The world's media giants have been banging on China's door for years, eager to get a foot in the door of the country's vast television market. With a massive 320 million TV households – more than three times as many as the US – China has long been a tantalizing but largely untouchable opportunity. The door now appears to be inching open.
Driving the changes in what is one of the most tightly regulated of China's state-run industries is an ambitious project to convert all of China to digital TV by 2015, bringing with it the prospect of hundreds of new channels and potentially lucrative pay TV services – for those with the ideas and the stamina.
To realize the digitization of its entire TV industry – broadcast and cable – China needs a huge increase in program content, and is responding by contemplating a cautious opening of the production side of the industry to foreign investors. February saw an announcement that foreign investors would be allowed to take a minority stake in local joint venture film and TV production companies.
In effect, regulators are loosening their grip on content to attract investment funds, whilst keeping in firm control of the broadcast networks that distribute it (ownership of broadcast channels remains non-negotiable). The result will be a speeded-up shift from government-approved but bland content into a commercially-driven industry with the potential to eventually export programming.
"What will drive pick-up for digital services in China is content," said Vivek Couto, an analyst at Media Partners Asia (MPA). "That's where the big investment needs to go."
Terence Graham, a media researcher at Hong Kong University (HKU), agreed. "The talent is there, the overheads are low and there is a pent-up demand for quality programming," he said. "Capital is needed to make it happen."
As laws are eased, one likely route for foreign producers looking to invest is with one of a growing number of Chinese independent production houses. "They understand the local market and can produce for the Asian and overseas Chinese market at low cost," HKU's Graham said, adding that what they lack is management, marketing know-how and, most importantly, funding.
Another possibility for larger players may be a tie-up with one of the growing Chinese media conglomerates such as Shanghai Media and Entertainment Group, which is emerging as a potential Time Warner of the Chinese media scene.
But the experience of such early entrants as News Corp's Star TV suggests investors shouldn't bank on making a fast buck. Star, one of the most aggressive players, has been pushing for access to China for over a decade and is only just beginning to make inroads.
Then there is the issue of tapping revenue. Pay TV in China is barely beyond the fetal stages, and there are questions about how willing China's television viewers will be to pay anything more than token amounts for value-added content, given that viewers on the urban cable TV networks are already getting 50-plus channels for around US$2 a month. The possible exceptions, same as anywhere, sports and first-run movies.
But for the foreseeable future, the only revenue base that can be counted upon is sale of advertising slots. In this, Chinese television faces the same problem as the industry elsewhere: the explosion in the number of channels and alternative entertainment choices has dispersed the audience, pulling down average advertising rates.
Another issue is intellectual property rights and piracy. Hong Kong broadcaster TVB has for years seen its Jade Channel programming intercepted and repackaged by Guangdong cable broadcasters, siphoning off what it estimates to be US$100 million worth of business annually. Ron Jones, business development manager with TVB, said it was "Industrial-strength theft of intellectual property," surely something to give any investor pause for thought.
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