Media – the final frontier

The government stranglehold is loosening and increasing amounts of private cash are flowing into the sector

In October, Rupert Murdoch gave a speech at the Communist Party School in Beijing appealing to China's leaders to let its media flourish.

"The potential of the open market doesn't represent any loss of power," Murdoch declared in a very different speech from the one he made in 1993 in which he predicted the power of satellite TV would undermine totalitarianism worldwide.

With the largest population and one of the most undeveloped and regulated media markets in the world, China is seen by operators such as Murdoch's News Corp as the final frontier.

The potential rewards are huge and tantalizing. Advertisers spent an estimated US$10 billion in China last year, making it the world's fifth-largest advertising market, but the really interesting numbers are the growth rates. This year's ad spend is expected by some to exceed US$12.1 billion. Right now, all media in China are still theoretically state-owned. But in the print sector, the government has announced plans to de-link all but a small handful of publications from state-owned protection, clearing the way for formal private ownership stakes and even the possibility of foreign shareholdings in some guise or another.

Timescales, as is usually the case in China, are unclear. This opening of media ownership to non-state companies was first raised in 2000, and it has still not been formally implemented, although arrangements whereby the commercial activities of publications are hived off and run as separate companies from the unit owning the title are increasingly common.

Meanwhile, some selected state publications are looking increasingly viable in a commercial world, and are therefore the target of speculation on potential ownership changes. The top contenders include the weekly financial magazine, Caijing, the Beijing Youth Daily, International Financial News in Shanghai and 21st Century Herald in Guangdong.

By one means or another, publications are forming partnerships in preparation for the changes ahead – and as usual in China, changes are happening first with the regulations expected to catch up eventually. In the business areas, Forbes, Newsweek and the Harvard Business Review have all found ways to distribute Chinese versions in the Mainland market and McGraw Hill licenses the BusinessWeek name and content to the China Foreign Economic Relations & Trade Publishing House, which has published a Chinese-language edition since 1986.

Reform is coming in the broadcasting sector too. In October the State Administration of Radio, Film and Television (Sarft) announced that eight domestic companies would be allowed to produce television shows independent of the previously required state partner.

Content will still be subject to approval from censors but the companies will no longer have to pay large fees to a state-run partner that owned the copyright but often had no part in the actual production of shows.

Ownership of channels is not open for discussion, but sub-leasing of space by a variety of means is being more and more actively pursued by Chinese TV officials and foreign providers alike. Meanwhile, access to the ubiquitous urban cable TV systems is still jealously guarded. Even Phoenix TV, which is majority mainland owned although with a minority News Corp stake, still does not have access to Shanghai's cable TV network, for instance.

The testing ground in TV appears to be Guangdong, where for decades locals have been watching Hong Kong television with massive antennae installed on myriad rooftops. Cable access in Guangzhou city has been granted to selected foreign material, and the city's state-owned Guangzhou TV is being encouraged to become more market-oriented to make it more competitive against foreign-backed cable providers Chinese Entertainment TV, Phoenix TV, Viacom's MTV and News Corp's Star TV.

But in the end, what is forcing change in China's media sector is not cable TV or the entrance of foreign players but consumer demand and the simple economics of Chinese consumers who hanker after the material trophies of middle class life – clothes, homes, cars, holidays. The link between advertisers selling these and other products and the consumers who want to buy them contains vast amounts of money pushing up against outdated media regulations.

When you have that much money pushing against a wall, the wall will eventually come down.