For at least the next two years, only Wharf Cable TV, a struggling 3-year-old monopoly that needs new sources of revenue, will be allowed to sell ads.
The Hong Kong government's decision, announced at the end of March, has infuriated regional and international TV channels, which had been promised a crack at the territory's small but lucrative market later this year.
LEFT ON THE OUTSIDE
Among them is Rupert Murdoch's regional satellite broadcaster, STAR TV, which remains locked out of subscription and advertising revenues in its home base. STAR had been hoping to launch a Cantonese-language channel as part of a pay TV package in Hong Kong.
Out in the cold along with STAR TV are the regional and international programmers that have failed to negotiate carriage on Wharf Cable TV's 20-plus channel package, including MTV: Music Television; NBC's general entertainment channel, NBC Super Channel Asia; and business channel Asia Business News.
A STAR TV spokesman said the government's decision was a disappointment and appeared to contradict Hong Kong's wish to develop its broadcasting industry.
ACTION HURTS HONG KONG
Hong Kong's refusal to let international channels share its cable advertising market is the latest blow to Hong Kong's struggle to become Asia's regional broadcasting center, a battle increasingly being won by Singapore.
In fact, international channels like HBO Asia, MTV and ABN have already been lured to Singapore by financial incentives and clear rules on broadcasting. Both the Discovery Channel and ESPN are slated to relocate their top regional executives to Singapore from Hong Kong later this year.
Not surprisingly, Wharf welcomed the cable advertising decision but insists advertising revenue is not going to make a huge difference to its bottom line. A spokesman said the company "hasn't factored advertising revenue in as a major part of the business plan simply because it was never guaranteed that we would have the right to sell it."
In Hong Kong, local broadcasters say they aren't worried just yet in anticipation of Wharf Cable TV's onslaught on their advertising dollars. TVB, which took about 72% of the TV advertising pie from January to November last year, had 1995 ad revenues of $687 million, and competitor ATV had $266 million, according to Nielsen/SRG.
Wharf's advertising rates are likely to be low given its small subscriber base, said Pandora Ip, Grey Advertising's Hong Kong executive media director. "Even if clients transfer money to cable, it won't be a major percentage," Ms. Ip said.
Only about 200,000, or 12.5%, of Hong Kong's 1.6 million TV homes have subscribed to cable so far.
What Wharf needs to do, Ms. Ip said, is beef up programming as a prerequisite to signing up subscribers in the kind of numbers which would attract advertisers. "At the end of the day, clients buy numbers and quality of audience," she said. "I wouldn't advise anyone to buy cable at this time."
Brian Chau Tak-hay, the territory's secretary for recreation and culture, defended his decision to extend Wharf's monopoly by saying the introduction of new pay services would adversely affect the current TV market.
"If the pay TV market was fully deregulated, the financial position of the existing pay TV licensee [Wharf Cable TV] could deteriorate significantly," Mr. Chau said. He added that even partial deregulation would threaten Wharf's economic viability.
The government plans to issue two video-on-demand licenses later this year. Hong Kong Telecom, which has delayed its $1.29 billion VOD service until mid-1997, is expected to bid for a license.
Hong Kong Telecom has not said how it intends dealing with VOD licensing proposals that limit foreign voting control of a licensee to 49%. The U.K.'s Cable & Wireless has a 58% controlling share of Hong Kong Telecom.