PRC government agency, including the Ministry of Commerce or other applicable departments of the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory body subsequently determines that the CSRC’s approval was, or will be, required for future offerings of our ADSs on Nasdaq Global Market, and we may face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from any offering of our ADSs into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

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The New M&A Rule also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, on August 25 2011, the PRC Ministry of Commerce promulgated the Rules of the Ministry of Commerce on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Ministry of Commerce Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular 6. Under the Ministry of Commerce Security Review Rules, a national security review is required for certain mergers and acquisitions by foreign investors that raise concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. The application and interpretation of the Ministry of Commerce Security Review Rules remain unclear. In the future, we may grow our business in part by acquiring complementary businesses, although we do not have any plans to do so at this time. Complying with the requirements of the New M&A Rule and Ministry of Commerce Security Review Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit the completion of such transactions, which could affect our ability to expand our business or maintain our market share.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

Substantially all of our revenues and operating expenses are denominated in Renminbi. The Renminbi is currently convertible under the “current account”, which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”, which includes foreign direct investment and loans. Currently, each of our WFOE operating subsidiaries may purchase foreign exchange for settlement of “current account transactions”, including payment of dividends to us, without the approval of SAFE. However, we cannot assure you that the relevant PRC governmental authorities will not further limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the State Administration of Foreign Exchange and other relevant PRC governmental authorities. This could affect the ability of each of WFOE operating subsidiaries to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us. It may also restrict our ability to remit amounts overseas including to our Cayman Islands holding company. If we transfer amounts to overseas accounts, it may be deemed a dividend paid on profits which is subject to PRC taxation, which could affect the feasibility and efficiency of conducting actions overseas, such as issuing dividends to shareholders, conducting share repurchase programs or otherwise.

Fluctuations in exchange rates could result in foreign currency exchange losses.

Appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Since July 2005, the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it is reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. This change in policy has resulted in the gradual increase in the value of the Renminbi against the U.S. dollar over time. As of December 30, 2011, the Renminbi had appreciated approximately 31.5% against the U.S. dollar since July 21, 2005. On April 20, 2012, the Renminbi was valued against the U.S. dollar at approximately RMB6.3080 to the U.S. dollar. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes

        From December 2002 to June 2003, China and other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new cases of SARS have been reported, most recently in central China in April 2004. During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. In addition, many countries, including China, have encountered incidents of the H5N1 strain of bird flu, or avian flu. This disease, which is spread through poultry populations, is capable in some circumstances of being transmitted to humans and is often fatal. In April 2009, an outbreak of the H1N1 virus, also commonly referred to as “swine flu”, occurred in Mexico and spread to other countries. Cases of swine flu were reported in Hong Kong and mainland China. A new outbreak of SARS or an outbreak of avian or swine flu may result in health or other government authorities requiring the closure of our offices or other businesses, including office buildings, retail stores and other commercial venues, which comprise the primary locations where we provide our LCD display and poster frame advertising services. Any recurrence of the SARS outbreak, an outbreak of avian or swine flu or a development of a similar health hazard in China, may deter people from congregating in public places, including a range of commercial locations such as office buildings and retail stores. Such occurrences could severely impact the value of our LCD display and poster frame networks to advertisers, significantly reduce the advertising time purchased by advertisers and severely disrupt our business and operations. In addition, losses caused by epidemics, natural disasters and other catastrophes, including earthquakes or typhoons, are either uninsurable or too expensive to justify insuring against in China.

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Similarly, war (including the potential of war), terrorist activity (including threats of terrorist activity), natural disasters, social unrest, geopolitical uncertainty or international conflict may also have a material adverse effect on our business and results of operations. In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis, and as a result, our operational continuity may be adversely and materially affected and our reputation may be harmed.

The audit report included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection

The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the US Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the US Public Company Accounting Oversight Board (United States) (the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

Inspections of other audit firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors in our ADSs may be deprived of the benefits of PCAOB inspections of our auditors.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. As a result, investors in our ADSs may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Risks Relating to Our ADSs and Our Trading Markets

The price of our ADSs has been volatile and may continue to be volatile, which may make it difficult for holders to resell the ADSs when desired or at attractive prices.

The trading price of our ADSs has been and may continue to be subject to wide fluctuations. From July 13, 2005 to April 26, 2012, the closing prices of our ADSs on the Nasdaq Global Market has ranged from a low of $5.12 to a high of $65.10 per ADS and the last reported sale price on April 26, 2012 was $23.72. From July 13, 2005 until April 10, 2007, we used an ADS-to-share ratio of one-to-10. Starting April 11, 2007, we reduced this ratio to five-to-one. All ADS trading prices on the Nasdaq set forth in this annual report, including historical trading and closing prices, have been adjusted to reflect the new ADS-to-share ratio of one-to-five. Our ADS price may fluctuate in response to a number of events and factors. The financial markets in general, and the market prices for many PRC companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our advertising network could cause the market price for our ADSs to change substantially. Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the future.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement for shareholder approval for the issuance of shares to officers or directors in a private placement at a price less than market value of the shares, which is considered a form of equity compensation. This may afford less protection to holders of our ordinary shares and ADSs.

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The Nasdaq Listing Rules in general require listed companies to follow a stipulated set of corporate governance practices. As a foreign private issuer, we are permitted to, and we will, follow home country corporate governance practices instead of certain requirements of the Nasdaq Listing Rules, including, among others, the shareholder approval rules. Under Nasdaq Listing Rule 5635(c), shareholder approval is required prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants, subject to certain exceptions. This includes the issuance of shares to officers or directors in a private placement at a price less than market value, which is considered a form of equity compensation. The corporate governance practice in our home country, the Cayman Islands, does not require shareholder approval for the issuance of shares to officers or directors in a private placement at a price less than the greater of book value and market value, provided that the directors consider the issue price represents fair value for the shares being issued. We currently rely upon the relevant home country exemption in lieu of the requirement for shareholder approval of such share issuances. For example, in connection with the subscription for our ordinary shares by JJ Media Investment Holding Limited (an entity owned by Jason Nanchun Jiang) in September 2009, our audit committee approved a price equal to the per-share equivalent average trading price of our ADSs during the twenty days prior to the subscription date, which in the event was slightly lower than market value but which our directors considered to represent fair value. As a result, you may receive less shareholder protection from dilution and other matters than if we were not a foreign private issuer.

We have in the past failed to comply with Nasdaq Listing Rules, including the timely filing of our annual report and maintaining a majority of independent directors on our board of directors.

Our failure to timely file our 2006 annual report on Form 20-F subjected us to delisting review by the Nasdaq Listing Qualifications Panel. In addition, in the past we previously failed to maintain a majority of independent directors on our board of directors, which put us out of compliance with Nasdaq Listing Rule 5605. See “Management”. On October 4, 2007, we received a letter from Nasdaq Listing Qualifications notifying us that we had regained compliance with all Nasdaq listing qualifications by filing our annual report for 2006.

Our historical failure to comply with Nasdaq Listing Rules has on one occasion subjected us to delisting review. If for any reason we fail to maintain compliance with Nasdaq Listing Rules in the future, we could be subject to additional delisting procedures and sanctions, which could affect our reputation and the market value of our securities, and could result in shareholder litigation, which may divert the attention of our management and force us to expend resources to defend against such claims. Any litigation may have a material and adverse effect on our business and future results of operations.

A significant percentage of our outstanding ordinary shares is beneficially owned by JJ Media Investment Holding Limited, an entity owned by Jason Nanchun Jiang, our founder, chairman and chief executive officer, and as a result, he may have significantly greater influence on us and our corporate actions by nature of the size of his shareholdings relative to our public shareholders.

Jason Nanchun Jiang beneficially owns approximately 17.9% of our outstanding ordinary shares through his investment entity JJ Media Investment Holding Limited. Accordingly, Jason Nanchun Jiang has significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions.

In addition, Mr. Jiang has historically entered into agreements involving shares in Focus Media. For instance, on September 10, 2010, Mr. Jiang (through his wholly-owned subsidiary JJ Media Investment Holding Limited, or JJ Media) entered into three Capped Call Transactions, which transactions were subsequently amended on June 22, 2011, September 22, 2011 and November 25, 2011. Mr. Jiang (through JJ Media) entered into the Capped Call Transactions in order to gain synthetic economic exposure to Focus Media shares over time. Such Capped Call Transactions are cash-settled and settlement will not affect Mr. Jiang or JJ Media’s ownership of shares. Concurrently with entering into such Capped Call Transactions, JJ Media received aggregate proceeds of approximately $153.1 million as the selling shareholder in an underwritten public offering of 8.1 million ADSs, representing approximately 5.7% of our total outstanding share capital at the time. Mr. Jiang also made an US$11.0 million block trade purchase of our ADSs on November 22, 2011, representing approximately 0.5% of our total outstanding share capital at the time. Accordingly, Mr. Jiang has historically entered, and may continue to enter, into transactions relating to his holdings in Focus Media in connection with his personal investments and financing activities. Mr. Jiang has repeatedly affirmed his commitment to Focus Media and we expect that he will remain a major shareholder in Focus Media. All transactions he enters into are made pursuant to our securities trading policy and relevant U.S. securities laws and are disclosed in Mr. Jiang’s filings under Form 13D to provide relevant disclosure to investors.

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Further, Jason Nanchun Jiang is also one of three shareholders of certain of our affiliated PRC entities with which we have contractual arrangements that are essential to our business. The continuing cooperation of these PRC affiliated entities, and their shareholders, branches and subsidiaries, is important to our business. Without Jason Nanchun Jiang’s consent, we could be prevented from entering into transactions or conducting business that could be beneficial to us. Accordingly, Mr. Jiang’s control of Focus Media Advertisement could hinder any change in control of our business, particularly where such change of control would benefit shareholders other than Mr. Jiang. It would be difficult for us to change our corporate structure if any disputes arise between us and Mr. Jiang or if he fails to carry out his contractual and fiduciary obligations to us.

Thus, Jason Nanchun Jiang’s interests as an officer and employee may differ from his interests as a shareholder or from the interests of our other shareholders, including you.

Anti-takeover provisions in our charter documents may discourage any hostile acquisition attempt by a third party, which could limit our shareholders’ opportunity to sell their shares at a premium.

Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

For example, our board of directors will have the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if the Board of Directors issues preference shares, the market price of our ordinary shares may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.

In addition, some actions require the approval of a supermajority of at least two thirds of our board of directors which, among other things, would allow our non-independent directors to block a variety of actions or transactions, such as a merger, asset sale or other change of control, even if all of our independent directors unanimously voted in favor of such action, further depriving our shareholders of an opportunity to sell their shares at a premium. In addition, our directors serve terms of three years each, which terms are not staggered. The length of these terms could present an additional obstacle against the taking of an action, such as a merger or other change of control, which could be in the interest of our shareholders.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection of your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

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Judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. All of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not resident in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of United States courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, there is uncertainty as to whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies, including reporting requirements under Section 16 of the Exchange Act.

Because we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

• the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

• the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

• the sections of the Exchange Act, including Section 16, requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

• the selective disclosure rules by issuers of material non-public information under Regulation FD.

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement.

Holders of our ADSs may only exercise their voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. Under our amended and restated memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is ten days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

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The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless:

• we have failed to timely provide the depositary with our notice of meeting and related voting materials;

• we have instructed the depositary that we do not wish a discretionary proxy to be given;

• we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

• a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

• voting at the meeting is made on a show of hands.

The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material and adverse effect on the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by American Depositary Receipts are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our legal and commercial name is Focus Media Holding Limited. Our principal executive offices are located at Unit No. 1 on the 20th Floor of The Centrium, 60 Wyndham Street, Central, Hong Kong, and our telephone number is +852-3752-8009. Our Internet website address is www.focusmedia.cn. Our predecessor company, Shanghai Aiqi Advertisement Co., Ltd., or Aiqi Advertisement, was established by immediate family members of Jason Nanchun Jiang in September 1997 and operated as an advertising agency. In May 2003, Aiqi Advertisement discontinued its advertising agency business, was renamed Shanghai Focus Media Advertisement Co., Ltd., or Focus Media Advertisement, commenced operation of our out-of-home digital advertising network in China and reorganized its shareholdings. At the same time, we entered into arrangements with Focus Media Advertisement that resulted in the consolidation of Focus Media Advertisement. Following this reorganization Jason Nanchun Jiang continued to hold a controlling interest in Focus Media Advertisement.

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In conjunction with the change in our business model in May 2003 and to facilitate foreign investment in our company, we established our offshore holding company, Focus Media Holding Limited as a company registered in the British Virgin Islands. On April 1, 2005, we completed the process of changing Focus Media Holding Limited’s corporate domicile to the Cayman Islands and we are now a Cayman Islands company. On July 13, 2005, our ADSs were listed for quotation on the Nasdaq Global Market and on July 19, we and certain of our shareholders completed an initial public offering and sale of 11,615,000 ADSs.

In January 2006, we acquired Infoachieve Limited which is also referred to as Framedia throughout this annual report, which operates a network of advertising poster frames placed primarily in elevators and public areas of residential complexes in China.

In January 2006, we and certain of our shareholders completed a public offering and sale of 7,415,389 ADSs.

In February 2006, we acquired Target Media, which operated an out-of-home advertising network using flat-panel digital displays placed in elevator lobbies, elevators and other public areas in commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other locations in cities in China. Since the completion of the acquisition of Target Media, the legal entities of Target Media and its affiliates and subsidiaries have been dissolved and their operations have been integrated with our operations.

In March 2006, we acquired Dotad Media Holdings, which operates a mobile-phone advertising service in China through China Mobile and China Unicom’s mobile phone networks. Following the acquisition of Dotad Media Holdings, we renamed the acquired company Focus Media Wireless Co., Ltd., which is also referred to as Focus Media Wireless throughout this annual report. In December 2008, we discontinued operations of our mobile handset advertising network, and this business is accounted for as a discontinued operation.

On June 21, 2006, we and certain of our shareholders completed a public offering and sale of 7,700,000 ADSs.

In September 2006, we completed the acquisition of 70% of the equity interest in Appreciate Capital Limited, or ACL, a British Virgin Islands company. ACL, through its affiliated PRC entity, leases screen time from movie theaters in cities in China, which it then sells as screen time slots to advertisers.

In September 2006, certain of our shareholders completed a public offering and sale of 2,459,345 ADSs.

In September 2006, Jason Nanchun Jiang (through his entity JJ Media Investment Holding Limited), our chairman, entered into a variable pre-paid forward contract with Credit Suisse, pursuant to which JJ Media Investment Holding Limited pledged and monetized 20 million of our ordinary shares held by JJ Media Investment Holding Limited.

During the fourth quarter of 2006, we completed the acquisition of Fengjing Advertisement. We signed a definitive term sheet to acquire 95% of Fengjing Advertisement Company (“Fengjing”) in July 2006 to further expand our outdoor LED network in Shanghai.

In March 2007, we completed the acquisition of Allyes Information Technology Company Limited, or Allyes, a Cayman Islands company, which operates an Internet advertising marketing agency and technology services company through its PRC affiliated entities.

In June 2007, we acquired Hua Kuang Advertising Company Limited, a Hong Kong company, and its PRC subsidiary, which operates a traditional billboard network through its PRC affiliates.

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On November 13, 2007, we and certain of our shareholders, primarily consisting of the former shareholders of Framedia, Dotad and Allyes, completed a public offering and sale of 13,720,873 ADSs, representing 68,604,365 ordinary shares.

On January 2, 2008, we completed the acquisition of CGEN Digital Media Company Limited, or CGEN. In accordance with the share purchase agreement entered into on December 10, 2007, we made a cash payment of US$168.4 million to the former CGEN shareholders and the former CGEN shareholders delivered 100% of the equity interest in CGEN to us. In December 2008, we disposed of CGEN, and no longer receive revenues from this business.

On March 20, 2008, our executive chairman Jason Nanchun Jiang, through his entity JJ Media Investment Holding Limited, purchased 100,000 Focus Media ADSs at an average price of USD 34.19 per ADS in the open market.

On July 16, 2008, we announced the implementation of a share repurchase program of up to $100 million, pursuant to which we repurchased approximately 2,588,342 of our ADSs on the open market for approximately $47.5 million.

On September 23, 2009, Jason Nanchun Jiang, through JJ Media Investment Holding Limited, subscribed for 75 million ordinary shares to be newly issued by the Company. The shares were issued on November 18, 2009.

In January 2010, certain Allyes employees and management and directors and certain members of our management and directors entered into a definitive agreement with us and Allyes to buy-out an aggregate 38% interest in Allyes from us. Pursuant to the terms of the agreements, the purchasing Allyes and Company management members paid an aggregate $13.3 million for a 38% interest of Allyes.

In February 2010, we announced the implementation of a share repurchase program of up to $200 million over the next twelve months which we increased to up to $300 million in August 2010. We repurchased approximately 12,050,786 of our ADSs for approximately $239.7 million up to May 31, 2011, which included a privately negotiated repurchase of 9,523,810 ADSs from Fosun International for $200 million.

On September 13, 2010, Jason Nanchun Jiang, through JJ Media Investment Holding Limited, sold 8,100,000 of our ADSs at a price of $18.90 per ADS.

On November 22, 2011, Mr. Jiang made an US$11.0 million block trade purchase of our ADSs, representing approximately 0.5% of our total outstanding share capital at the time.

On December 30, 2010, we signed an agreement to purchase, and on January 13, 2011, we paid approximately $61.0 million for, 15,331,305, or approximately 15%, of the outstanding shares of VisionChina Media Inc. (“VisionChina”) (Nasdaq: VISN), one of China’s largest out-of-home digital television advertising networks on mass transportation systems. The purchase price was calculated as the greater of (1) the average closing price of VisionChina ADSs in the 20 trading days preceding the purchase plus $0.10 per share and (2) the closing price of VisionChina ADSs on the date immediately preceding the purchase plus $0.05 per share, which resulted in a per-share purchase price of $3.979.

On June 22, 2011, we announced an increase in the size of our share repurchase program to US$450 million and to extend the termination date of the repurchase plan to December 31, 2013. On October 3, 2011, we announced our intention to increase the size of the share repurchase program from US$450 million to US$650 million while keeping the termination date of the repurchase plan at December 31, 2013. As of April 27, 2012, approximately $171 million remained available for the repurchase program.

In December 2011, Shanghai Focus Media Defeng Advertisement Co., Ltd., or Focus Media Defeng Advertisement, acquired control of Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd., or Enjoy Media, for RMB5.1 million. Enjoy Media is start-up company that is mainly engaged in the research and development of Q.com.cn (which focuses on distribution of electronic coupons), and related mobile phone application. As of the date of this annual report, no significant revenue has been generated by Enjoy Media. Enjoy Media’s results are included within our LCD display business. Focus Media Defeng Advertisement effectively obtained a 51% controlling interest in Enjoy Media through a series of contractual arrangements with Enjoy Media, whereby July Lilin Wang, our financial controller, serves as our nominee shareholder of record for the 51% equity interest in Enjoy Media. For a description of these contractual arrangements, see “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders.”

On January 10, 2012, we announced a policy starting from 2012 to issue a recurring dividend with payments expected to equal approximately 25% of our annual non-GAAP net income of the preceding fiscal year. Non-GAAP net income is calculated excluding share-based compensation expenses, amortization of acquired intangible assets, loss from equity method investee, impairment charges of goodwill, loss from the write-off of certain assets of previously acquired subsidiaries and the profit from the disposal of the previously acquired business. A dividend of $17.9 million, or $0.0274 per ordinary share, was paid out on April 16, 2012 to the shareholders of record on March 30, 2012. Dividends will also be paid out on a quarterly basis in the calendar year to shareholders of record as of June 30, September 30 and December 31 respectively. The dividend payments commence in 2012 in respect of our non-GAAP net income for 2011.

For a description of our principal capital expenditures and divestitures, see “Acquisitions” and “Capital Expenditure” in “Item 5. Operating and Financial Review and Prospects — Acquisitions” and “— B. Liquidity and Capital Resources — Capital Expenditures”.

B. Business Overview

The Company is founded on two major premises:

• Continued growth of the Chinese advertising market driven by the increasing urban population and the increasing disposable income of the Chinese population impelled by continued moderate to high speed GDP growth in China

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• The philosophy that the evolution of the Chinese urban population lifestyle triggers the evolution of the advertising spending pattern in China and hence presents market opportunities for the company to capture the shift in advertising spending. As the Chinese urban population lifestyle changes, consumers become increasingly more elusive to advertisers, and have over time resulted in making traditional media such as television and newspapers advertising increasingly ineffective and inefficient. As a result, the Company has and will continue to seek to build dominant market share in media platforms that are more effective and efficient in capturing the attention of the Chinese urban population.

We are now China’s leading multi-platform digital media company, operating the largest LCD display network in China using audiovisual digital displays in commercial and residential locations, based on the number of locations and number of flat-panel digital displays in our network, the largest poster frame network, based on the number of locations and number of traditional poster frames and digital poster frames in our network, and the largest LCD display network in China using audiovisual digital displays in supermarkets and hypermarkets.

The following is a summary description of the networks we operate:

• our LCD display network, which refers to our network of flat-panel digital displays placed in high-traffic areas of commercial, residential and public buildings, such as malls, hotels and the lobbies of apartment buildings, marketed to advertisers as separate channels targeting different types of consumers, including our premier A1 channel, premier A2 channel, and LCD 2.0 digital picture screens channel;

• our poster frame network, which refers to our network of traditional picture and digital advertising poster frames placed mainly in the elevators and public areas of commercial or residential buildings;

• our in-store network, which refers to our network of flat-panel digital displays placed in specific product areas inside stores with high-traffic concentrations such as selected consumer product sections and the main aisles in large-scale chain retail stores, or hypermarkets, as well as inside selected supermarkets and convenience stores;

• our movie theater advertising network, which refers to our right to sell advertising time on movie screens prior to movie screenings at movie theaters in China; and

• our traditional outdoor billboards, which refers to a traditional advertising business of large outdoor billboards. This portion of our network is operated by Hua Kuang Advertising Company Limited (“Hua Kuang”), Shanghai OOH Advertisement Co., Ltd. and other PRC subsidiaries under Hua Kuang (collectively referred to as “OOH”). The OOH business consists of advertising services focused on giving advertisers access to traditional outdoor billboards. OOH owns or leases the billboards from landlords and other agencies, and provides such billboards to the advertisers who want to put advertisements in such spaces. As we have historically been primarily a digital outdoor advertising company that places advertising assets in innovative locations, such as office lobbies and elevator banks, that target specific demographics and a company that directly owns (not leases) its outdoor media assets, the business of OOH is not considered a part of our core business.

Since we commenced our current business operations in May 2003, we have experienced significant growth in our network and in our financial results. As of December 31, 2011, we operated our LCD display network directly in approximately 81 major cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen. As of December 31, 2011, we covered approximately 33 additional cities through contractual arrangements with regional distributors. Between January 1, 2011 and December 31, 2011, the number of displays in our LCD display network increased from 136,498 to 155,751. As of December 31, 2011, our in-store network covered 1,576 hypermarkets, 217 supermarkets and 1,008 convenience stores. The number of displays installed in our in-store network was 50,076 as of December 31, 2011. The total number of non-digital frames and LCD 1.0 picture frame devices available for sale on our poster frame network was 445,126 in aggregate as of December 31, 2011, as well as 35,050 digital frames as of the same date, mainly in Beijing, Shanghai, Guangzhou and Shenzhen. For our movie theater network, we leased screen time in approximately 316 movie theaters (consisting 2,190 screens) in cities across China as of December 31, 2011.

In our earnings release for the fourth quarter and full year 2011 released on March 19, 2012, we announced a change in classification of the LCD 1.0 picture frame devices from the LCD display network division into the poster frame network division, and we are now reconciling the data for each quarters of 2010 and 2011 to reflect this change in categorization and thereby align our operating and financial data with respect to the LCD 1.0 picture frame devices. In order to help investors gain a better understanding of our media platform and the differentiations between different types of devices, and to align this operating metrics with our internal financial reporting, starting from the fourth quarter of 2011 we have decided, for screen count purposes, to re-categorize the LCD 1.0 picture frame devices from the division of LCD display network into the division of poster frame network. Historically, for screen count purposes we categorized the LCD 1.0 picture frame devices in the division of LCD display network because those devices were developed by our LCD display network team. For financial reporting purposes, revenues and costs attributable to such LCD 1.0 picture frame devices have been and continue to be categorized under the poster frame network.

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We are providing the following breakdown of operating data to clarify these changes and will use this method of classification going forward.

	For and as of the three months ended
	March 31, 2010		June 30, 2010		September 30, 2010		December 31, 2010		March 31, 2011		June 30, 2011		September 30, 2011		December 31, 2011
	(In thousands)
LCD display network:
Number of LCD screens
— Our direct cities(1)		90,858		82,270		85,627		96,506		99,823		103,354		107,454		113,859
— Our regional distributors(2)		6,196		5,234		5,521		6,659		7,195		7,554		8,572		8,256
Total number of LCD screens(1)		97,054		87,504		91,148		103,165		107,018		110,908		116,026		122,115
Number of LCD 2.0 digital picture screens		26,329		31,630		32,491		33,333		32,491		31,363		32,478		33,636
Total displays in LCD display network		123,383		119,134		123,639		136,498		139,509		142,271		148,504		155,751
In-store network:
Number of displays in our in-store network		40,848		45,686		45,613		48,179		48,826		50,129		50,696		50,076
Number of stores in our in-store network		2,772		2,845		2,587		2,858		2,777		2,837		2,841		2,801
Poster frame network:(1)
— Frame 1.0 picture frames (1)(3)		244,262		261,860		302,778		328,089		373,323		382,472		421,182		445,126
— Frame 2.0 digital picture screens		35,599		35,835		35,983		35,810		35,685		35,217		34,711		35,050
Total displays in poster frame network		279,861		297,695		338,761		363,899		409,008		417,689		455,893		480,176

(1) Pursuant to the re-classification described above, the data presented here reflect the re-classification of 9,102, 23,171, 26,274, 28,077, 30,595, 27,527, 29,878 and 30,804 LCD 1.0 picture frame devices from the LCD display network to the poster frame network under frame 1.0 picture frames for and as of the periods ended March 31, June 30, September 30 and December 31, 2010 and March 31, June 30, September 30 and December 31, 2011, respectively.

(2) Data that has been provided by our regional distributors is based on the results of surveys we requested them to provide to us and it is possible such data is not entirely accurate

(3) Includes both traditional poster frames and digital frames that carry the Framedia logo, as well as LCD 1.0 picture frame devices that carry the Focus Media logo.

As of December 31, 2011, our LCD display network was comprised of 155,751 display devices, consisting of 122,115 LCD screens and 33,636 LCD 2.0 digital picture screens, and our poster frame network was comprised of 480,176 poster frames, consisting of 35,050 digital poster frames and 445,126 traditional picture frames, including 30,804 LCD 1.0 picture frame devices re-categorized from the LCD display network.

LCD display network

As of December 31, 2011, approximately 32% (LCD television screens only) and 42% (LCD television screens plus LCD digital 2.0 picture screens) of the displays in the LCD display network were located in commercial office buildings. The locations in our LCD display network also include shopping malls, banks, hotels and other public areas. We market our LCD display network to advertisers of consumer products and services, such as fast moving consumer goods, automobiles, home electronics, mobile communications devices and services, cosmetics, health products, financial services, etc. As of December 31, 2011, our LCD display network, including the portions of our LCD display network operated by our regional distributors, was comprised of 155,751 flat-panel digital displays placed in approximately 114 cities throughout China. These data take into consideration the re-classification described in the operating data tables presented above. Our LCD display network consists of flat-panel digital displays, including LCD screens, LCD 2.0 digital picture screens that carry the Focus Media logo. The display devices on our LCD display network have the technical capacity to show video images as well as fixed images. We operate our LCD display network directly in approximately 81 cities and indirectly through contractual arrangements with regional distributors in approximately 33 additional cities. Although the substantial majority of our operations are located in China, we have established distributors in countries and regions outside of mainland China, including Hong Kong, Taiwan, Singapore, etc.

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As we expand the number of venues in our LCD display network, we continue to separate certain types of venues into distinct stand-alone channels of this network. Starting from January 1, 2011, we restructured our premier office building A channel and our premier office building B channel into our premier A1 channel and premier A2 channel, respectively. As of December 31, 2011, we had stand-alone channels that are marketed as separate focused channels of our LCD display network, including our premier A1 channel, premier A2 channel, and LCD 2.0 digital picture screens channel.

A majority of the content displayed on our LCD display and in-store networks and on our outdoor LED billboard network consists of advertisements which are broadcast repeatedly throughout a day.

We believe that by increasingly offering new advertising channels on our LCD display network, we will be able to offer advertisers more targeted and effective audience reach, thereby enabling us to increase our advertising rates.

Expanding our network through regional distributors enables us to provide our advertisers with broader nationwide coverage and to test, develop and evaluate these regional advertising markets without our having to incur start-up and ongoing expenses at the early stages of their development. We also seek to acquire our regional distributors when we believe it is more likely for us to benefit economically from the full integration of their operations into our network. We do not have the contractual right to purchase our regional distributors, and any such acquisition must be negotiated with each regional distributor separately.

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Each of our regional distributors operates independently from us and is responsible for independently complying with all relevant PRC laws and regulations including those related to advertising. We periodically monitor our regional distributors to ensure they have obtained all required licenses and are complying with regulations relating to advertising content. See “Item 3D Risk Factors — Risks Relating to Our Business and Industry — One or more of our regional distributors could engage in activities that are harmful to our reputation in the industry and to our business”.

Movie theater advertising network

We operate our movie theater advertising network by selling leased screen time as time slots to advertisers. We have the right to screen time prior to the screening of each movie shown in the theater. As of December 31, 2011, we had rights to lease advertising time on screens in 316 movie theaters (consisting 2,190 screens) in cities across China.

In-store Network

As part of our growth strategy, we commenced operations of our in-store network in April 2005. As of December 31, 2011, we had placed 50,076 flat-panel digital displays in 1,576 hypermarkets, 217 supermarkets and 1,008 convenience stores throughout China. We believe the rapid expansion of hypermarkets and other chain retail stores in China provides opportunities and incentives for advertisers to take advantage of in-store television advertising networks such as our in-store network. Our in-store network primarily attracts advertisers of food and beverage products, cosmetics, household, kitchen, bathroom products, etc.

Poster Frame Network

We own and operate a network of traditional and digital advertising poster frames deployed primarily in the elevator lobbies, elevators and public areas of residential and commercial buildings as well as other public locations. We place advertising frames in elevators in which we lease space and sell frame space to advertising clients on a per frame basis for periods of one week or longer. As of December 31, 2011, we had installed 414,322 traditional poster frames and 35,050 digital poster frames in cities throughout China as well as 30,804 LCD 1.0 picture frame devices in Tianjin, Kunming and Shijiazhuang. These data take into consideration the re-classification described in the operating data tables presented above. Our digital frames use high-resolution LCD displays. Our advertising posters include both traditional printed posters as well as digital LCD poster frames placed in elevators and public areas in residential complexes and commercial locations. Generally several advertising poster frames can be placed in each elevator.

Traditional billboard network

We also operate an advertising business for traditional outdoor billboards. The network consists of outdoor billboards in high-traffic areas in Beijing, Shanghai, Guangzhou and most tier 2 cities, as well as, traditional poster billboards installed by the roadsides of national and provincial highways and on the top side of building structures, as well as advertisement light boxes installed inside large, public buildings. Our subsidiary OOH, leases the billboards from landlords or other billboard advertising operators, and provides such billboards to the advertisers who want to put advertisements in such spaces.

We have historically been primarily an advertising company that targets specific demographics using innovative digital advertising media in innovative locations, using assets we own. The media assets of our core businesses, such as our LCD display network and poster frame network, tend to be placed in locations such as commercial and residential buildings, whose individual landlords may not control a sufficient number of advertising locations to attract advertisers. Thus, in order to attract advertisers, landlords generally need to connect with us, and we may place advertisements on a large number of flat-panel digital displays and poster frames installed in the lobbies of such buildings across neighborhoods, entire cities or even nationwide. In addition, our core businesses primarily utilize digital media assets that can easily accommodate multiple advertisements in a given time period.

OOH is primarily an advertising company that targets a broader demographic with traditional advertising assets such as large traditional billboards placed on roads and streets. The assets of OOH tend to be much larger outdoor assets that individually may attract advertisers looking for a particular location for long stretches of time. OOH primarily relies on traditional media assets that only allow for one advertisement for a given time period.

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Accordingly, our core LCD display, poster frame, in-store networks and movie theatre network serve a distinct purpose and attract advertisers with different needs than those who use the OOH assets. These distinctions between our core businesses, such as our LCD display network and poster frame network, and the traditional billboard network operated by OOH also result in a significantly different cost structures, with the OOH business having much lower gross margins due to greater competition and diffusion of control in the traditional outdoor billboard market.

Advertising Clients, Sales and Marketing

Our Advertising Clients. The quality and coverage of our network has attracted a broad base of international and domestic advertising clients. Our advertising clients include leading international and domestic brand name advertisers such as Mengniu Dairy, L’Oreal China, Yili Dairy, P&G China, Beingmate, Dongfeng Yueda Kia, Volkswagen Shanghai, Dongfeng Automobile, FAW Volkswagen and Yum! China, which together accounted for approximately 14.2% of our aggregate revenue for continuing operations in 2011.

No single direct advertising client accounted for more than 3% of our revenues in 2011. We believe the appeal and effectiveness of our advertising network is largely evidenced by the number of advertising clients who place multiple advertising campaigns on our network, which is reflected in the percentage increase of advertising fees we receive from clients over time.

Sales. We employ an experienced advertising sales force in each city in which we operate. We provide in-house education and training to our sales force to ensure they provide our current and prospective clients with comprehensive information about our services, the advantages of using our advertising networks as marketing channels, and relevant information regarding the advertising industry. Our sales team is organized by city and client accounts. We also market our advertising services from time to time by placing advertisements on third-party media, including primarily movie theater advertising networks and traditional poster frames operated by third parties. We maintain separate sales teams for our LCD display network, in-store network, poster frame network, movie theater advertising network and traditional outdoor billboard network. We have begun engaging in limited cross-selling initiatives to enable existing and potential advertising clients to take advantage of our multi-platform advertising network.

Advertising Contracts. We mainly offer advertisers five-, fifteen- or thirty-second time slots on our LCD display (for LCD screens), in-store, outdoor LED and movie theater advertising networks. For our LCD display network, our standard advertising package includes a time slot on our entire network or a particular building channel in each city in which the advertiser wishes to display the advertisement. For our traditional billboard network, we provide billboard space on a monthly basis. For our movie theater advertising network, time slots are sold on a regional or entire network basis. Our advertising rates vary by city and by the number of cities in which the advertisement is placed, as well as by the length of the time slot purchased and the duration of the advertising campaign. We generally require our clients to submit advertising content at least seven days prior to the campaign start date. We also reserve the right to refuse to disseminate advertisements that are not in compliance with content requirements under PRC laws and regulations.

Advertising contracts for our in-store network, outdoor LED network and movie theater advertising network are substantially similar to those used for our LCD display network. Advertising clients generally purchase time slots on our in-store network on a chain-by-chain basis and regional basis, while time slots on the outdoor LED network cover the entire network and contracts on our movie theater advertising network are done on a regional or entire network basis.

For our LCD 2.0 digital picture screens on our LCD display network and our digital poster frame network, we offer advertisers time slots that vary according to length, number of repeated broadcasts per day and number of locations in which they appear. For our traditional poster frame network and our LCD 1.0 picture frame devices, advertising clients purchase frame space on a per-frame basis for terms of one week or more.

Network Monitoring and Media Measurement. We provide a number of services in connection with each client’s advertising campaign following the sales process. Our network operations team monitors the displays in our network on a weekly basis. They are also responsible for compiling reports that are supplied under some of our agreements to clients as evidence of the broadcast of their advertisements on our network. The report generally includes a list of buildings where our client’s advertisements were broadcast as well as photographs of representative flat-panel digital displays showing their advertisements being displayed. The reports we provide to our clients may also contain portions prepared by independent third-party research companies that verify the proper functioning of our flat-panel digital displays and the proper dissemination of the advertisement, by conducting on-site evaluations and polls to analyze the effectiveness of and public reaction to the advertisement.

Aside from third-party verification services, we and our regional distributors conduct substantially all client services using our own employees or the employees of the relevant regional distributor. In Beijing, Guangzhou and Shandong province, we contract some of these services to third-party agents. These agents provide us with network development, installation, maintenance, monitoring and reporting services.

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We believe our advertising clients derive substantial value from our ability to provide advertising services targeted at specific segments of consumer markets. Market research is an important part of evaluating the effectiveness and value of our business to advertisers. We conduct market research, consumer surveys, demographic analysis and other advertising industry research for internal use to evaluate new and existing advertising channels. We also purchase or commission studies containing relevant market study data from reputable third-party market research firms, such as Nielsen Media Research, CTR Market Research and Sinomonitor. We typically consult such studies to assist us in evaluating the effectiveness of our network to our advertisers. A number of these studies contain research on the numbers and socio-economic and demographic profiles of the people who visit the locations of our network.

Programming

Substantially all of the content on our out-of-home digital advertising network consists of audiovisual advertising provided to us by our advertising clients. We also provide a limited amount of time for landlords and property managers to display location-specific information, building announcements and related promotional material on our network. We typically do not produce or create the advertising content shown on our network, except our own marketing content. All of the advertising content displayed on the portion of the network we operate directly is reviewed by qualified members of our staff to ensure compliance with PRC laws and regulations, while our agreements with our regional distributors require each of them to review the contents shown on the portion of the network they operate for compliance with PRC laws and regulations. See “Item 4.B Information on the Company — Business Overview — Regulatory Matters — Regulation of Advertising Services — Advertising Content”.

Advertisements on our poster frame network and LCD 1.0 picture frame devices consist of full-color glossy advertising posters designed and provided by our advertising clients.

Pricing

For information regarding factors affecting our pricing, refer to “Factors that Affect Our Advertising Service Revenue” in Item 5 — Operating and Financial Review and Prospects.

Relationships with Location Providers

We install our flat-panel digital displays in selected spaces we lease in office buildings and other commercial locations, hypermarkets, supermarkets, convenience stores and other locations. We install our advertising poster frames in elevators and other public areas in residential and commercial locations. Establishing and maintaining long-term relationships with landlords and property managers is a critical aspect of our business. We employ a team of location relationship personnel in each city in which we operate directly who are responsible for identifying desirable locations, negotiating display and frame placement agreements and engaging in ongoing site placement relations.

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In addition to helping us to expand our network, our location relationship personnel ensure that the needs and concerns of landlords and property managers are being met and addressed effectively and on a timely basis. These concerns generally include ensuring that the flat-panel digital displays are properly installed and are in proper working condition. We undertake to landlords and property managers in our network to maintain the proper operation of our flat-panel digital displays. We generally rely on our own employees to install, maintain, monitor and repair our flat-panel digital displays and advertising poster frames. A portion of our LCD display network in Beijing is inspected by our service provider, Beijing Suodi Advertisement Co., Ltd., and also uses a similar agent for a portion of the network in Guangzhou and Shandong province, while Focus Media owns all such portions of the network and holds all of the rights and obligations of lessee under its LCD display network lease agreements including those portions for which these agents act as a service provider. Our regional distributors are responsible for inspecting the displays owned and operated by those regional distributors.

We inspect our various display devices periodically, generally on a weekly basis and often in conjunction with updating our advertising content. As advertising content is updated on a weekly basis by means of physically changing the flash cards in display devices or the posters in poster frames, the display devices and poster frames can be inspected as advertising content is updated.

We enter into display placement agreements with individual landlords, property managers, hotels, shopping malls and chain store companies under which we generally pay a fixed annual rent in exchange for the right to display advertising and commercial media in lobby and elevator areas in the case of our LCD display network and in specific product areas in selected consumer product sections and the main aisles in hypermarkets, supermarkets and convenience stores in the case of our in-store network. In Beijing, Guangzhou and Shandong province, we contract a portion of the location development, monitoring and maintenance work to local agents. We attempt to maintain terms favorable to our network operations in our display placement agreements, such as long-term leases and exclusivity provisions. We are not reliant on any one landlord or property manager for a material portion of our network coverage. As hypermarkets, supermarkets and convenience stores have control over multiple locations, a smaller number of display placement agreements and contractual arrangements account for a larger percentage of our in-store network coverage.

In connection with certain of our display placement agreements, we agree to provide concessions and services, such as displaying building-related notifications, publicity and other information provided by the landlord or property manager or granting time slots to the landlord or property manager for their own promotional purposes.

A majority of our display placement agreements have initial terms ranging anywhere from one to five years. As of December 31, 2011, under the majority of our display placement agreements, we had the right to renew the display placement agreements provided that the terms offered by us are no less favorable than those offered by competing bidders. The rental terms and fees under our display placement agreements vary considerably depending on the city, location of the building, size of the building and number of flat-panel digital displays that may be installed. Under our display placement agreements, we retain ownership of most of the flat-panel digital displays.

We enter into similar frame and billboard placement agreements for the deployment of our advertising poster frames in elevators and public areas of residential complexes and commercial buildings and for traditional outdoor billboards. The majority of our frame placement agreements have terms of one to three years, and contain exclusivity and best offer renewal rights.

In substantially all cases, we obtain prior approval from relevant landlords or property managers, before installing any of our advertising equipment in a location. For office buildings, in substantially all cases, we obtain prior approval directly from landlords, and only execute placement agreements with property managers that such landlords authorized and designated to us. For supermarkets and convenience stores, in substantially all cases, we obtain consents from and execute placement agreements directly with the market or store owners who have the exclusive right to operate the site. For residential locations, in a majority of cases, we execute placement agreements with property managers and, in a minority of cases, property owners’ committees.

If we execute placement agreements with property managers, we require that such property managers obtain proper authorization from the relevant property owners’ committees before we execute such placement agreements. If property managers fail to obtain prior approval from the relevant property owners’ committees and misrepresent such authorization in our placement agreements, we could be required to obtain the approval of the landlord or remove our advertising equipment at our own cost. Since our founding, we have not incurred material costs, fees or penalties as a result of failing to obtain any such approvals prior to installing our advertising equipment nor have we been party to any material dispute or litigation as a result of any such failure.

Technology and Suppliers

Out-of-home television advertising is a relatively new advertising medium that owes its development in large part to the emergence of new technologies, such as low-cost, light-weight, flat-panel television displays and compact storage technology. The primary hardware required for the operation of our business consists of components that comprise the flat-panel digital displays we use in our advertising network. We also develop and install software in our flat-panel digital displays to assist us with the configuration, editing and operation of our advertising content cycles. Maintaining a steady supply of our proprietary flat-panel digital displays is important to our operations and the growth of our advertising network.

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We specifically design the distinctive shape of our flat-panel digital displays, identify suppliers of component parts used in our displays and contract the assembly of our flat-panel digital displays to third-party contract assemblers. Our contract assemblers are responsible for purchasing the component parts from suppliers we identify each month and assembling the flat-panel digital displays according to our specifications using components purchased in off-the-shelf form from wholesale distributors. We select component suppliers based on price and quality. As there are many qualified alternative suppliers for our equipment, our obligation to our current contract assemblers is not exclusive, although for certain equipment in our LCD display network, we rely on a small number of suppliers. See “Risk Factors—Risks Relating to Our Business-- We rely on a small number of suppliers for our LCD display equipment”. As there are a large number of potential suppliers for the equipment we use, and we maintain a sufficient quantity of inventory in our warehouses, we do not believe we would experience any material delays or hindrances to our business if we are required to find alternative suppliers. We have not experienced any material delay or interruption in the supply of our flat-panel digital displays.

Competition

We compete with other advertising companies in China including television broadcasters, newspapers and magazines as well as companies that operate outdoor and out-of-home or telecommunications-based advertising media networks, such as JCDecaux, ClearMedia, SearchMedia, AirMedia and VisionChina. We purchased approximately 15% of VisionChina’s outstanding shares in January 2011. We compete for advertising clients primarily on the basis of our strength of our sales force, network size and coverage, location, price, the range of services that we offer and our brand name. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, street furniture, billboard, frame and public transport advertising companies, and with traditional advertising media, such as newspapers, television, magazines and radio. We have developed a business model that we believe enables us to:

• attain high market share; and

• maintain relative control over our rental costs.

Facilities

We currently maintain our headquarters at Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong. We also have operating companies and offices in more than 50 other cities in China.

Regulatory Matters

We operate our business in China under a legal regime consisting of the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority including the State Administration for Industry and Commerce, or SAIC.

China’s Advertising Law was promulgated in 1994. In addition, the State Council, SAIC and other ministries and agencies have issued regulations that regulate our business, which are discussed below.

Limitations on Foreign Ownership in the Advertising Industry

The principal regulations governing foreign ownership in the advertising industry in China include:

• The Catalogue for Guiding Foreign Investment in Industry (2007); and

• The Administrative Regulations on Foreign-invested Advertising Enterprises (2008).

These regulations require foreign entities that directly invest in the advertising industry to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been permitted to own directly a 100% interest in advertising companies in China, but such foreign investors are also required to have at least three years of direct operations in the advertising industry outside of China. PRC laws and regulations do not permit the transfer of any approvals, licenses or permits, including business licenses containing a scope of business that permits engaging in the advertising business. In the event we are able to qualify to acquire the equity interest of our PRC operating affiliates under the rules allowing complete foreign ownership, our PRC operating subsidiaries would continue to exist as the holders of the required advertising licenses consistent with current regulatory requirements.

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Since we have not been involved in advertising outside of China for the required number of years, our WFOE operating subsidiaries, which are directly owned by non-PRC subsidiaries of ours, are currently ineligible to apply for the required advertising services licenses in China. Our non-PRC subsidiaries are ineligible to apply for such required licenses too. As such, our advertising business is currently provided partly through contractual arrangements between certain of our WFOE operating subsidiaries and our consolidated affiliated entities in China, which we collectively refer to as our PRC operating affiliates, including Shanghai Focus Media Advertisement Co., Ltd. and its subsidiaries with regard to our out-of-home digital network and movie theatre advertising network. Our poster frame network, traditional billboard network and a portion of our LCD display network are conducted by our indirect PRC subsidiaries owned by our WFOE operating subsidiaries. Accordingly, our advertising services are currently conducted by (i) our indirect PRC operating subsidiaries and (ii) our PRC operating affiliates. Our PRC operating affiliates are owned or controlled by (i) one or more individuals designated by us, (ii) one or more PRC entities owned by other PRC operating affiliates or (iii) a combination of individuals and PRC entities owned by other PRC operating affiliates. Certain of our PRC operating affiliates and certain of our indirect PRC operating subsidiaries hold the requisite licenses to provide advertising services in China. Our PRC operating subsidiaries have entered into a series of contractual arrangements with certain of our PRC operating affiliates and their respective shareholders under which:

• we are able to exert effective control over our PRC operating affiliates;

• substantially all of the economic benefits of our PRC operating affiliates will be maintained by us; and

• we have an exclusive option to purchase all or part of the equity interests in our PRC operating affiliates that are owned by the individuals or entities designated by us, as well as all or a part of the assets of our PRC operating affiliates, in each case when and to the extent permitted by PRC law.

We currently do not have any plans to terminate any existing contractual relationships with our PRC operating affiliates, although we expect to continue to migrate our business operations to entities that are held by our indirect PRC operating subsidiaries and will continue to reduce our reliance on our contractual relationships with our PRC operating affiliates, with the exception of Enjoy Media, which distributes electronic coupons via Q.com.cn. Under applicable PRC regulations relating to Internet information services, an ICP is required either (i) to obtain an ICP license from the Ministry of Industry and Information Technology, or MIIT, if it engages in a profitable online service, or (ii) to make a filing with the MIIT if it engages in a non-profitable online service. As of the date of this annual report, no significant revenue has been generated by Enjoy Media. As a result, we made the requisite filing with the MIIT in 2011 with respect to Q.com.cn. However, the distinction between profitable and non-profitable online service is unclear in practice and our online distribution of electronic coupons may be deemed as a profitable online service by the relevant authorities. In addition, our future business plan for Enjoy Media may venture us into businesses which are more commonly regarded as profitable online services. To ensure full compliance with PRC laws and regulations, we will apply for an ICP license if the relevant authorities deem us to be a profitable ICP or our future business direction otherwise requires us to. However, applying for an ICP license for foreign invested PRC entities is subject to strict conditions, including that foreign ownership may not exceed 50% and that any foreign shareholder have sufficient business experience and performance in operating value-added online service. As we do not intend to engage a third party PRC operator nor do we have past experience in operating a value-added online service, we intend to operate Enjoy Media through a VIE structure.. See “Item 4.C Information on the Company — Organizational Structure” and “Item 7.B Major Shareholders and Related Party Transactions — Related Party Transactions”.

Current PRC regulations, however, do not treat an indirect PRC subsidiary of a foreign entity as a “foreign invested enterprise” where such PRC subsidiary is owned directly by a PRC entity. As such, our indirect PRC operating subsidiaries which are directly owned by our WFOE operating subsidiaries are not expressly subject to the restrictions on foreign investment in the advertising industry and are eligible to apply for the required licenses for providing advertising services in China. Several of our indirect PRC operating subsidiaries, such as Shanghai Focus Media Defeng Advertisement Co., Ltd., or Focus Media Defeng Advertisement, have obtained such licenses and a portion of our commercial location network advertising business is carried out through such indirect PRC operating subsidiaries.

In the opinion of Global Law Office, our PRC legal counsel,

• the respective ownership structures of our PRC operating subsidiaries and their respective PRC affiliates and subsidiaries are in compliance with existing PRC laws and regulations;

• the contractual arrangements among our PRC operating subsidiaries and their respective PRC affiliates, subsidiaries and PRC shareholders of their PRC affiliates, in each case governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect, save that equity pledge created under equity pledge agreements are unenforceable before the relevant equity pledge registration with the local SAIC is duly completed; and

• the PRC business operations of our PRC operating subsidiaries and their respective affiliates and subsidiaries as described in this annual report, are in compliance with existing PRC laws and regulations in all material respects.

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We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the SAIC which regulates advertising companies, will not in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government determines that the agreements establishing the structure for operating our PRC advertising business do not comply with PRC government restrictions on foreign investment in the advertising industry, we could be subject to severe penalties and we may be required to restructure our business operations, which may require us to deconsolidate our consolidated variable interest entities. In the event of such deconsolidation, to continue operating the businesses currently conducted by our consolidated variable interest entities, we may need to take actions that result in additional administrative and legal costs, less favorable business relationships or other regulatory burdens. See “Item 3.D Key Information — Risk Factors — Risks Relating to Compliance with PRC Law — Our failure to comply with certain aspects of applicable PRC laws and regulations could adversely affect our business operations and corporate structure”, “— If the PRC government determines that the ownership structure of our operating subsidiaries or our operating affiliates, or the agreements that establish the structure for operating our China business do not comply with current or future PRC governmental restrictions on foreign investment in the advertising industry, we could be subject to severe penalties”, “— If the PRC government finds that the ownership structure of our operating affiliates violates PRC laws as a result of the change in Jason Nanchun Jiang’s citizenship, we could be subject to severe penalties, and our ability to conduct our business may affected in a material and adverse way”, and “— We use contractual arrangements with our PRC operating affiliates and their shareholders for a portion of our China operations, and uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and thus our ability to conduct our business”.

Regulation of Advertising Services

Business License for Advertising Companies

The principal regulations governing advertising businesses in China include:

• The Advertising Law (1994);

• The Advertising Administrative Regulations (1987); and

• The Implementing Rules for the Advertising Administrative Regulations (2004).

These regulations stipulate that companies that engage in advertising activities must obtain from the SAIC or its local branches a business license which specifically includes operating an advertising business within its business scope. Companies conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising operations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. We do not expect to encounter any difficulties in maintaining our business licenses. Our PRC operating affiliates, certain of their respective subsidiaries and certain of our indirect PRC operating subsidiaries have obtained, or in the case of some of our new directly-operated cities, are in the process of obtaining such a business license from the local branches of the SAIC as required by the existing PRC regulations. Some of our regional distributors may not possess all the licenses required to operate an advertising business, or may fail to maintain the licenses they currently hold. We periodically monitor our regional distributors to ensure they have obtained all required licenses and are complying with regulations relating to advertising content, although it is possible that one or more of our regional distributors may not be in compliance with all PRC regulations at all times. To our knowledge, all of our regional distributors have received, or are in the process of obtaining, the licenses required to operate an advertising business. If we learn that any of our regional distributors are not in compliance with applicable terms and regulations we notify such regional distributors of the need to complete any necessary procedures and to report any developments to us. If a regional distributor fails to complete the steps necessary to receive the required licenses, we will take steps to terminate the contract with such regional distributor. See “Item 3.D Key Information — Risk Factors — Risks Relating to Our Business and Industry — One or more of our regional distributors could engage in activities that are harmful to our reputation in the industry and to our business”.

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Advertising Content

PRC advertising laws and regulations set forth certain content requirements for advertisements in China, which include prohibitions on, among other things, misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are prohibited. It is prohibited to disseminate tobacco advertisements via broadcast or print media. It is also prohibited to display tobacco advertisements in any waiting lounge, theater, cinema, conference hall, stadium or other public area. There are also specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through radio, film, television, newspaper, magazine, out-of-home and other forms of media, together with any other advertisements which are subject to censorship by administrative authorities according to relevant laws and administrative regulations, must be submitted to the relevant administrative authorities in charge of administrating relevant industries for content approval prior to dissemination. Detailed requirements on the aforesaid content approval vary based on the type of the advertised commodity under various special advertising regulations. In general, the relevant governmental authorities will review the supporting documents evidencing that the relevant advertisement clients have obtained requisite industry licenses or qualifications for their business operation and sufficient permits required for specific type of the communities, and the supporting documents justifying the accuracy of the advertisement contents such as certificates of patents as described by relevant advertisements. Upon the approval, the relevant approval authorities usually issue certificates or permits evidencing the approval. We do not believe that advertisements containing content subject to restriction or censorship comprise a material portion of the advertisements shown on our network.

Advertisers, advertising operators and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and in full compliance with applicable law. In providing advertising services, advertising operators and advertising distributors must employ qualified advertising inspectors to review the prescribed supporting documents provided by advertisers for advertisements and to verify that the content of the advertisements comply with applicable PRC laws and regulations as well as to ensure such advertisement content as a whole will not result in any misunderstanding. We also design our advertising contracts terms to provide us with the contractual rights to early terminate the agreements and cancel the advertisement dissemination plan in case the advertisement contents contradict the content requirements under the PRC laws. In addition, prior to distributing advertisements for certain commodities and services which are subject to government censorship and approval, advertising distributors are obligated to ensure that such censorship has been performed and approval has been obtained. For example, for those subject to prior content approval such as health foods, medical instruments, medical treatments, pharmaceuticals, veterinary pharmaceuticals and pesticides, the advertising distributors are obligated to review the prior content approval certificate or permits. For certain other types of advertisements such as those on foodstuffs, cosmetics, real properties, alcohol, and cultural performances, the advertising distributors are required to review special supporting documents evidencing the accuracy of the advertisement contents, including without limitation proof of quality inspection of the advertised products or services. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke violators’ licenses or permits for advertising business operations. Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties such as the intellectual property rights of the other parties or the reputation of our clients’ competitors in the course of their advertising business.

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Our sales function is separate from our legal and compliance function, but we train all of our sales staff to be aware and knowledgeable about government rules and regulations relating to advertising content. We do not generally produce or generate advertising content ourselves, but disseminate advertising content that has already been produced and been through the necessary review and approval processes, and do not believe there are significant conflicts between our staff’s sales role and the need to review for legal compliance. Our legal and compliance function separately reviews content for compliance with relevant laws. In additional, as we generally do not produce advertising content but display advertising produced by our clients or their advertising agents, we require our clients to provide advertising content that has been reviewed by the relevant authorities and received the relevant approvals.

Outdoor Advertising

The Advertising Law stipulates that the exhibition and display of outdoor advertisements must not:

• utilize traffic safety facilities and traffic signs;

• impede the use of public facilities, traffic safety facilities and traffic signs;

• obstruct commercial and public activities or create an eyesore in urban areas;

• be placed in restrictive areas near government offices, cultural landmarks or historical or scenic sites; and

• be placed in areas prohibited by the local governments from having outdoor advertisements.

In additional to the Advertising Law, the SAIC promulgated the Outdoor Advertising Registration Administrative Regulations on May 22, 2006, which governs the outdoor advertising industry in China.

Outdoor advertisements in China must be registered with the local SAIC before dissemination. The advertising distributors are required to submit a registration application form and other supporting documents for registration. After review and examination, if an application complies with the requirements, the local SAIC will issue an Outdoor Advertising Registration Certificate for such advertisement. The content, format, specification, dissemination period, and location of the outdoor advertisement must be submitted for filing with the local SAIC.

The placement and installation of LED billboards are subject to municipal zoning requirements and governmental approvals, including application for an outdoor advertising registration certificate for each LED billboard, which may be subject to a term of use that is governed by local outdoor advertising regulations and varies accordingly. We use Beijing and Shanghai, which are our major operation locations, as examples. In Beijing, the maximum length of such term of use for a LED billboard is of four years while it is of six years in Shanghai. If the existing LED billboards placed by our LED location provider or us are required to be removed, the attractiveness of this portion of our advertising network will be diminished. Moreover, failure by an owner of LED billboards to maintain outdoor advertising registration certificates would result in the inability to lease or market such space for the placement of advertisements.

The local authorities may issue temporary restriction or prohibitions on outdoor advertising at the regional level in light of public events of large scale held locally. The Shanghai local government issued certain local regulations that prohibit advertising on ships (other than cargo ships and ferries) on the Huangpu River and Suzhou Creek area and more restrictive rules for applying for outdoor advertising for the period of preparation and hosting of World EXPO 2010, which ended on October 31, 2010.

Print Advertising

Following our acquisition of Framedia on January 1, 2006, we also operate a network of advertising poster frames placed primarily in the elevators and public areas of residential complexes. The advertisements shown on our poster frame network are defined as “normal print advertisements” under the Print Advertisements Administrative Regulations promulgated by the SAIC on January 13, 2000, as amended on November 30, 2004, or the Print Advertisements Regulations. Under these regulations, print advertisements must not be placed in areas prohibited by laws or regulations from posting print advertisements.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

In January and April 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued two rules that require PRC residents to register with and receive approvals from SAFE in connection with their offshore investment activities. SAFE has announced that the purpose of these regulations is to achieve the proper balance of foreign exchange and the standardization of the cross-border flow of funds.

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On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. Notice 75 replaced the two rules issued by SAFE in January and April 2005 mentioned above.

According to Notice 75 and other relevant SAFE regulations:

• prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch;

• an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company, or (2) the completion of any overseas fund raising by such offshore company;

• an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or debt investment, or (5) the creation of any security interests over the relevant assets located in China; and

• a PRC enterprise indirectly invested by such PRC resident through the offshore company is required to disclose to the local SAFE branch the ultimate ownership in it by such PRC resident when applying for or updating its foreign exchange registration, and cooperate with and supervise the PRC resident to complete the registration with SAFE in accordance with Notice 75.

Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents and PRC enterprises to penalties under PRC foreign exchange administration regulations.

As a Cayman Islands company, and therefore a foreign entity, if we purchase the assets or equity interest of a company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in Notice 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us.

These regulations may affect our business operations or strategies. For example, our present or future PRC subsidiaries’ ability to conduct foreign exchange activities, such as remittance of dividends and foreign-currency- denominated borrowings, may be subject to compliance with such SAFE registration requirements by relevant PRC residents, over whom we have no control. In addition, we cannot assure you that any such PRC residents will be able to complete the necessary approval and registration procedures required by the SAFE regulations. We require all the shareholders in Focus Media Holding Limited who are PRC residents or have PRC residents as its beneficial owners to comply with any SAFE registration requirements, but we have no control over either our beneficial owners or the outcome of such registration procedures. Such uncertainties may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects.

Regulation of Equity Pledge

The PRC Property Rights Law that was promulgated on March 16, 2007 and became effective on October 1, 2007 requires that registration with the local SAIC authorities is necessary to create a security interest on an equity interest in a PRC company, which means that before the equity pledge is duly registered with the local SAIC authorities, the equity pledge is unenforceable even though the relevant equity pledge agreement is still binding.

Almost all our existing equity pledge agreements between certain of our operating subsidiaries and certain of our operating affiliates and their shareholders were signed before the PRC Property Rights Law took effect. The relevant PRC operating affiliates registered the equity pledges on their register of shareholders according to then applicable law. The Company attempted to register the relevant equity pledges after the PRC Property Rights Law became effective and we have successfully registered the equity pledge in connection with Focus Media Advertisement, one of our major PRC operating affiliates, which owns all other PRC operating affiliates that hold the advertising operating licenses connected with our operating businesses in December 2010 and certain other PRC operating affiliates with the local SAIC. However, the implementation rules were not promulgated until late 2008 and in some cities late 2009, and the practices taken by the local SAIC authorities vary from city to city. Thus, we are still in the process of applying for registration of other relevant equity pledges and there is no assurance that we can have these equity pledges registered on time or at all. Considering that we have not registered some of these existing equity pledges, and may fail to register future equity pledges, with the local SAIC, any equity pledge created under these equity pledge agreements may be considered unenforceable. See “Risk Factors — Risks Relating to Compliance with PRC Law — We use contractual arrangements with our PRC operating affiliates and their shareholders for a portion of our China operations, and uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and thus our ability to conduct our business.”

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C. Organizational Structure

Our predecessor company, Shanghai Aiqi Advertisement Co., Ltd., or Aiqi Advertisement, was established by immediate family members of Jason Nanchun Jiang in September 1997 and operated as an advertising agency. In May 2003, Aiqi Advertisement discontinued its advertising agency business, was renamed Shanghai Focus Media Advertisement Co., Ltd., or Focus Media Advertisement, commenced operation of our out-of-home digital advertising network in China and reorganized its shareholdings. At the same time, we entered into arrangements with Focus Media Advertisement that resulted in the consolidation of Focus Media Advertisement. Following this reorganization Jason Nanchun Jiang continued to hold a controlling interest in Focus Media Advertisement.

In conjunction with the change in our business model in May 2003 and to facilitate foreign investment in our company, we established our offshore holding company, Focus Media Holding Limited as a company registered in the British Virgin Islands in April 2003. In April 2005, we completed the process of changing Focus Media Holding Limited’s corporate domicile to the Cayman Islands and we are now a Cayman Islands company. On July 13, 2005, our ADSs were listed for quotation on the Nasdaq Global Market.

In January 2006, we acquired Framedia and E-Times, which operate networks of advertising poster frames placed primarily in elevators and public areas of residential complexes in China. In February 2006, we acquired Target Media. Target Media operated an out-of-home advertising network using flat-panel digital displays placed in elevator lobbies, elevators and other public areas in commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other locations in cities in China. Following the acquisition of Target Media, we combined Target Media’s network into our existing commercial location and in-store networks. Other than holding their existing contracts, the former Target Media entities no longer conduct any operations, and the combined network is operated through our existing corporate entities. In March 2006, we acquired Focus Media Wireless, which operates a WAP-based advertising delivery platform on the mobile telecommunications networks of China Mobile and China Unicom. In 2008, we terminated our mobile handset advertising business and it is accounted for as a discontinued operation. In the first quarter of 2007, we acquired Homesky Investment Ltd., which operates a traditional billboard network through its PRC affiliates. In March 2007, we acquired Allyes, which operates an Internet advertising marketing services and technology business. We made a number of additional smaller Internet advertising companies in 2007 and 2008, and subsequently reorganized all such acquired entities to be included within the operations of Allyes, although certain such acquired Internet advertising businesses were disposed of or discontinued in 2009. In June 2007, we acquired Hua Kuang Advertising Company Limited and its PRC subsidiary, which operates a traditional billboard network through its PRC affiliates. In January 2008, we acquired CGEN, which operates digital advertising displays in large chain stores in China. In December 2008, we announced disposal of certain subsidiaries acquired from CGEN. In January 2010, certain Allyes employees and management and directors and certain members of our management and directors entered into a definitive agreement with us and Allyes in January 2010 to buy-out an aggregate 38% interest in Allyes from us, including certain offshore and onshore interests. In July 2010, we sold our entire remaining 62% ownership interest in Allyes.

Our Corporate Structure and Contractual Arrangements

Most of our major board decisions, such as those relating to strategic planning, significant investments, raising fund and all matters related to capital market are made outside of the PRC, while substantially all of our business operations are conducted in China as follows:

• with regard to the operation of our LCD display network and in-store network, through (i) our indirect operating subsidiaries such as Focus Media Technology (Shanghai) Co., Ltd., or Focus Media Technology, Focus Media (China) Information Technology Co., Ltd., or FM China Information, for non-advertising ancillary business operation, (ii) Shanghai Focus Media Advertisement Co., Ltd., or Focus Media Advertisement, Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd., or one of our other operating affiliates, and (iii) certain subsidiaries of Focus Media Advertisement and Focus Media Digital Information Technology (Shanghai) Co., Ltd., or Focus Media Digital, for advertising business operation;

• with regard to the operation of our poster frame network, through (i) our indirect operating subsidiaries such as Shanghai On-Target Advertisement Co., Ltd., or Shanghai On-Target, and certain other subsidiaries of Focus Media Digital and (ii) certain subsidiaries of Focus Media Advertisement;

• with regard to our outdoor traditional billboard network, through our indirect subsidiaries 100% owned, directly or indirectly by Hua Kuang Advertising Company Limited; and

• with regard to our movie theater advertising network, through Beijing Yangshisanwei Advertisement Co., Ltd. and Shanghai Zhenhao Advertising Co., Ltd., two subsidiaries with majority ownership held by Focus Media Advertisement, and Shanghai Focus Media Jingshi Advertisement Co., Ltd., an indirect subsidiary 100% owned, directly or indirectly by Focus Media Digital Information Technology (Shanghai) Co., Ltd.

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Certain of our PRC operating subsidiaries and certain of our affiliated entities and their shareholders have entered into contractual arrangements substantially similar to those control agreements entered into among Focus Media Technology, Focus Media Digital, Focus Media Advertisement and its shareholders. See “Item 7.B Major Shareholders and Related Party Transaction — Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders”. As of December 31, 2010 and 2011, the assets operated by our PRC operating affiliates amounted to approximately $438.8 million and $461.7 million, respectively, consisting of $397.8 million and $404.6 million of goodwill, respectively, associated with acquisitions conducted in the early stages of our corporate history. Excluding goodwill, assets of our PRC operating affiliates accounted for 3.3% of our total assets as of December 31, 2011. All of the revenues generated by our PRC operating affiliates are generally available for us for general business operations in China. Accordingly, we have become increasingly less reliant on the entities that we control through contractual arrangements, and the substantial majority of our revenues and profits are currently generated through entities that are our indirect subsidiaries.

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The following chart shows our organizational structure of our material subsidiaries and affiliates.

* Shanghai Focus Media Defeng Advertisement Co., Ltd., or Focus Media Defeng Advertisement, acquired control of Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd., or Enjoy Media, for RMB5.1 million in December 2011. Enjoy Media is now a part of our LCD display network. Focus Media Defeng Advertisement controls Enjoy Media through a series of contractual arrangements with Enjoy Media and July Lilin Wang, our financial controller and the 51% holder of Enjoy Media. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders.”

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(1) Please see the table immediately following these footnotes for more a complete list of the relevant subsidiaries under the appropriate headings.

(2) Loans used to capitalize our PRC operating companies and to facilitate our control over them. As Focus Media Advertisement is established and directly owned by three individuals and the other PRC operating affiliates are established and directly owned by Focus Media Advertisement, we partially capitalize these entities by lending money to Jason Nanchun Jiang and Jimmy Wei Yu pursuant to a loan agreement. We also partially capitalize Enjoy Media by lending money to Ms. Wang. As of December 31, 2011, the aggregate amount of the loans provided to these three individuals was RMB56.5 million (US$9.0 million).

(3) Agreements that give us effective control over our PRC operating affiliates, consisting of call option agreements and voting rights proxy agreements. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Other Related Party Transactions and — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders.”

(4) Equity pledge agreements secure our shareholders’ obligations under the call option agreements and voting rights proxy agreements. Under the equity pledge agreements, we are entitled to the economic benefits of Focus Media Advertisement and the other PRC operating affiliates. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders.”

The following table sets forth a list of the material entities described in the chart above. It includes our active entities based in China.

Company Name	Shareholding	Business Line
FOCUS MEDIA HONG KONG OPERATING SUBSIDIARIES
Chizhong Information Technology (Shanghai) Co., Ltd.	Focus Media (China) Holding Limited: 100%	Providing technical support for the LCD display, in-store and poster frame advertising business
Focus Media (China) Information Technology Co., Ltd.	Focus Media (China) Holding Limited: 100%	Providing technical support for the LCD display, in-store and poster frame advertising business
Focus Media Technology (Shanghai) Co., Ltd.	Focus Media (China) Holding Limited: 100%	Being the holding company of our indirect PRC operating subsidiaries through Focus Media Digital Information Technology (Shanghai) Co., Ltd.
Focus Media Digital Information Technology (Shanghai) Co., Ltd.	Focus Media Technology (Shanghai) Co., Ltd.: 90% Focus Media (China) Information Technology Co., Ltd.: 10%	Being the holding company of our indirect PRC operating subsidiaries

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Company Name	Shareholding	Business Line
Shanghai Focus Media Defeng Advertisement Co., Ltd.(1)	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display, in-store and poster frame advertising business
Shanghai Yuanchi Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Focus Media Culture Communication Co., Ltd.	Shanghai Focus Media Defeng Advertisement Co., Ltd.: 100%	LCD display, in-store and poster frame advertising business
Shanghai Yuanchi Culture Communication Co., Ltd.	Shanghai Yuanchi Advertisement Co., Ltd.: 100%	Poster frame advertising business
Other Subsidiaries of Focus Media Digital Information Technology (Shanghai) Co., Ltd.
Beijing Focus Media Wireless Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Providing technical support for the LCD display, in-store and poster frame advertising business
Changsha Framedia Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Chongqing Geyang Focus Media Culture & Broadcasting Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Foshan Ruoqian Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Guizhou Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Ha’erbin Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Ha’erbin Jingshi Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Ha’erbin Xingaoduan Culture Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Hebei Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 63% Hebei Life Fashion Advertisement Co., Ltd.: 37% (unrelated third party)	LCD display and in-store advertising business
Huichun Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 85% Jilin Tianzhifeng Communications Co., Ltd.: 15% (unrelated third party)	LCD display and in-store advertising business
Jilin Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 85% Jilin Tianzhifeng Communications Co., Ltd.: 15% (unrelated third party)	LCD display and in-store advertising business
Jilin Guanghua Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 85% Jilin Tianzhifeng Communications Co., Ltd.: 15% (unrelated third party)	LCD display and in-store advertising business
Jinan Framedia Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business

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Company Name	Shareholding	Business Line
Lanzhou Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Liaoning Framedia Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame Advertising business
Ningbo Jiangdong Longdi Culture Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Qingdao Mubiao Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Chizhong Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display, in-store and poster frame advertising business
Shanghai Dahan Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai On-Target Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display, in-store and poster frame advertising business
Shanghai Focus Media Jingshi Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Movie theatre advertising business
Shanghai Framedia Advertising Development Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Honghao Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Jiefang Focus Media Advertisement & Communications Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 60%; Shanghai Jiefang Media Investment Co., Ltd.: 15% (unrelated third party) Shanghai Yuxuan Enterprise Investment Management Co., Ltd: 25% (unrelated third party)	LCD display and in-store advertising business
Shanghai Jingxuan Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Lizhu Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai New Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Shanghai New Structure Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Zhiyi Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanghai Zhuosheng Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shanxi Focus Media Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Shenyang Wanhai Qianzhou Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Shijiazhuang Framedia Zhonglian Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business

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Company Name	Shareholding	Business Line
Sichuan Focus Media Advertising Communications Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Sichuan Framedia Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Suzhou Huayun Media Culture Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Taiyuan Framedia Juzhong Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Tianjin Focus Media Tongsheng Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
Xiamen Hongxin Coastline Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Zhengzhou Framedia Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	Poster frame advertising business
Zhongshan Ruoqian Advertisement Co., Ltd.	Focus Media Digital Information Technology (Shanghai) Co., Ltd.: 100%	LCD display and in-store advertising business
HUA KUANG ADVERTISING COMPANY LTD. OPERATING SUBSIDIARIES
Shanghai OOH Advertisement Co., Ltd.	Hua Kuang Advertising Company Ltd.: 100%	Outdoor billboard advertising
Shanghai Chuanrui Advertisement Co., Ltd.	Shanghai OOH Advertisement Co., Ltd.: 100%	Outdoor billboard advertising
Other Subsidiaries of Shanghai OOH Advertisement Co., Ltd.
Beijing Chuanzhi OOH Advertisement Co., Ltd.	Shanghai OOH Advertisement Co., Ltd.: 100%	Outdoor billboard advertising
Shanghai Chuanxin Software Technology Co., Ltd.	Shanghai OOH Advertisement Co., Ltd.: 100%	Outdoor billboard advertising
Shanghai Chuanzhi Advertisement Co., Ltd.	Shanghai OOH Advertisement Co., Ltd.: 100%	Outdoor billboard advertising
Shanghai Ruili Advertisement Co., Ltd.	Shanghai OOH Advertisement Co., Ltd.: 100%	Outdoor billboard advertising
Subsidiaries of Shanghai Chuanrui Advertisement Co., Ltd.
Nanjing Boxintong Culture & Communication Co., Ltd.	Shanghai Chuanrui Advertisement Co., Ltd.: 51% Chang Yao: 49% (unrelated third party)	Outdoor billboard advertising
Nanchang Yujin Chuanzhi Advertisement Co., Ltd.	Shanghai Chuanrui Advertisement Co., Ltd.: 51% Nanchang Heli Education Consulting Co., Ltd.: 49% (an unrelated third party)	Outdoor billboard advertising
Suzhou Chuanri New Concept Co., Ltd.	Shanghai Chuanrui Advertisement Co., Ltd. : 51% Suzhou Industry Park New Concept Advertising Co., Ltd. : 24.99% (an unrelated third party) Suzhou Qihang Culture Communication Co., Ltd. :24.01% (an unrelated third party)	Outdoor billboard advertising

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Company Name	Shareholding	Business Line
Qingdao Aohai Ruizhi Advertisement Co., Ltd.	Shanghai Chuanrui Advertisement Co., Ltd.: 51% Lewei Li: 16% (unrelated third party) Yong Han: 18% (unrelated third party) Deliang Ding: 15% (unrelated third party)	Outdoor billboard advertising
FOCUS MEDIA ADVERTISEMENT OPERATING AFFILIATES
Shanghai Focus Media Advertisement Co., Ltd. (“Focus Media Advertisement”)	Jason Nanchun Jiang: 85% (designated by us) Jimmy Wei Yu: 15% (designated by us)	LCD display and in-store advertising business
Shanghai Focus Media Advertising Agency Co., Ltd. (“Focus Media Advertising Agency”)	Focus Media Advertisement: 90% Jimmy Wei Yu: 10% (designated by us)	LCD display and in-store advertising business
Other Subsidiaries of Focus Media Advertisement
Beijing Yangshisanwei Advertisement Co., Ltd.	Focus Media Advertisement: 70% Shanghai Puyun Investment Management Co., Ltd.: 18% (unrelated third party) Yongmei Wang: 10% (unrelated third party) Qingyong Zhang: 2% (unrelated third party)	Movie theatre advertising business
Changsha Focus Media Shiji Advertisement Co., Ltd.	Focus Media Advertisement: 90% Jimmy Wei Yu: 10% (designated by us)	LCD display and in-store advertising business
Dalian Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 90% Jimmy Wei Yu: 10% (designated by us)	LCD display and in-store advertising business
Fuzhou Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 70% Fuzhou Mingzheng Culture & Communication Co., Ltd.: 30% (unrelated third party)	LCD display and in-store advertising business
Nanjing Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 90% Biao Wang: 10% (unrelated third party)	LCD display and in-store advertising business
Qingdao Focus Media Advertisement Co., Ltd.	Focus Media Advertisement: 90% Jimmy Wei Yu: 10% (designated by us)	LCD display and in-store advertising business
Shanghai Zhenhao Advertisement Co., Ltd.	Focus Media Advertisement: 70% Shanghai Puyun Investment Management Co., Ltd.: 18% (unrelated third party) Yongmei Wang: 12% (unrelated third party)	Movie theatre advertising business
Suzhou Focus Media Communication and Advertisement Co., Ltd.	Focus Media Advertisement: 100%	LCD display and in-store advertising business
Xi’an Focus Media Advertising & Information Company Ltd.	Focus Media Advertisement: 70% Junrong Zhang: 30% (unrelated third party)	LCD display, in-store and poster frame advertising business
Zhuhai Focus Media Culture and Communication Company Ltd.	Focus Media Advertisement: 90% Jimmy Wei Yu: 10% (designated by us)	LCD display and in-store advertising business
Subsidiaries of Focus Media Advertisement and Focus Media Advertising Agency
Dongguan Focus Media Advertisement & Communications Co., Ltd.	Focus Media Advertisement: 90% Focus Media Advertising Agency: 10%	LCD display and in-store advertising business

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Company Name	Shareholding	Business Line
Hefei Fukesi Advertising Co., Ltd.	Focus Media Advertisement: 90% Focus Media Advertising Agency: 10%	LCD display and in-store advertising business
Jinan Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 80% Focus Media Advertising Agency: 20%	LCD display and in-store advertising business
Shenyang Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 70% Focus Media Advertising Agency: 30%	LCD display and in-store advertising business
Wuhan Geshi Focus Media Advertising Co., Ltd.	Focus Media Advertisement: 75% Focus Media Advertising Agency: 25%	LCD display and in-store advertising business
Xiamen Focus Media Advertising Company Ltd.	Focus Media Advertisement: 90% Focus Media Advertising Agency: 10%	LCD display and in-store advertising business
Yunnan Focus Media Co., Ltd.	Focus Media Advertisement: 89.5% Focus Media Advertising Agency: 10.5%	LCD display and in-store advertising business
Zhejiang Ruihong Focus Media Advertising Communications Co., Ltd.	Focus Media Advertisement: 80% Focus Media Advertising Agency: 20%	LCD display and in-store advertising business
Zhengzhou Focus Media Advertisement & Communications Co., Ltd.	Focus Media Advertisement: 85% Focus Media Advertising Agency: 15%	LCD display and in-store advertising business

* Certain operating affiliates are held by persons designated by us, including Jason Nanchun Jiang and Jimmy Wei Yu. Mr. Jiang is our founder, chairman and chief executive officer. Mr. Yu was the chairman and chief executive officer of United Capital Investment (China) Limited, which was one of our principal investors during our early stages. He was also the Chief Representative of Softbank China Venture Capital, which was the management company of SB China Holdings Pte. Ltd., one of our founding investors. Mr. Yu served as our director from May 2003 until September 2009.

In the early stages of our corporate history, our PRC operating subsidiaries could not make direct investments in the advertising industry in China and, consequently, we relied on a series of contractual arrangements with our PRC operating affiliates, including Focus Media Advertisement and Focus Media Advertising, and their shareholders to operate our advertising businesses in China. As Mr. Jiang and Mr. Yu were both heavily involved in our daily operations in our early stages of growth, we chose to designate them as the nominee shareholders of certain PRC operating affiliates, including Focus Media Advertisement and Focus Media Advertising. Since the execution of the contractual agreements, Mr. Jiang and Mr. Yu have been in full compliance with these contractual agreements, and the contractual relationship created thereunder has been established and stable. Moreover, under the terms of the relevant call option agreement, we have the right to exercise a call option to force Mr. Jiang or Mr. Yu to sell their equity interests in these entities to a third party designated by us, who effectively replaces Mr. Jiang or Mr. Yu as nominee shareholder of these entities. Accordingly, for the time being we do not intend to make any changes to the VIE structure or nominee shareholders.

Starting from late 2007, the advertising industry has been re-classified from a “restricted” area to a “permitted” area for foreign investment. Thus, we have been migrating our business from our PRC operating affiliates to our PRC operating subsidiaries. See “Item 4. Information on the Company — B. Business Overview — Regulatory Matters — Limitations on Foreign Ownership in the Advertising Industry.”

Our PRC operating affiliates, the relevant PRC operating subsidiaries and both Mr. Jiang and Mr. Yu have agreed to the aforementioned series of contractual arrangements, which entitle us to the economic benefits of our PRC operating affiliates and give us effective control over our PRC operating affiliates, including the right to purchase all or part of the equity interests in the relevant PRC operating affiliates. See “Item 7.B Major Shareholders and Related Party Transaction — Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders”. We have not transferred the equity interests from Mr. Jiang and Mr. Yu to our PRC operating subsidiaries, as we have been migrating and will continue to migrate the businesses operated by our PRC operating affiliates to our PRC operating subsidiaries. In addition, as the business operated by the PRC operating affiliates continue to be party to lease agreements relating to certain of our displays and frames, we have kept the VIE contractual arrangements in place to continue to take advantage of those lease arrangements.

** Minority equity interests in certain subsidiaries of Shanghai Focus Media Advertisement Co., Ltd. and Focus Media Digital Information Technology (Shanghai) Co., Ltd. are held by unrelated third parties. Certain of these unrelated third parties hold minority interests because they were the original shareholders of our acquired entities and wished to retain an equity interest to share in the future growth of the relevant businesses. Other unrelated third parties hold minority interests because we believe that they have valuable skills or resources and we would like to align their interests with ours. In all such cases, any after-tax profits generated by such entities, after any applicable statutory deductions, are distributed in proportion with our shareholding percentage, pursuant to the terms of the relevant articles of associations, subject to an appropriate shareholder resolution. There is no separate agreement with regard to the dividend distribution of such entities.

(1) Shanghai Focus Media Defeng Advertisement Co., Ltd., or Focus Media Defeng Advertisement, acquired control of Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd., or Enjoy Media, for RMB5.1 million in December 2011. Enjoy Media is now a part of our LCD display network. Focus Media Defeng Advertisement controls Enjoy Media through a series of contractual arrangements with Enjoy Media and July Lilin Wang, our financial controller and the 51% holder of Enjoy Media. The remaining shares of Enjoy Media are held by unrelated third parties. 47% of Enjoy Media’s shares are held by Acer Jiawei Zhang and 2% of Enjoy Media’s shares are held by Lili Lu. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders.”

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In connection with its entry into the World Trade Organization, China is required to relax restrictions on foreign investment in the advertising industries in China. Accordingly, PRC regulations stipulate that starting from December 10, 2005, foreign investors are allowed to directly own 100% of PRC companies operating an advertising business if the foreign entity has at least three years of direct operations in the advertising business outside of China or to directly own less than 100% if the foreign entity has at least two years of direct operations in the advertising business outside of China. Generally we do not currently directly operate an advertising business outside of China and our non-PRC subsidiaries cannot qualify under PRC regulations for direct investment in the advertising industry. It may be burdensome or not cost effective for us to reorganize in accordance with the criteria for direct ownership. We intend to explore the commercial feasibility of changing our current structure, including possibly direct ownership of our PRC operating affiliates, taking into consideration relevant cost, market, competitive and other factors. In the event we take such steps, we cannot assure you that any restructuring we may undertake to facilitate direct ownership will be successful.

Our advertising business is currently provided partly through contractual arrangements with our consolidated affiliated entities in China, including Focus Media Advertisement, certain of its subsidiaries and their respective shareholders designated by us. A substantial portion of the operations of our LCD display network, poster frame network and traditional billboard network are conducted by our indirect PRC subsidiaries owned by our WFOE operating subsidiaries, and accordingly are not reliant on the contractual arrangements described herein. Accordingly, our advertising services are currently conducted by our indirect PRC operating subsidiaries and our PRC operating affiliates which are currently owned or controlled by (i) individuals designated by us, or (ii) one or more PRC entity or entities owned by our other consolidated affiliates or (iii) a combination of individuals designated by us and entities owned by our other consolidated affiliates. Our PRC operating affiliates and certain of our indirect PRC operating subsidiaries hold the requisite licenses to provide advertising services in China. For the year ended December 31, 2011, approximately 98.5% of our net revenue was generated by our indirect PRC operating subsidiaries, in which we hold equity interests through our WFOEs, and 1.5% of our net revenue was generated by our PRC operating affiliates, which we control through contractual arrangements.

While certain of our indirect PRC operating subsidiaries are eligible for the required licenses for providing advertising services in China and some of our indirect PRC operating subsidiaries have obtained such licenses, we use certain our PRC operating affiliates to operate a portion of our advertising business until we acquire them as our wholly-owned subsidiaries. Certain of our PRC operating subsidiaries have entered into contractual arrangements with their respective PRC operating affiliates and shareholders, pursuant to which:

• we are able to exert effective control over our PRC operating affiliates;

• substantially all of the economic benefits of our PRC operating affiliates are maintained by us; and

• each of our PRC operating subsidiaries or their respective designees has an exclusive option to purchase all or part of the equity interests in our PRC affiliated entities or, in some cases, all or part of the assets of our PRC affiliated entities, in each case when and to the extent permitted by PRC law.

Each of our contractual arrangements with our PRC affiliated entities and their respective shareholders can only be amended with the approval of our audit committee or another independent body of our board of directors. See “Item 7.B Major Shareholders and Related Party Transactions — Related Party Transactions” for further information on our contractual arrangements with these parties.

In the opinion of Global Law Office, our PRC legal counsel:

• the respective ownership structures of our PRC operating subsidiaries and their respective PRC affiliates and subsidiaries are in compliance with existing PRC laws and regulations;

• the contractual arrangements among our PRC operating subsidiaries and their respective PRC affiliates, subsidiaries and PRC shareholders of their PRC affiliates, in each case governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect, save that equity pledge created under equity pledge agreements is unenforceable before the equity pledge registration is duly completed with the local SAIC; and

• the PRC business operations of our PRC operating subsidiaries and their respective affiliates and subsidiaries as described in this annual report, are in compliance with existing PRC laws and regulations in all material respects.

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We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the SAIC which regulates advertising companies, will not in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government finds that the agreements that establish the structure for operating our PRC advertising business do not comply with PRC government restrictions on foreign investment in advertising businesses, we could be subject to severe penalties. See “Item 3.D Key Information — Risk Factors — Risks Relating to Regulation of Our Business and to Our Structure — If the PRC government determines that the ownership structure of our operating subsidiaries or our operating affiliates, or the agreements that establish the structure for operating our China business do not comply with current or future PRC governmental restrictions on foreign investment in the advertising industry, we could be subject to severe penalties”, “— If the PRC government finds that the ownership structure of our operating affiliates violates PRC laws as a result of the change in Jason Nanchun Jiang’s citizenship, we could be subject to severe penalties, and our ability to conduct our business may affected in a material and adverse way”, and “— We use contractual arrangements with our PRC operating affiliates and their shareholders for a portion of our China operations, and uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and thus our ability to conduct our business”.

We periodically reevaluate the degree to which we will exert more direct control over our advertising operations and intend to rely less on contractual arrangements in the future. The steps we may take to achieve a greater degree of direct control over our operations could include (i) continuing to increase the portion of our business operations conducted through our indirect PRC subsidiaries rather than through contractual arrangements with our affiliates, (ii) exercising the call option under the contractual arrangements our subsidiaries have entered into with the shareholders of our PRC operating affiliates or (iii) transferring the equity interests held by the individuals who are shareholders of our PRC operating affiliates to (A) a foreign entity that is qualified under PRC regulations for 100% direct ownership an advertising business or (B) one of our indirect PRC subsidiaries.

Subsidiaries of Focus Media Holding Limited

An exhibit containing a list of our direct subsidiaries has been filed with this annual report.

D. Property, Plants and Equipment

Please refer to “— B. Business Overview — Facilities” for a discussion of our property, plants and equipment.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this annual report reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, see “Item 3.D Key Information — Risk Factors”.

Overview

We are China’s leading multi-platform digital media company, operate the largest LCD display advertising network, in-store advertising network and poster frame advertising network, as well as movie theatre and traditional outdoor billboards advertising network in China.

We have executed a number of strategic and operational reorganizations in 2011, as described below:

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• On January 13, 2011, the Company purchased 15,331,305, or approximately 15%, of the outstanding shares of VisionChina Media Inc. (“VisionChina”) (Nasdaq: VISN), one of China’s largest out-of-home digital television advertising networks on mass transportation systems at a price of US$3.979 per share, equivalent to US$3.979 per ADS, for total cash consideration of $61,003,263. As of December 31, 2011, all the consideration has been paid. The Company is the second largest shareholder of VisionChina and also holds a directorship in VisionChina’s board during the year ended December 31, 2011. Therefore, the investment is accounted for using the equity method. An impairment analysis was performed for the carrying amount of the investment in VisionChina for the year ended December 31, 2011 based on the extent and duration of the decrease in the underlying share price since the date of acquisition. As a result of the review, the difference between the carrying amount and the market value amounting to $38.3 million was considered an other-than-temporary loss, and the impairment was recorded.

• In December 2011, Shanghai Focus Media Defeng Advertisement Co., Ltd., or Focus Media Defeng Advertisement, acquired control of Shanghai Enjoy Media Advertising & Broadcasting Co., Ltd., or Enjoy Media, a startup company mainly engaged in the research and development of Q.com.cn, (which focuses on distribution of electronic coupons), and related mobile phone applications, for RMB5.1 million, through a series of contractual arrangements with Enjoy Media, whereby July Lilin Wang, our financial controller, serves as our nominee shareholder of record for the 51% equity interest in Enjoy Media. As of the date of this annual report, no significant revenue has been generated by Enjoy Media. Enjoy Media’s results are included within our LCD display business.

We determine whether a subsidiary is underperforming based on certain metrics, including the subsidiary’s (i) current and potential gross profit, (ii) current and potential operating profit and (iii) current and potential working capital requirements.

We expect our future growth to be driven by a number of factors and trends including:

• Overall economic growth in China, which we expect to contribute to an increase in advertising spending in major urban areas in China where consumer spending is concentrated;

• Our ability to increase the selling rates on our LCD display network, in-store network, movie theater network and outdoor billboards;

• Our ability to increase the sale of frame spaces and the duration of our advertising campaigns on our poster frame network;

• Our ability to expand our client base through promotion of our services and cross-selling;

• Our ability to identify and create new advertising channels by establishing separate advertising networks that enable advertisers to target a diverse range of consumer groups with specific demographic profiles;

• Our ability to successfully operate and market our LCD display network;

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• Our ability to increase sales of advertising space and increase the length of advertising campaigns on our traditional billboard network; and

• Our ability to integrate the companies we acquired in the previous years.

Because our primary source of revenue is our advertising service revenue, we focus on factors that directly affect our advertising service revenue such as the number of advertising time slots and the number of frames and outdoor billboards that we have available for sale and the price we charge for our advertising time slots sold per network, per frame or per billboard over a specified time period after taking into account any discounts.

As we continue to expand our network, we expect to face a number of challenges. We have expanded our LCD display network, in-store network and poster frame network rapidly, and we, as well as our competitors, have occupied many of the most desirable locations in China’s major cities. For the traditional billboard advertising network, we need to adapt to the operation of a more traditional advertising medium that is competing with numerous other service providers as well as with numerous other advertising media. For the movie theater portion of our advertising network, we face the challenge of continuing to expand our network while attracting interest from advertisers and acceptance from consumers of this relatively new advertising medium in China. In order to continue expanding our network in a manner that is attractive to potential advertising clients, we may continue to enter into new advertising media platforms and to establish additional networks that provide effective channels for advertisers.

Revenues

In 2009, 2010 and 2011, we had total net revenues of $397.2 million, $516.3 million and $792.6 million, respectively. The following table sets forth a breakdown of our total revenues for the periods indicated:

	For the year ended December 31,
	2009					2010					2011
	$		% of  total revenues			$		% of  total revenues			$		% of  total revenues
	(in thousands of U.S. dollars, except percentages)
LCD display network	$	208,799		52.6	%	$	297,642		57.7	%	$	444,365		56.1	%
In-store network		30,346		7.6	%		37,777		7.3	%		56,374		7.1	%
Poster frame network(1)		98,962		24.9	%		121,893		23.6	%		185,449		23.4	%
Movie theater		9,436		2.4	%		18,095		3.5	%		50,835		6.4	%
Traditional outdoor billboards		49,621		12.5	%		40,908		7.9	%		55,597		7.0	%
Total net revenues	$	397,164		100.0	%	$	516,315		100.0	%	$	792,620		100.0	%

* Advertising service revenue is presented net of business tax. Business tax on advertising service revenue from our LCD display network amounted to $20.6 million, $31.0 million and $42.2 million in 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our in-store network amounted to $3.2 million, $4.0 million and $5.3 million for 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our poster frame network amounted to $9.6 million, $12.2 million and $17.1 million, for 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our movie theater network amounted to $0.3 million, $1.9 million and $2.5million for 2009, 2010 and 2011, respectively. Business tax on advertising service revenue from our traditional outdoor billboards amounted to $1.2 million, $0.8million and $1.1 million for 2009, 2010 and 2011, respectively.

(1) The net revenues from our poster frame network include the net revenues derived from our LCD 1.0 picture frame devices in Tianjin, Kunming and Shijiazhuang.

Business tax includes aggregating business tax and surtax of 5.55% and cultural industries tax ranging from 0% to 3.0% of our gross advertising service revenue. Commencing from January 1, 2011, the maximum cultural industries tax levied was reduced from 4% to 3%.

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We also break down our total revenues into related-party and unrelated-party sources. The following table presents a more detailed breakdown of our gross revenues and its component parts:

	For the year ended December 31,
	2009					2010					2011
	$		% of  total revenues			$		% of  total revenues			$		% of  total revenues
	(in thousands of U.S. dollars, except percentages)
Gross Revenue:
LCD display network
— Unrelated parties	$	228,841		57.7	%	$	327,073		63.4	%	$	475,302		60.0	%
— Related parties		582		0.1	%		1,519		0.3	%		11,248		1.4	%
Total LCD display network		229,423		57.8	%		328,592		63.7	%		486,550		61.4	%
In-store network
— Unrelated parties		33,538		8.4	%		41,740		8.1	%		61,669		7.8	%
— Related parties		—		0.0	%		—		0.0	%		—		0.0	%
Total in-store network		33,538		8.4	%		41,740		8.1	%		61,669		7.8	%
Poster frame network
— Unrelated parties		108,379		27.3	%		133,792		25.9	%		200,208		25.3	%
— Related parties		147		0.0	%		294		0.1	%		2,340		0.3	%
Total Poster frame network		108,526		27.3	%		134,086		26.0	%		202,548		25.6	%
Movie theatre network
— Unrelated parties		9,747		2.5	%		20,028		3.9	%		53,133		6.7	%
— Related parties		—		0.0	%		—		0.0	%		197		0.0	%
Total movie theater		9,747		2.5	%		20,028		3.9	%		53,330		6.7	%
Traditional outdoor billboards
— Unrelated parties		50,385		12.7	%		41,448		8.0	%		55,839		7.0	%
— Related parties		412		0.1	%		302		0.1	%		811		0.1	%
Total traditional outdoor billboards		50,797		12.8	%		41,750		8.1	%		56,650		7.1	%
Total Gross Revenue:		432,031		108.8	%		566,196		109.7	%		860,747		108.6	%
Less: Sales taxes:
LCD display network		20,624		5.2	%		30,950		6.0	%		42,185		5.3	%
In-store network		3,192		0.8	%		3,963		0.8	%		5,295		0.7	%
Poster frame network		9,564		2.4	%		12,193		2.4	%		17,099		2.2	%
Movie theater		311		0.1	%		1,933		0.4	%		2,495		0.3	%
Traditional outdoor billboards		1,176		0.3	%		842		0.1	%		1,053		0.1	%
Total sales taxes		34,867		8.8	%		49,881		9.7	%		68,127		8.6	%
Net revenues:	$	397,164		100.0	%	$	516,315		100.0	%	$	792,620		100.0	%

Advertising Service Revenue

Sources of revenues. We derive most of our net revenues from the sale of advertising time slots on our LCD display network, in-store network, movie theatre and traditional outdoor billboards, and frame space on poster frame network to unrelated third parties and, to a very limited extent, certain related parties. Our advertising services to related parties, which represented 1.4% of our total net revenues in 2011, were provided in the ordinary course of business on the same terms as those provided to our unrelated advertising clients on an arm’s-length basis.

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Our advertising service revenue is recorded net of any sales discounts and agency rebates from our standard advertising rate cards that we may provide to our advertising clients. These discounts include volume discounts and other customary incentives offered to our advertising clients, including additional broadcast time for their advertisements if we have unused time slots available in a particular city’s advertising cycle, and represent the difference between our standard rate card and the amount we charge our advertising clients. Our advertising clients include advertisers that directly engage in advertisement placements with us and advertising agencies retained by some advertisers to place advertisements on the advertiser’s behalf. We expect that our advertising service revenue will continue to be the primary source, and constitute the substantial majority of, our revenues for the foreseeable future.

Our advertising service revenue is also presented net of business taxes and related surcharges. Our advertising service revenues are subject to a business tax and surtax totaling 5.55% plus a cultural industries tax ranging from 0% to 3.0% on revenues earned from their advertising services provided in China. We deduct these amounts from our advertising service revenues to arrive at our total revenues attributable to advertising services.

Factors that Affect Our Advertising Service Revenue.

Prices for advertising services on our advertising networks vary significantly from city to city as income levels, standards of living and general economic conditions vary significantly from region to region in China, which in turn affect the advertising rates we are able to charge to our customers.

LCD Display Network

Our advertising service revenue derived from our LCD display network is directly affected by the average price we charge for the advertising package provided to our customers, after taking into account any discount offered and the number of flat-panel digital displays in our network and the desirability, quality and pedestrian traffic of the locations where we are able to lease space to install our flat-panel digital displays.

In-store Network

Our advertising service revenue derived from our in-store network is directly affected by the number of flat-panel digital displays in our network, the number of hypermarkets, supermarkets and convenience stores in the network, and the average price we charge for the advertising package provided to our customers after taking into account any discount offered.

Poster Frame Network

Our advertising service revenue derived from our poster frame network is directly affected by:

• the number of frames in our poster frame network. We sell frame space on our poster frame network on a per frame basis. Increasing the number of residential and other locations on our poster frame network allows us to increase the number of frames on our network, thereby increasing the available frame space for sale to advertisers; and

• our ability to effectively compete with smaller competitors in the sector. During the past few quarters, we have been facing intense competitions from those competitors in two key areas: securing desirable locations for our poster frames and pricing

Movie Theatre Network

Our advertising revenue derived from our movie theatre advertising network is directly affected by the number of movie theaters in which we have leased screen time, our expansion into additional theaters, and the length of the leased screen time.

Traditional Outdoor Billboard

Our advertising revenue derived from our traditional outdoor billboard networks is directly affected by the number of outdoor billboards which we have leased and our expansion into additional locations. The assets of OOH tend to be much larger outdoor assets that individually may attract advertisers looking for a particular location for long stretches of time. By contrast, our core businesses tend to target specific demographics in innovative locations, whose individual landlords may not control a sufficient number of advertising locations to attract advertisers. These distinctions between our core businesses and the traditional billboard network operated by OOH result in significantly different cost structures, with the OOH business having much lower gross margins due to greater competition and diffusion of control in the traditional outdoor billboard market.

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Seasonality.

Our advertising service revenue is subject to key factors that affect the level of advertising spending in China generally. In addition to fluctuations in advertising spending relating to general economic and market conditions, advertising spending is also subject to fluctuations based on the seasonality of consumer spending. In general, a disproportionately larger amount of advertising spending is concentrated on product launches and promotional campaigns prior to the holiday season in December. In addition, advertising spending generally tends to decrease in China during January and February each year due to the Chinese Lunar New Year holiday as office buildings and other commercial venues in China tend to be closed during the holiday. We believe this effect will be less pronounced with regard to advertising spending on our in-store network, as we believe commercial activity in hypermarkets and supermarkets is stable or even enhanced during the period of Chinese Lunar New Year. We also experience a slight decrease in revenues during the hot summer months of July and August each year, when there is a relative slowdown in overall commercial activity in urban areas in China. Our past experience, although limited, indicates that our revenues would tend to be lower in the first quarter and higher in the fourth quarter of each year, assuming other factors were to remain constant, such as our advertising rates and the number of available time slots on our network.

Revenue Recognition

Advertising revenues are recognized when all four of the following criteria are met: (i) persuasive evidence of agreement exists; (ii) delivery of service has occurred; (iii) the price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured. We typically sign standard advertising contracts with our advertising clients, which require us to run the advertiser’s advertisements on our network in specified cities for a specified period, typically from four to twelve weeks. We recognize advertising service revenue ratably over the performance period of the advertising contract, so long as collection of our fee remains probable.

We generally collect our advertising service fees by billing our advertising clients within 60 to 90 days after completion of the advertising contract and book these unbilled or unpaid amounts as accounts receivable until we receive payment or determine the account receivable to be uncollectible.

Our accounts receivable are general unsecured obligations of our advertising clients and we do not receive interest on unpaid amounts. We make specific reserves for accounts that we consider to be uncollectible. We also provide a general reserve for uncollectible accounts that we reassess on an annual basis. In 2009, 2010 and 2011, we made provision of $29.1 million, $0.5 million and $16.0 million, respectively, for accounts receivable. The significant reduction in bad debt provision in 2010 was primarily attributable to reversal of bad debt provisions we made for specific over-due account receivables incurred in 2008 and 2009, which were subsequently collected, and strong collection of account receivables incurred in 2010 under favorable macro-economic conditions. The increase in bad debt provision in 2011 was mainly from the specific provision made for e-commerce and group-buying customers due to their tougher financing environment. We do not anticipate significant future reversals of bad debt provisions to accounts receivable incurred in 2011. Generally, we expect to see bad debt provision to increase in absolute dollar terms in a manner consistent with our change in revenues.

Cost of Revenues

Our cost of revenues consists of costs directly related to the offering of our advertising services.

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The following table sets forth our cost of revenues, divided into its major components, by amount and percentage of our total revenues for the periods indicated:

	For the year ended December 31,
	2009					2010					2011
	$		% of  total revenues			$		% of  total revenues			$		% of  total revenues
	(in thousands of U.S. dollars, except percentages)
Total revenues	$	397,164		100.0	%	$	516,315		100.0	%	$	792,620		100.0	%
Cost of revenues:
Net cost:
LCD display network		76,418		19.2	%		67,513		13.0	%		85,847		10.8	%
In-store network		24,170		6.1	%		23,432		4.5	%		20,582		2.6	%
Poster frame network(1)		95,401		24.0	%		84,487		16.4	%		110,370		13.9	%
Movie theater		7,063		1.8	%		13,849		2.7	%		25,753		3.3	%
Traditional outdoor billboards		38,022		9.6	%		32,409		6.3	%		47,092		5.9	%
Total cost of revenues		241,074		60.7	%		221,690		42.9	%		289,644		36.5	%
Gross profit	$	156,090		39.3	%	$	294,625		57.1	%	$	502,976		63.5	%

(1) The cost of revenues from our poster frame network includes the cost of revenue derived from out LCD 1.0 picture frame devices in Tianjin, Kunming and Shijiazhuang.

Advertising Service Costs

Our cost of revenues related to the offering of our advertising services on our advertising network consists of location costs, flat-panel digital display depreciation costs and other cost items, including salaries for and travel expenses incurred by our network maintenance staff and costs for materials. In 2009, 2010 and 2011, our costs of revenue also include impairment charges of equipment amounting to $40.3 million, nil and nil, respectively, and impairment charges for acquired intangible assets amounting to $3.2 million, nil and nil, respectively.

Location costs for our LCD display network, in-store network, poster frame network and movie theatre & traditional outdoor billboard networks consist of:

• rental fees we pay to landlords, property managers and stores pursuant to the display placement agreements we enter into with them;

• fees and expenses we incur in connection with developing and maintaining relationships with landlords and property managers; and

• maintenance fees for keeping our displays in proper operating condition.

Generally, we capitalize the cost of our media displays and recognize depreciation costs on a straight-line basis over the term of their useful lives, which we estimate to be five years. The primary factors affecting our depreciation costs are the number of flat-panel digital displays in our network and the unit cost for those displays, as well as the remaining useful life of the displays. Beginning in 2006, our results of operations have been negatively affected by the amortization of intangible assets in relation to, among other things, material contracts and customer lists as a result of several acquisitions, particularly the acquisition of Framedia, Target Media and CGEN. The amortization of acquired intangible assets charged to cost of advertising services amounted to $14.3 million, $12.7 million and $11.4 million for 2009, 2010 and 2011, respectively.

Our other cost of revenues consists of salary for and travel expenses incurred by our network maintenance staff and costs for materials and maintenance in connection with the upkeep of our advertising network. The primary factor affecting our other costs of revenues is the size of our network maintenance staff.

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LCD display Network. Location costs are the largest component of our cost of revenues for our commercial location network. The primary factors affecting the amount of our location costs include the number of display placement agreements we enter into and the rental fees we pay under those agreements. We expect these costs to decrease as a percentage of our advertising service revenue for our commercial location network in the future, as our advertising service revenue for our commercial location network is expected to increase faster than the additional cost we incur from entering into new display placement agreements and any increases we may experience in renewing existing display placement agreements. However, when our display placement agreements expire, we may be unable to renew these agreements on favorable terms and the rental fee portion of our location costs attributable to these existing locations could increase. As we continue to increase the size of our network and as we update and replace our existing displays with new technology, our depreciation costs in connection with our commercial location network are expected to increase.

In-store Network. The primary costs of revenues connected with our in-store network are location costs resulting from rental and maintenance fees and depreciation costs for our displays. We expect these costs to be lower as a percentage of the revenue in near future compared to 2011.

Poster Frame Network. The primary costs of revenues connected with our poster frame network are location costs resulting from rental fees. Depreciation costs for our frames and other costs for salary and maintenance fees also account for a significant portion of cost of revenues for our poster frame network. We expect these costs to increase in 2012 and years after because of expansion of the poster frame network and continuing competition from our competitors for desirable locations.

Movie Theatre Network The primary costs of revenue connected with movie theater advertising network are advertising time slot leasing costs charged by the movie operators and film makers. We expect these costs to increase in 2012 and years after because of expansion of the movie theatre network and continuing competition from our competitors for desirable locations

Traditional Outdoor Billboards. The primary costs of revenue connected with traditional outdoor billboards are advertising space leasing costs charged by billboard owners, landlords and other billboard advertising operators.

Operating Expenses and Net Income

Our operating expenses consist of general and administrative, selling and marketing expenses and amortization of acquired intangible assets. In 2009, 2010 and 2011, our operating expenses also included a goodwill impairment loss of $63.6million, $5.7million and nil, respectively. The following table sets forth our operating expenses, divided into their major categories by amount and as a percentage of our total revenues for the periods indicated.

	For the year ended December 31,
	2009						2010						2011
	$			% of  total revenues			$			% of  total revenues			$			% of  total revenues
	(in thousands of U.S. dollars, except percentages)
Gross profit	$	156,090			39.3	%	$	294,625			57.1	%	$	502,976			63.5	%
Operating expenses:
General and administrative		88,833			22.4	%		79,760			15.5	%		127,013			16.0	%
Selling and marketing		79,787			20.1	%		103,722			20.1	%		147,717			18.6	%
Impairment loss		63,646			16.4	%		5,736			1.1	%		—			0.0	%
Other operating expenses (income), net		13,111			2.9	%		(14,144	)		(2.7	)%		(16,138	)		(2.0	)%
Total operating expenses		245,377			61.8	%		175,074			33.9	%		258,592			32.6	%
Income (loss) from operations	$	(89,287	)		(22.5	)%	$	119,551			23.2	%		244,384			30.9	%

General and Administrative. General and administrative expenses primarily consist of salary and benefits for management and finance and administrative staff personnel, share-based compensation expenses, bad debt expenses, business tax mainly relating to tax planning charges paid by our affiliated PRC companies, office rental, maintenance and utilities expenses, depreciation of office equipment, other office expenses and professional services fees. Excluding the bad debt provisions, general and administrative expenses accounted for 15.0%, 15.4% and 14.0% of our total revenues in 2009, 2010 and 2011, respectively.

Selling and Marketing. Our selling and marketing expenses primarily consist of salaries and benefits, including share-based compensation expense for our sales staff, marketing and promotional expenses, and other costs related to supporting our sales force. Selling and marketing expenses accounted for 20.1%, 20.1% and 18.6% of our total revenues in 2009, 2010 and 2011, respectively.

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Impairment Loss for goodwill. The company’s goodwill is tested for impairment annually or more frequently if significant events or changes indicate possible impairment. The first step of the goodwill impairment test compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. We performed an annual goodwill impairment test for each of our reporting units as of December 31, 2009, 2010 and 2011 or when a triggering event indicated that it was probable that the carrying amount of a reporting unit may have exceeded its fair value. As a result, we recorded a goodwill impairment loss of $87.6 million, $5.7 million and nil for the year ended December 31, 2009, 2010 and 2011, respectively, of which $24.0 million, nil and nil was related to discontinued operations of our internet advertising business.

The timing of an impairment test may result in charges to our statements of operations in our current reporting period that could not have been reasonably foreseen in prior periods. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to the reporting units, assigning goodwill to reporting units and estimating the fair value of each reporting unit. Estimates of fair value of each reporting unit are significantly affected by assumptions such as future revenue growth rates, gross margin percentages, operating margin percentages, effective tax rates, terminal growth rates, discount rate, working capital requirements and capital expenditures. Changes in these estimates and assumptions could materially affect the determination of fair value of each reporting unit which could trigger impairment.

Long-lived asset Impairment. We test long-lived assets for possible impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset group below its carrying amount. Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the undiscounted future cash flows. In calculating the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates, gross margin percentages, terminal growth rates and the economic

life of the long-lived assets. As a result of impairment tests performed, we recognized impairment losses on long-lived assets of $65.7 million, nil and nil in 2009, 2010 and 2011, respectively, of which $21.5 million was related to our discontinued operations of internet advertising business.

Share-based Compensation. On September 22, 2009, as a result of performance evaluations, 1,776,300 previously granted options under 2007 Plan were cancelled and previously unrecognized compensation cost of $2,587,993 was recognized on the cancellation date. In addition, 7,550,849 previously granted options under 2007 Plan, associated with 300 employees, were cancelled and replaced by an equivalent number of unvested restricted shares (“2009 Replacement). This was accounted for as a modification with the incremental compensation cost of $8,122,206, which was measured as the excess of the fair value of the restricted shares over the fair value of the cancelled options at the cancellation date. Further, restricted shares to obtain 28,935,131 ordinary shares were granted to employees in 2009. The restricted shares generally vest over a period of two to three years.

On December 28, 2010 and November 25, 2011, restricted shares to obtain 15,000,000 and 17,711,500 ordinary shares were granted to employees, officers, consultants and directors under the 2010 Plan, respectively. These restricted shares will vest over a period of three years.

Under the terms of each plan, options are generally granted at prices equal to the fair market value of the ordinary shares at the date of grant whereas restricted shares are granted without exercise price, expire 10 years from the date of grant and generally vest over two to four years with certain options vesting over one year. As of December 31, 2011, 11,156,760 options and 38,169,245 restricted shares were outstanding. The fair value of restricted shares was determined to be the market value of the ordinary shares on the date of grant whereas the fair value of options granted to employees was estimated on the date of grant using the Black-Scholes option-pricing model. The expected volatilities were estimated based on historical volatility. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award. No options were granted during the years ended December 31, 2009, 2010 and 2011.

The weighted average grant date fair value of restricted shares granted for the years ended December 31, 2009, 2010 and 2011 were $2.24, $4.24 and $3.54, respectively.

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On September 23, 2009, the Company entered into a definitive agreement for a private equity placement of 75 million of its ordinary shares with JJ Media Investment Holding (“JJ Media”), a British Virgin Island company controlled by Jiang Nan Chun, the Group’s Chief Executive Officer and Chairman, for a purchase price of $1.899 per share, representing the average closing price of the shares during the twenty consecutive trading days preceding the signing of the definitive agreement. On November 18, 2009, the private equity placement was consummated and the Company received gross proceeds of $142,425,500. The shares issued to JJ Media are subject to a six month lock-up and have customary registration rights pursuant to a registration rights agreement entered into between the Company and JJ Media. This transaction resulted in share based compensation expense of $4.0 million, which represents the excess of the fair value of the Company’s shares over the purchase price. The fair value of the Company’s shares reflects the Company’s closing share price on the trading day immediately preceding the signing date of the definitive agreement.

The following table summarizes the share-based compensation recognized in the consolidated statements of operations:

	For the years ended December 31,
	2009		2010		2011
	(in thousands of U.S. dollars)
Cost of sales	$	1,504	$	977	$	879
General and administrative		26,037		40,272		57,119
Selling and marketing		12,222		4,343		3,803
Net income (loss) from discontinued operations		26,740		—		—
Total	$	66,503	$	45,592	$	61,801

Amortization of Acquired Intangibles. Our amortization of acquired intangibles consists of the amortized portion of intangible assets we acquired through our acquisition of other companies and assets. The Group recorded amortization expense as follows:

	For the years ended December 31,
	2009		2010		2011
	(in thousands of U.S. dollars)
Cost of revenues	$	14,282	$	12,734	$	11,359
Selling and marketing		4,665		4,106		4,639
Net income (loss) from discontinued operations		8,332		766		—
Total	$	27,279	$	17,606	$	15,998

The Group expects to record amortization expense of $10.9 million, $5.5 million, $4.0 million, $3.9 million, and $3.1 million for the years ending December 31, 2012, 2013, 2014, 2015 and 2016, respectively.

Critical Accounting Policies

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management’s judgment.

Consolidation

The Group conducts substantially all of its operations through its PRC operating subsidiaries. In the past, due to PRC government restrictions that apply to foreign investment in China’s advertising industry, the Group established separate legal entities through which it conducts its advertising business in China by the use of nominee shareholders. The Company established a controlling financial interest in the entities through a series of contractual arrangements pursuant to which the nominal shareholders of the entities have assigned all of their voting rights and economic interests underlying their equity interests to the PRC operating subsidiaries. See “Item 4.C Business — Overview — Our Corporate Structure and Contractual Arrangements” and “Item 7.B Major Shareholders and Related Party Transaction — Related Party Transactions — Agreements among Us, Our PRC Operating Subsidiaries, Our PRC Operating Affiliates and Their Shareholders”.

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As a result of these contractual arrangements the Company has the ability and intention to exercise control over the entities and the right and obligation to absorb substantially all of their profits and losses. Therefore, we have concluded that we are the primary beneficiary of the entities and have consolidated the entities since the date of execution of the contractual arrangements. This conclusion is predicated on the assumption that the contractual arrangements are legally enforceable, which the Company has determined based on the advice of legal counsel. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. See “Item 3.D Key Information — Risk Factors — Risks Relating to Compliance with PRC Law”. Should the government find that the contractual arrangements that establish the structure for operating our PRC advertising business do not comply with PRC laws and regulations applicable to us and our PRC operating subsidiaries and affiliates, we could be subject to severe penalties and would need to consider the impact on our ability to control and thus consolidate the entities.

Since 2009, we have been migrating the businesses operated by our consolidated PRC operating affiliates into our PRC operating subsidiaries, primarily through assigning new or renewed advertising contracts and leasing contracts to the PRC operating subsidiaries. By doing so, the revenues generated from the advertising contracts and costs derived from the leasing arrangements are recorded on the books of the PRC operating subsidiaries, and no longer accounted for on the books of the PRC operating affiliates once they cease to be the legal entity named in the contracts. In some cases, the advertising contracts and/or the leasing contracts may continue to be executed in the name of the PRC operating affiliate.

The goodwill initially recorded in the books of PRC operating affiliates is not reassigned to the PRC operating subsidiaries, which became the legal entity of record for much of the business, because both entities are within the same reporting unit for purposes of goodwill impairment testing, and as such, the migration from PRC operating affiliates to PRC operating subsidiaries is not deemed to be a reorganization of the reporting structure.

As of December 31, 2011, approximately 87.6% of the assets in the PRC operating affiliates pertained to goodwill. Excluding goodwill, the remaining operating assets in the PRC operating affiliates, including cash and cash equivalents, accounts receivable, rental deposit, equipment, and acquired intangible assets, accounted for 3.3% of our total assets. See Note 3 to the consolidated financial statements.

Revenue Recognition

The Group’s revenues are primarily derived from advertising services.

Revenues from advertising services are recognized when (i) persuasive evidence of an arrangement exists; (ii) delivery of the products and/or services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured.

The Group generates advertising service revenues from the sale of advertising time slots in the LCD display network, the sales of frame space on the poster frame network and advertising time slots on big screen networks leased from movie theatres and on traditional billboard networks. In the majority of advertising arrangements, the Group acts as a principal in the transaction and records advertising revenues on a gross basis. The associated expenses are recorded as cost of revenues. In some instances the Group is considered an agent and recognizes revenue on a net basis. Revenues from advertising services are recognized, net of agency rebates, ratably over the period in which the advertisement is displayed, assuming all other revenue recognition criteria have been met.

Prepayments for advertising services are deferred and recognized as revenue when the advertising services are rendered.

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Long-term investments

Investments in affiliates

Affiliated companies are entities over which the Group has significant influence, but which it does not control. Investments in equity affiliates are accounted for by the equity method of accounting. Under this method, the Group’s share of the post-acquisition profits or losses of affiliated companies is recognized in the consolidated statement of operations and its shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. When the Group’s share of losses in an affiliated company equals or exceeds its interest in the affiliated company, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the affiliated company, which to date the Company has not. As of December 31, 2011, based on the duration and severity of the decline in the market price of the equity affiliates shares, the Company concluded that there has been a loss in value of the investment that is other-than-temporary and recorded an impairment loss of $38.3 million.

Other investments

Investments in private companies with an ownership interests less than 20% in which the Group does not have significant influence, are accounted for by the cost method of accounting and are recorded at the lower of cost or fair market value.

Share-based Compensation

Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employees’ requisite service period. Our share-based compensation plans are described in Note 13 to our consolidated financial statements and above in the section “Item 5. Operating and Financial Review and Prospects — Share-based Compensation”.

The fair value of restricted shares is the market value of the ordinary shares on the date of grant whereas the fair value of options granted to both employees is estimated on the date of grant using the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions, including the estimated expected life of the share options, and the price volatility of the underlying shares. The assumptions used in calculating the fair value of share options represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we estimate our expected forfeiture rate and recognize the expense only for those shares expected to vest. These estimates are based on past employee retention rates and our expectations of future retention rates. We will prospectively revise our estimated forfeiture rates based on actual history. Our compensation expense may change based on changes to our actual forfeitures of these share-based compensation.

Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we determine that we will be able to realize our deferred tax assets in the future, in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we will not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would decrease our income in the period such determination was made. We record income tax expense on our taxable income using the balance sheet liability method at the effective rate applicable to each of our affiliated entities in China in our consolidated statements of operations and comprehensive income. In 2010, one of our subsidiaries obtained HNTE status in China. This tax status, along with the applicable tax holidays, allows the subsidiary to benefit from a tax exemption for the two years ended December 31, 2011.

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Purchase Price Allocation

We account for business acquisitions using the purchase method of accounting. We allocate the total purchase price of an acquisition to the fair values of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition, with the excess purchase price recorded as goodwill. As part of this allocation process, we must identify and attribute values and estimated lives to the intangible assets acquired. We adjust the preliminary purchase price allocation, as necessary, after the acquisition closing date through the end of the measurement period of one year or less as we finalize valuations for the assets acquired and liabilities assumed.

Purchase price allocations are determined based on a number of factors, including a valuation support provided by third party appraisal firms in some cases. The valuation analysis normally utilizes and considers appropriate valuation methodologies such as the income, market, cost and actual transaction of our shares approach. We incorporate certain assumptions, which include projected cash flows and replacement costs in the valuation analysis.

In the valuation of intangible assets, including operating lease agreements, customer bases, and contract backlogs, and indication of value was developed through the application of a form of income approach, known as multi-period excess earnings method. The first step to apply the multi-period excess earnings method is to estimate the future debt-free net income attributable to the intangible assets. The resulting debt-free net income is then reduced by an estimated fair rate of return on contributory assets necessary to realize the projected earnings attributable to the intangible assets. These assets include fixed assets, working capital and other intangible assets.

Valuation of the trademarks is based on the relief from royalty method whereby an asset is valued based upon the after-tax cash flow savings accruing to the owner by virtue of the fact that the owner does not have to pay a “fair royalty” to a third party for the use of that asset. Accordingly, a portion of the owner’s earnings, equal to the after-tax royalty that would have been paid for use of the asset can be attributed to that asset. The value of the asset depends on the present worth of future after-tax royalties attributable to the asset to their present worth at market-derived rates of return appropriate for the risks of that particular asset.

The valuation of non-compete agreements is determined based on estimated losses attributable to potential competition, should the non-compete clause not exist.

Goodwill Impairment

We test goodwill for possible impairment on an annual basis as of December 31 of each year and at any other time if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Circumstances that could trigger an impairment test between annual tests include, but are not limited to:

• a significant adverse change in the business climate or legal factors;

• an adverse action or assessment by a regulator;

• unanticipated competition;

• loss of key personnel;

• the likelihood that a reporting unit or a significant portion of a reporting unit will be sold or disposed of;

• change in reportable segments; and/or

• results of testing for recoverability of a significant asset group within a reporting unit.

The timing of an impairment test may result in charges to our statements of operations in our current reporting period that could not have been reasonably foreseen in prior periods. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to the reporting units, assigning goodwill to reporting units and estimating the fair value of each reporting unit. Estimates of fair value of each reporting unit is significantly affected by assumptions such as future revenue growth rates, gross margin percentages, operating margin percentages, effective tax rates, terminal growth rates, discount rates, working capital requirements and capital expenditures. Changes in these estimates and assumptions could materially affect the determination of fair value of each reporting unit which could trigger impairment.

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As of December 31, 2009, 2010 and 2011, we had a goodwill balance of $410.4 million, $425.3 million and $459.1 million, respectively. Our goodwill primarily arises from the initial consideration paid and subsequent settlement of contingent consideration of our business acquisitions. The following table presents the changes in our goodwill balance by reporting unit for the years ended December 31, 2010 and 2011:

	LCD display network		Poster frame network			Internet advertising			Traditional outdoor billboards		Total
	(in thousands of U.S. dollars)
Balance as of January 1, 2010	$	406,096	$	—		$	4,272		$	—	$	410,368
Goodwill acquired during the year		—		3,958			—			—		3,958
Goodwill recorded as a result of contingent consideration resolved		5,039		15,551			—			—		20,590
Goodwill impairment		—		(5,736	)		—			—		(5,736	)
Disposal of subsidiaries		—		—			(4,272	)		—		(4,272	)
Translation adjustments		399		27			—			—		426
Balance as of December 31, 2010		411,534		13,800			—			—		425,334
Goodwill acquired during the year		6,045		2,176			—			19,731		27,952
Goodwill recorded as a result of contingent consideration resolved		1,271		3,211			—			—		4,482
Translation adjustments		700		259