Internet TV coming to China?

Technology ahead of marketing and government concerns

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BEIJING--A technology that allows television programming to be delivered over the internet is stirring interest among marketers in China. Internet Protocol Television (IPTV), which allows anyone with a computer and a broadband connection to view digital video online, could give marketers a new way to connect with consumers. But it could also run into government road blocks, warn media experts.

A smattering of internet-savvy youngsters in China already use IPTV to download TV shows and movies--often pirated--from the web. But slowly, legitimate alternatives are emerging that offer a potential new medium for advertising.

The most prominent new entrant is Beijing-based United ITV, which launched a subscription-based monthly IPTV service in April. The company has already initiated talks with marketers about possible ad placements for both its paid and free online channels, although none have inked deals so far, according to Song Lin, United ITV’s president and chief operating officer in Beijing.

Chaired by veteran tech executive James Ding, two-year-old United ITV is the only private company in China licensed by the State Administration of Radio, Film and Television (SARFT) to produce its own content for online delivery. Only two other state-owned companies, Shanghai Media Group and China Central Television (CCTV) can claim such IPTV licenses.

The IPTV license allows United ITV to provide programming from an expanding library of foreign TV and movie titles from Japan, South Korea and the U.S., a far cry from the staid fare of traditional state-run television and even the riskier programming on provincial channels.

More foreign content
Indeed, the medium of IPTV offers a way around the restrictions that limit foreign content to less than 50% of total on-air programming (the exceptions are certain areas of southern China, hotels with at least three stars and foreign residential compounds). No such restrictions hold for content broadcast over the internet.

“We’ll have programming that’s very different with content that’s not available for traditional TV. That’s one advantage we have as an IPTV channel operator,” said Mr. Lin.

Granted, foreign pay-TV channels would probably not be permitted to rebroadcast 100% of their regular programming over IPTV in China, because they lack the necessary regulatory approval and license. But United ITV is discussing plans to co-program IPTV channels in conjunction with American channels.

Besides its for-pay features, the company is also developing its own free 24-hour TV channel. A separate channel, called Mogo, supplied through a partnership with an outside content provider, will feature short, lifestyle-oriented how-to videos discussing topics like wine appreciation or how to make a great cup of coffee.

Doubts about government support
Meanwhile, initial forays into IPTV by Shanghai Media Group and CCTV were considered disappointing and there are doubts about the technology’s prospects in China.

"IPTV is a hot area in China right now, but I think it will be very difficult to make it successful in China. Personally, I don’t think it's going to work, it’s going to cross ‘the party’ too much. The government doesn’t support it, they want to supervise their citizens' media access,” said Shaun Rein, managing director at China Market Research Group in Shanghai. "There are a few areas that I don't advise foreigners to invest in here and media is one of them. You shouldn't forget that this a Communist country."

United ITV “are the ones that will succeed if anybody can,” said Quinn Taw, Beijing-based chief strategy officer for WPP Group’s media division, GroupM. Although no GroupM advertisers have signed deals with IPTV operators in China, the industry is “closely watching” the development of IPTV in China, he said.

At WE Marketing Group, Managing Director Josh Li said marketers he works with also are holding off investing in IPTV for the moment, preferring to wait until the medium is more developed, but he also believes IPTV has a “bright future” in China on the marketing side.

That said, he added, it faces some significant challenges in the near-term. Unlike free terrestrial TV services, for example, most IPTV services are likely to be sold on a subscription basis.

“In this new business model, how the commercial content can be integrated is a problem. Audiences will be reluctant to view a lot of commercials if they paid for programs,” he said. “People are still trying to find out what’s the best way of selling products or brands in interactive media.”

To avoid annoying viewers, United ITV plans to feature TV spots only on its free channels. For channels, it will run short segments that play while a movie is buffering or place ads in the frame surrounding the video screen.

Web users young and affluent
Another issue for marketers is that the current audience for IPTV in China is negligible, although it has potential. In 2005, China had 111 million internet users, including 64.3 million with broadband connections, according to the China Internet Network Information Center.

Internet users' demographics appeal to marketers. Thirty-five percent of online Chinese are aged 18-24, and 19% are between 25 and 30. Plus, web users tend to be college-educated and relatively affluent.

United ITV’s Mr. Lin said his company will focus on IPTV viewers aged 18-35, most of whom are male. “Advertisers try so hard to get to these people, because they seldom watch traditional TV.”

Although traditional TV claims 400 million vieewers, young, white-collar office workers often don’t get home before 9pm, so “they miss prime time every day,” he said.

Their parents, he added, may spend upwards of five hours a day watching traditional TV, but are budget-conscious and less likely to be swayed by advertisements.

Besides terrestrial and cable channels, United ITV will have to compete with pirated digital content already available over the internet. It will produce its own free news channel, but the rest of its offerings will require customers to pay monthly subscription fees.

The company has two packages, $2.47/month for one movie and one entertainment IPTV channel, or a flat fee of $3.70/month for unlimited video on demand service.

IPTV technology hase some benefits. Because it allows for fairly easy digital tracking of audiences, advertisers can gather better information about the location, age and gender of consumers watching particular shows. With traditional TV, advertisers must do far more guesswork, allocating marketing dollars based on the viewing habits of a small number of sample households across China.

Branded content
In China and elsewhere, IPTV is expected to usher in programming formats different than traditional TV, as its providers have greater latitude to produce short, niche-oriented programs focused on hobbies or recreations, since they don’t need to worry about attracting a big enough audience in one geographic location.

Advertisers would likely welcome such a shift, since it might help them target audiences. “Brands want to tie themselves closely to people’s lifestyles and passions,” said Mr. Taw. Rather than being limited to traditional commercials, he believes IPTV is likely to lend itself to new types of marketing such as video magazines, product placements, or infotainment.

“The opportunity is for brands to sponsor and subsidize a lifestyle platform for high value customers--seamless engagement, entertainment and payment---via Internet TV, mobile and live events,” said Scott Silverman, regional director, Asia/Pacific for the U.S.-based ad agency Godfrey Q & Partners in Beijing.

Another element for viewers, he added, “would be to offer them free or discounted viewing of programs in exchange for them selecting brands they'd be interested in engaging with, interactive banners/jump sites of brands for them to opt in with, ‘brands on demand.’ The data capture in itself would justify the investment.”

Contributing: Normandy Madden
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