Television penetration in China stands at a dizzying 98%. It is the big kid on the block as far as advertising expenditure is concerned and this isn’t going to change any time soon. So, as the country enters the digital age and prepares to switch off the analog signal, it isn’t surprising to find a battle going on over who gets to steer the ship.
The competitors are digital television (DTV) and internet protocol television (IPTV), although it’s hardly a fair fight. Faced with regulatory tangles, uncertainty over standards and censorship, IPTV is in a tight spot.
“So far it appears that DTV, backed by cable companies, is pulling ahead of IPTV, which is backed by telecom operators,” said Gina Ledda, an analyst Beijing-based media, tech and telecom consultancy BDA China.
The number of Chinese DTV subscribers reached 12.6 million by the end of 2006 and BDA expects this number to grow to 26 million by the end of this year and 93 million by 2011. By comparison, IPTV subscribers stood at just 600,000 at the end of last year. BDA anticipates more modest growth, with 1.3 million subscribers by the end of 2007 and 9.7 million by 2011.
Television on steroids
Both technologies provide similar services (what one analyst called “television on steroids”) with DTV reaching viewers through a digital cable network and IPTV via the internet.
The excitement can be summed up in one word: interactivity. DTV and IPTV promise to shift the television experience from a passive activity delivered through a one-way pipe, to a two-way relationship in which the viewer can interact with content by requesting videos-on-demand, buying goods and services, or purchasing shares in a company.
As it stands, both IPTV and DTV offer premium channels, video-on-demand and the same time-shifting features that have made Tivo a home entertainment necessity in the US. However, in China, DTV has enjoyed nationwide growth while IPTV’s development has been restricted to pilot programs in cities such as Harbin and Shanghai.
The prime culprit for IPTV’s lagging performance is a tangled regulatory structure, according to Dave Carini, co-founder of Maverick China Research, another media, tech and telecom consultancy.
The regulatory bodies were formed to divide up the television and internet space, with the State Administration of Radio Film and Television (SARFT) getting control of the airwaves and the Ministry of Information Industry (MII) taking on the internet and telecommunications. But as these technologies converge, the regulatory structure must evolve.
“DTV has one very significant advantage over IPTV in that DTV is a 100% SARFT show,” said Mark Natkin, managing director of Beijing-based Marbridge Consulting. “The cable companies are all under SARFT, the content providers are all under SARFT.”
By contrast, IPTV networks are run by the fixed-line telecom carriers China Netcom and China Telecom, regulated by the MII. However, IPTV content is regulated by SARFT, adding another layer of regulation for companies in the industry. While analysts do not see SARFT as actively thwarting IPTV’s growth, they say the regulator has a vested interest in supporting DTV.
“SARFT is the caretaker of the [cable] industry, so there’s a sense of responsibility and pride as well as a stake in the success of the industry as a whole. They want it to be successful and DTV is their big plan to do that,” Carini said.
Another stumbling block for IPTV is the question of technology standards. Natkin points out that the foreign-designed DVB-C has already been accepted as the industry standard for digital cable TV. However, with IPTV, there is still a desire to see a domestic standard rule the roost. China Netcom is pushing ahead with the homegrown Audio Video coding Standard (AVS) but others in the industry are waiting for regulatory clarity before following suit.
“The adoption of domestic coding standard AVS by China Netcom will further push things back as [telecom] carriers are forced to wait for the domestic standard to mature,” BDA’s Ledda added.
She believes that while China Telecom and China Netcom test new applications based on AVS next year, cable operators will be “aggressively promoting” DTV.
But both technologies will ultimately have to solve the problem of content. Whatever is on television must be approved by the state and the ultimate content arbiter, SARFT, doesn’t seem ready to move away from revolutionary dramas and sanitized variety shows.
“You have a group of content judges in SARFT who are not open to foreign television, foreign movies or even anything with adult themes so the viewer and the market suffer,” Carini said.
China last year prohibited foreign-produced cartoons from appearing during certain evening hours and this year reportedly blacklisted the Korean historical epic The Four Guardian Gods of the King. SARFT has also moved to scrub extramarital affairs from its family dramas, according to Danwei.org, a website that tracks the Chinese media industry.
In this environment, analysts believe both technologies will continue to struggle to find content that justifies the higher bills for subscribers – on average about double the price of analog cable.
“Everybody’s in the same boat, trying to find content that is unique and compelling enough to convince users to pay a premium for it,” Natkin said.